Future price of Irish properties

[Duplex]

I can just see it - 10 years down the line there'll be agents in Poland, Bulgaria, Cape Verde and Croatia selling cheap property in Ireland.

I'm not sure how far down the prices are going to do. I'm not altogether sure that percentage falls are meaningful at the moment as the figure on which they'll be calculated is currently unknown. When I hear "there'll be a 50% drop in property prices" I can't actually visualise that without knowing 50% of what. So I don't want to speculate on percentage falls.

I do think that there is no indication of sanity in the market at the moment. I realise buying a home is an emotional purchase, but it is the choice of home itself should be the emotional bit, not the actual fact of owning anything at all. Why buy something unsuitable - you'll never be at home in it anyway, and if the market shifts negatively which it looks like it probably will, you'll be stuck in it, hating it and unable to move.

And yet I saw one person advising that people buy unsuitable stuff, just so that they have something. I cannot see the sense in it.

Well my guess as to where the support level lies in the market is; when the gross yield achievable reflects all finance and holding costs with a premium, say 2-3% to reflect sector risk. You could construct an equated yield (for analysis purposes) based on the rate achievable on long dated bonds (10 year German Euro) say 3.80% add sector risk say 2.5% = an equated yield of 6.30%. So my stab in the dark is that gross yields will at some stage in the foreseeable future, reach somewhere in the region of 7%.

I love speculating.

 

[Neffa]

Well my guess as to where the support level lies in the market is; when the gross yield achievable reflects all finance and holding costs with a premium, say 2-3% to reflect sector risk. You could construct an equated yield (for analysis purposes) based on the rate achievable on long dated bonds (10 year German Euro) say 3.80% add sector risk say 2.5% = an equated yield of 6.30%. So my stab in the dark is that gross yields will at some stage in the foreseeable future, reach somewhere in the region of 7%.

I love speculating.

What would prices have to fall by from today's levels for this to be true?

 

[bearishbull]

when any correction occurs many investors will be afraid to get back in with falling values wiping out any rental yield even if its a relatively highish yield.
if you were valuing a house in dublin as an investor what price would you be prepared to pay for a 3 bed home pulling in 15k in rent (as most average 3 beds are now) with values not rising much or only in line with inflation? i wouldnt pay over 195k in such a scenario and if prices were falling i wouldnt pay over 150k.thats provided i could be reasonably sure of renting-any correction would hit construction workers and consumer spending and therefore less workers would be coming to and renting in dublin.

 

[ivuernis]

Isn't there a large number of investor-owned unoccupied/unrented properties (mainly apartments I'd imagine) in Ireland at the present time all banking on capital appreciation.

Are there reliable figures for the number of these properties. This is creating an artificial demand by removing certain properties from the market (either from FTBs or renters).

In the event of a fall in property prices I'd imagine the off-loading of these properties would have positive knock-on effects on both the supply of properties to buy and properties to rent whilst at the same time leading to further reductions in the cost of property to buy and reducing rental yields at the supply increases.

 

[Howitzer]

Isn't there a large number of investor-owned unoccupied/unrented properties (mainly apartments I'd imagine) in Ireland at the present time all banking on capital appreciation.

This is anecdotal at best. I've rented for quite a while and I've never witnessed the phenomenon of empty, rentable, units. Holiday homes are obviously different.

 

[walk2dewater]

Using Duplexs' 7% theory. So about €157,142 for what rents for €1000/mth today (assuming 11 x 1000). I'd add another 20% loss due to the "fear overshoot" at the bottom where nothing shifts, so let's say €125,714 final settling price...

€125,714 for the place I rent. Chr1st I think it's market value is 1/2million minimum. Yikes. 75% fall.

 

[bearishbull]

Using Duplexs' 7% theory. So about €157,142 for what rents for €1000/mth today (assuming 11 x 1000). I'd add another 20% loss due to the "fear overshoot" at the bottom where nothing shifts, so let's say €125,714 final settling price...

€125,714 for the place I rent. Chr1st I think it's market value is 1/2million minimum. Yikes. 75% fall.

nah i'd say the floor would be 200k for the average house in dublin which is near 400k so 50% from here and more if they keep rising for next several years.

 

[Glenbhoy]

Posted by Walkdewater:

But ultimately the future is bright, i.e. an abundance of CHEAP property in Ireland

Maybe the future's bright for some, but I don't think gloating at the extent of many people's missfortune is the right attitude either, a lot of people may be badly affected by such a crash, this will run the whole gamut from FTB's, through amateur investors to the big builders (who will be burnt more than most as they are the most leveraged of all). Of course FTB's will get most of or sympathy, but you've also got to spare a thought for the amateur who has remortgaged to buy the investment property.
As for the equlibrium price, it's very difficult to know - I don't subscribe to the total crash theory as propounded by some, I feel that property is overvalued here, but not by that much looking at historical norms. This country has changed signficantly over the past 20yrs, and I don't expect total regression.
I tend to agree with duplex, rents will not increase, if anything they'll decrease (2 factors, increased supply and decreased demand as migrants involved in construction no longer need accommodation) and eventually property prices will come in around the 7% yield mark.

 

[Loki]

So we have a broad consensus that a speculative bubble exists in the Irish property market?

No you don't. State how you know the current prices are directly linked to speculative investors!

Would it be controversial to suggest that the price of housing will return to a level supported by fundamentals? For instance what if yields in the investment market rose to say 6 or 7%, still low by historic standards? I believe that such a scenario is highly likely, but the increase in yields will be as a result of falling capital values, rather than inflation in rents.

