Are property prices on the way up or down ?

This topic appears on the board every now and then, so I thought I'd start the board rolling on it.

In recent times I've heard a lot of anecdotal evidence that house prices, especially in Dublin, are rising strongly again.

PermanentTSB used to issue quite a good survey on what is happening in the market. The link is below.

[broken link removed]

The latest version of the survey they have available is from October of last year !

Does anyone have anything more recent than that ?

In the UK a few of the banks produce these surveys, as does HM's Land Registry, numerous estate agents, and the Institute of Chartered Surveyors. I'm surprised that such surveys aren't more widespread here.

House prices

Hi Noel,

Just looking at the SBP yesterday there were 2 reports..... one was by a person called Finnegan of Sherryfitz - she reckoned that the January to December increase would be 15% this year.

There was another guy (can't remember his name right now) and he said that he had forecast 8% for the year but he reckoned that now they would have increased by up to 10% before the World Cup kicks off (nice casual approach.. eh!) with "modest" increase in the 2nd half.

A word of warning for potential investors though, the prediction was that rental prices would probably not increase over the next 18 months.......

MAC

I heard/read somewhere recently that property prices in Dublin went up by 6% in the first four months of the year.

I got a valuation done for my lender in November. Last week my next door neighbour put his house up for sale. The auctioneer said the house was worth 11.5% more than my valuation of 5 months previous.

It wasn't just auctioneer speak because 5 days after going on sale they had an offer and are now holding out for more bidders.

Of course that is not going to continue as there was an instant jump in value in December when MCCreevy scraped Bacon, but it would appear that prices are on the increase.

stating the obvious

but I will anyway. Sunday paper supplements and estate agents surveys have a vested interest in forcasting large price rises. It panics people into buying and keeps them from holding out. I wonder if the serious investors are still buying and at what prices. If they go else where with there money then maybe they dont see a near time increase. ???

house prices depend on who is in government in three weeks

If Labour and Fine Gael form a coalition then
Labour will probably win out and CGT will go up(maybe not to 42%) which will either kill the investment property market or release a flood of houses onto the market before increases are phased in.
Fine Gael's manifesto will get a lot of poorly paid people housed too so they'll be off the demand curve.

If FF and PDs remain in power then no dramatic changes will be seen and prices will probably continue to rise gradually until we reach oversupply in a few years time.

Re: house prices depend on who is in government in three wee

Hi Geoffrey

I would expect that an increase in CGT will not be by any means certain if Labour form part of a coalition (which is just as likely to happen with FF as FG).

If CGT does increase, it would have to be gradual - say to 25% and then by another 5% or so in a year or two - otherwise your scenario of a flood of houses (and other properties) coming on to the market at once would definitely materialise, along with consequent market mayhem and price falls.

As far as I understand Labour's motivation in calling for higher CGT, they seem to be accepting that such a measure will not increase the CGT tax take but they're saying that they want to discourage "speculation" in the property market.

A far simpler and more effective way of doing that would surely have been to introduce a higher rate of CGT on assets that are sold within a specified period, say of 2 or 3 years, of purchase. Add in a few let-out clauses for hardship cases involving bankruptcy, death or incapacity and the measure would work fairly smoothly, in my opinion.

I don't believe the election of any of the main political parties (with the possible exception of SF) to govt will have any influence whatsoever on the property market. After all, the 2001 slump was caused by the economic effects of FMD and Sept 11, and other outside factors (positive or negative) will determine the future prospects of the Irish economy in a far greater way than our 100%-middle-ground politicians.

Tommy

Re: house prices depend on who is in government in three wee

I'm taking the liberty of moving this topic to The Great Debates

Tommy

CGT can't have a positive effect on house prices

Firstly, Slump of 2001 caused by a loss of confidence in the housing market (which isn't totally attributable to 9/11 and FMD had practically nothing to do with it unless we are talking about farmhouses) and absence of incentives for investors to invest which was countered by the government introducing mortgage interest relief for investment property.
It is a fact that although prices didn't go down in most sectors of the market last year, sales stalled and Estate Agents let staff go. Government intervention only came just in time to prevent the market from falling.

Now intervention can be both positive and negative so it follows that.....
If Labour go into government they will ALWAYS be inclined to increase CGT from an ideological viewpoint.
This is bad news for property investors and Labours election will be a signal to Investors to take a profit while it is available as the performance and return on their investment would be less certain than under an FF/PD government.

Talk up the market if you want, but people are generally risk averse especially where investments of €200,000 are concerned. The risk in property investment will increase under a Labour\Whoever government and as with any investment fewer people will be happy to shoulder that sort of risk exposure which will snowball into a downturn in the market.

Re: CGT can't have a positive effect on house prices

Hi Geoffrey,

Strictly speaking, the Minister for Finance didn't introduce mortgage interest relief for landlords in the last Budget. He merely <!--EZCODE BOLD START--> re-introduced<!--EZCODE BOLD END--> a relief that he himself had scrapped in 1998 on the advice of Peter Bacon. Many people forget that.

The McCreevy/Bacon measures, now thankfully consigned to history, were at the heart of the "absence of incentives for investors to invest" that helped, along with FMD, 9/11 and the tech slump, to mess up the property market in 2001.

My point is that any government, whatever their ideolgy (if any) can damage the property market at any time, if they make the wrong decisions about the economy and related matters. Margaret Thatcher was probably the strongest right-wing and pro-investment ideologue of her generation in Europe and that didn't stop a meltdown in the UK property market, literally under her own nose, in the early 1990's.

Don't believe this couldn't happen here. On that basis, people should base their voting decisions on policies (particularly with a sceptical eye towards the auctions of promises we've seen recently) and not on simplistic labels attached to particular parties.

Finally, and to get back to the point, if an increase in CGT were to cause a reduction in the numbers of houses coming on to the market for sale, would the laws of supply and demand not dictate that this would cause an <!--EZCODE BOLD START--> increase<!--EZCODE BOLD END--> in house prices?

Re: CGT can't have a positive effect on house prices

Hi Tommy

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> The McCreevy/Bacon measures, now thankfully consigned to history, were at the heart of the "absence of incentives for investors to invest" that helped, along with FMD, 9/11 and the tech slump, to mess up the property market in 2001.<hr></blockquote><!--EZCODE QUOTE END-->

Would you care to expand on your views about the market being messed up in 2001. Personally, I didn't see any mess. I saw a market where some reality and common sense started to return, taking over from the hype and panic of recent years. I saw modest drops in property prices - which really have a neutral effect on homeowners. Homeowners who wanted to trade up found that the drop in their own house price was matched by the drop in their target house price, so it didn't really impact them. First-time buyers may have had the stress/worry of getting close to negative equity situations, but their mortgage payments stayed level or dropped due to falling rates.

Those who were unable to get a foot on the housing ladder in the hype of the late 90's found that they were just about able to consider purchasing a starter home. So what did the Govt do - they interfered with the free market by providing an unnecessary relief to property investors who then snatched these homes out of the fingers of the prospective buyers. They seemed to forget that the housing market and the rental market are drawing from the same supply of housing stock and are totally interdependent.

Regards - RainyDay

A mess?

It depends on how you look at it. However, I don't see what was good about the situation in 2001 where tenants were screwed for excessive rents, due to a shortage of rental properties, at a time when house prices were falling and a whole battery of investors were waiting to return to the market but couldn't do so until Mr. McCreevey scrapped the Bacon measures. Hence the totally artificial surge in property values this year which has put the first-time buyer in an even worse position than they were in a year ago.

A Mess?

Tommy,

tenants are still being screwed for rent, post budget 2001. I've just being informed by my landlord that he wants to increase the rent by nearly 15%. The house used to be his main residence and was bought long before the madness re prices started in this country. I'd be fairly certain his mortgage is long paid off.
The return of investors has led to no decrease in rents as per the predictions of many estate agents last December. In fact they're still increasing and will do so as long as landlords think they can get away with it.

There are no q's anymore for house viewings as I believe demand is tapering off as work is getting that bit more scarce in Dublin. So If McCreevy had left the market well alone last December, there would have being no shortage of rental accomodation anyway. And house prices would have continued to decline, something which horrified the construction lobby who fund many political parties int his country. So McCreevy jumped to their aid, and not that of people who rent.

Re: A Mess?

<!--EZCODE BOLD START--> The return of investors has led to no decrease in rents <!--EZCODE BOLD END-->
All these things take time to take effect. Its a bit early, 4 months on from the re-introduction of interest relief, to say definitively that the extra availibility of rented properties will have no effect on rents.