I was recently in Rome with my extended family. We spoke about property and I put forward the arguemnt about rent yields being negative on new purchases and for many it is actually cheaper to rent then buy due to prices. I was then reminded that it is how it has been in Italian cities for about 20 years. Italy is the next country to us on the world home ownership level (below by about 10-15%)

Now they live in a 2 bed apartment. The parents are in one room and the children, brother and sister in ther 20s live at home sharing the other bed room as small as a boxroom.

Now if the "fundemnetals" were applied the children would move out right? Now I am not saying Ireland is unique but am I to take it Italy is? I admit I don't know that much about the italian market but I do remember the fact it was cheaper to rent than buy for the majority of the population for a long time and still is apparently. Social housing has something to do with it.

 

[ivuernis]

This is anecdotal at best. I've rented for quite a while and I've never witnessed the phenomenon of empty, rentable, units. Holiday homes are obviously different.

There's 3 in my block of 18 apartments, they've been left idle for 2 years now.

 

[SteelBlue05]

Using Duplexs' 7% theory. So about €157,142 for what rents for €1000/mth today (assuming 11 x 1000). I'd add another 20% loss due to the "fear overshoot" at the bottom where nothing shifts, so let's say €125,714 final settling price...

€125,714 for the place I rent. Chr1st I think it's market value is 1/2million minimum. Yikes. 75% fall.

you would need to account for buillding costs, i.e. if a house costs 200k to build then you are unlikely to see it being sold for less than that.

 

[Duplex]

They would fall by about 40-50% if my theory is valid.

Example 2 bedroom flat. current market value say €280,000

Rental income €1,000 pm = €12,000 pa

Net income after service charges, voids, etc. €10,000 pa


Net initial yield 3.5%


If we analyse this income stream at a net yields of say

4.5%= market value €222,222

5.5%=market value €181,181

6.5%=market value €153,138

7.5%=market value €133,333



This assumes that rents remain at or about current values, and that void periods are similar to existing, which as Bearishbull suggests may not necessarily be the case if we have an economic cascade effect from a housing bubble bust.

 

[redo]

No you don't. State how you know the current prices are directly linked to speculative investors!


I was recently in Rome with my extended family. We spoke about property and I put forward the arguemnt about rent yields being negative on new purchases and for many it is actually cheaper to rent then buy due to prices. I was then reminded that it is how it has been in Italian cities for about 20 years. Italy is the next country to us on the world home ownership level (below by about 10-15%)

Now they live in a 2 bed apartment. The parents are in one room and the children, brother and sister in ther 20s live at home sharing the other bed room as small as a boxroom.

Now if the "fundemnetals" were applied the children would move out right? Now I am not saying Ireland is unique but am I to take it Italy is? I admit I don't know that much about the italian market but I do remember the fact it was cheaper to rent than buy for the majority of the population for a long time and still is apparently. Social housing has something to do with it.

Please lets not start, which came first, the bubble or the crash thing

 

[Loki]

Please lets not start, which came first, the bubble or the crash thing

What I have said is not even close to correcting the misuse of language.
How do people know that the house prices are high soley because of speculative purcashing?
If the Fundementals are so important then how did italy manage without them?
See no question of is there a bubble or will there be a crash? I guess if you ignore everything I say and make up what you think I am saying you might miss information. A blinkered idea whether proved right or wrong is not they way I like to live I like to know the facts. I don't know much about the historical italin property market or the current one for that matter

 

[walk2dewater]

Posted by Walkdewater:

Maybe the future's bright for some, but I don't think gloating at the extent of many people's missfortune is the right attitude either,

I'm gloating? Gimme a break. Re-read some of my early posts, I neither need nor want a crisis in Ireland. I post here due to, depending on the day, either my fascination or disgust with the bizarre Irish property mania. Do not blame the messenger, blame those that bid prices up.

 

[SteelBlue05]

They would fall by about 40-50% if my theory is valid.
.

You need to account for different levels of house prices e.g. a house valued today at 300k is not going to decrease to 150k as you need to account for re-build costs and peoples affordability levels.

 

[redo]

What I have said is not even close to correcting the misuse of language.

Agreed, but let not go there anyway.

How do people know that the house prices are high soley because of speculative purcashing?

Increased demand has an upward pressure on prices. However, it it not SOLEY. I agree

 

[Duplex]

Loki

I’m not familiar with the Roman market I’m afraid. I base my analysis on historic yields which were in excess of double digits in the past in the Irish residential market. I believe that markets adjust to reflect true risk over time. For instance the market in Split in Croatia has seen rising yields as investors became aware of the fundamental value of investment incomes.

16:36 - 29 March 2006 - A decline in real estate prices was recorded in Croatia last year in almost all districts as the decline reached as much as 50% in the city of Split, Croatia Today reports.

[broken link removed]

 

[Loki]

Agreed, but let not go there anyway.


Increased demand has an upward pressure on prices. However, it it not SOLEY. I agree

Ok then how do you know the extent of the effect? I mean I could just state any of the other reasons and say that is the main casue. I am not into this makea a wild statemnet that people agree on but have no proof. Lots of people used to think the sun rotated around the earth. The evidence proved them wrong!

 

[Duplex]

You need to account for different levels of house prices e.g. a house valued today at 300k is not going to decrease to 150k as you need to account for re-build costs and peoples affordability levels.

Steel, cost and value are two different things. Nevertheless I would imagine that we will see some deflation in the cost of construction if a housing bust occurs.