<!--EZCODE BOLD START--> So If McCreevy had left the market well alone last December, there would have being no shortage of rental accomodation anyway.<!--EZCODE BOLD END-->

Are you sure that is true? If the "no interest relief" regime had continued indefinitely, then investors would have stayed out of the market indefinitely and the rental property market would have stagnated with an ever-decreasing pool of rental property available to tenants. The logic of this would be that rents would continue their inexorable rise and thousands of people over time would face a grim choice between (1) buying their own place, even if it doesn't suit them (thus inflating the first-time buyers market) and (2) homelessness.

Although landlords may not be the country's best-loved social group, let's face it, no State will have much of a housing policy without the input of investors in the private housing market. We can't really expect the State to start taking their place, can we?

gov should build houses as an investment

We can't really expect the State to start taking their place, can we?

Why not?It seems to be very lucrative for the investor.

Less investment property = More owner-occupied property

<!--EZCODE QUOTE START--><blockquote>Quote:<hr> the rental property market would have stagnated with an ever-decreasing pool of rental property available to tenants. The logic of this would be that rents would continue their inexorable rise <hr></blockquote><!--EZCODE QUOTE END-->

Hi Tommy - I think you're ignoring the fact that the rental market and the owner-occupied market are intrinsically linked. An ever-decreasing pool of rental property by neccessity implies an ever-increasing pool of property available for purchase by owner-occupiers. And every first-time-buyer purchase means one less renter on the rental market, so demand will reduce. It's therefore unlikely that rents would have continued their inexorable rise.

Re: Less investment property = More owner-occupied property

Hi RainyDay,

Accepted, but that ignores the fact that the average no. of people occupying the average rental property (typically 3-4+ young singles) is a lot higher than the average no. of people occupying the average first-time-buyer property (typically a FTB single or couple)

This means that every time a FTB buys and occupies a house previously rented by 3 or 4 others, these people have to look for a new place to stay. As FTB's continue to snap up existing (i.e. not new build) properties in the absence of investors in the market, more and more people are displaced from their existing accomodation, and the diminishing pool of rented accomodation becomes more expensive for tenants. The more rents rise, the more tenants are forced to buy a property and the vicious circle continues on and on.

Re: Less investment property = More owner-occupied property

Hi Tommy - Good point, and not one that I had thought about.

Did we see any mass exit by landlords when interest relief was dropped? I understood that it was deterring further purchases by investors, but I didn't think it impacted their existing properties - Correct?

Re: Less investment property = More owner-occupied property

Hi RainyDay,

As far as I'm aware, there never really has been any sort of noticeable exodus by landlords out of the rental property market. But, over time, things change: people see big capital appreciation and decide to cash in; others reach retirement age and sell out so that they can retire to Spain; more sell because they need to give their children a help with the deposit on their own homes, etc etc.

You will always have a "natural wastage" element in the rental property market and because of this it is important that the door is open, to some extent, to new investors.

Tommy

Drop mortgage interest relief

Hi Tommy - Yep, that's as I would have suspected. This brings me back to my original point - what problems did the dropping of mortgage interest relief do to the housing market?

I accept that it deterred new investment purchases temporarily. But would these have been deterred indefinitely had McCreevy kept his nerve - somehow I doubt it. I accept that each FTB couple buying a previously-rented house could end up with 1/2 displaced renters looking for space. But don't forget that many of the FTB's are availing of the rent-a-room scheme, so I doubt if this would have had a major impact on the market.

So - the incoming Govt should drop mortgage interest relief and bring back some sanity to house prices. Any good reasons why not?

Cheers - RainyDay

Re: Drop mortgage interest relief

Hi RainyDay,

The Rent a Room scheme does help matters greatly. Remember though that "Rent a Room" only came in in 2001, <!--EZCODE BOLD START--> three years<!--EZCODE BOLD END--> after interest relief was scrapped so the damage (i.e. panic and hyperinflation in the rental market) was done by then.

Apart from that, the fact remains that the absence of interest relief deterred many investors from the rental market, at least temporarily. I would argue that it would have done so permanently if interest relief had not been re-introduced.

In any environment, the availability or otherwise of interest relief would have a massive effect on the return that a normal prospective investor would expect from a rental investment. Without interest relief, the market would be effectively closed to novice investors who would normally be borrowing a substantial portion of the investment total.

I would go further and say that the Bacon measures were an abject failure if their intention was to dampen house prices. They came in in Spring '98 and as far as I can see their only effect was to continue to drive prices upwards by contributing to a massive inflation in rents, through the process I outlined earlier.

The same would happen again if the incoming Govt scrapped interest relief for investors. That's why it won't be done, no matter who gets in. I would wager a small amount that even Mr. Bacon agrees.

Tommy