Are we facing a rental crash?

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Mrs.B

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One man's crash is another man's correction.

A huge proportion of property purchased in the last 5 years was purchased for capital appreciation purposes alone. Most of these folks who are now unable to flip for profit will look to achieve a rental stream to offset a proportion of their mortgage obligations. They'll take the balance on the chin until? the sales market rebounds.

With supply increasing (now 11,000+ properties to rent on Daft) and demand at best remaining constant I believe that rental prices will have to suffer.

I think we'll see a 20% or so drop off current rents.

Bear in mind that this would be very positive news for the vast majority of folks out there....
 

JohnBoy

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I think that you are right in that assuming that demand remaining constant is an 'at best scenario'. For sure, there must be a large number of people who are now renting either because they cannot afford to buy or they believe that prices may fall further; but rental supply has still increased.
 

murphaph

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Well, just to throw in some anecdotal 'evidence'....I know a couple who sold up recently and now rent in the expectation that prices may fall a bit and they can upgrade fom apartment to house. Interestingly however, the house they are renting is from a 'reluctant LL' who would like to sell the house "at the right price" but will rent it out until prices rise. Make of that what you will. Two sides of the same coin. Long term landlords are somewhat out of this equation as if rented houses like this sell, the supply of rental accomodation will fall, but so will the number of renters seeking accomodation-the question is...will the fall be linear?
 
I

IFT

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Article on the front page of the NYtimes.

But some worry that the housing meltdown could spoil Ireland’s recipe for success. Like Spain, it attracted lots of foreign workers, many of whom came for well-paying jobs in the construction industry. That fueled the Irish rental market, which has remained buoyant and been a source of income for Ireland’s many real estate speculators.
“If the immigrants go back home, will this hurt the rental market?” asked Ronan O’Driscoll, a director in the Dublin office of Savills, a real estate firm. “If that happens, it would definitely cause foreclosures.”
http://www.nytimes.com/2008/04/14/business/worldbusiness/14real.html?_r=1&hp=&oref=slogin&pagewanted=all
 

contractor

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Scaremongering! Obviously if thousands of tenants leave the market then it could mean trouble. But its not actually happening is it? And whether you are affected or not all depends on your property. Many LL's have never rented to foreign nationals.

I think this article is a bit behind the times. Housing are starting to sell again, albeit at 7%-10% lower than 2006 prices. This is not something I've read somewhere but something I'm seeing within my circle of friends, family and neighbours.
 

groom

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Scaremongering! Obviously if thousands of tenants leave the market then it could mean trouble. But its not actually happening is it? And whether you are affected or not all depends on your property. Many LL's have never rented to foreign nationals.

I think this article is a bit behind the times. Housing are starting to sell again, albeit at 7%-10% lower than 2006 prices. This is not something I've read somewhere but something I'm seeing within my circle of friends, family and neighbours.
Scaremongering? By an estate agent?:eek:

If you're silly enough to want to buy now, chances are you won't get a mortgage
 

Thomas22

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Scaremongering! Obviously if thousands of tenants leave the market then it could mean trouble. But its not actually happening is it? And whether you are affected or not all depends on your property. Many LL's have never rented to foreign nationals.

I think this article is a bit behind the times. Housing are starting to sell again, albeit at 7%-10% lower than 2006 prices. This is not something I've read somewhere but something I'm seeing within my circle of friends, family and neighbours.
why would the New York Times be trying to scare Irish landlords?
 

contractor

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why would the New York Times be trying to scare Irish landlords?
Reporting was contributed by Victoria Burnett in Madrid, Eamon Quinn in Dublin, Heather Timmons in New Delhi and Julia Werdigier in London.
It's just a rehash of whats being said here, hence the fact that it has nothing new to contribute. And it suits them to report it cause it makes their situation look better.
 

Welfarite

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If you're silly enough to want to buy now, chances are you won't get a mortgage

Why would one be "silly" to buy now? On what basis would they not get a mortgage?

Surely one's circumstances would dictate their actions or the lender's reactions to mortgage applications
 

MichaelDes

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They'll take the balance on the chin until the sales market rebounds.
Typically the property cycle of boom to bust and back lasts fourteen years. But the boom prior to 2006 lasted more than fourteen years on the upside alone! As only two years of the down cycle have so far emerged, then at the very least another five years of gloom should be expected. It is difficult to predict the extent of the bust and its affect on rents but let agree it's going to be bad, probably very bad. With the exception possibly of BTLers who bought in prior to 2004 in strong rental area's.

With supply increasing (now 11,000+ properties to rent on Daft) and demand at best remaining constant I believe that rental prices will have to suffer.
Immigration saved the property and labour market problems from 2003 onward. But it unfortunately led to many more to buy into the BTL dream. Now these migrant workers are leaving the false ceiling is exposed.

I think we'll see a 20% or so drop off current rents.
According to IMF data, Ireland has the highest out of kilter property markets compared to salary. This figure could be on the conservative side.

I think that you are right in that assuming that demand remaining constant is an 'at best scenario'. For sure, there must be a large number of people who are now renting either because they cannot afford to buy or they believe that prices may fall further; but rental supply has still increased.
There are too many houses and not enough renters. Rents therefore IMO will follow house prices. This is an unusual vicious circle that will lead to negative cash flow on rent with a asset that is slow/non-existent to sell.

Scaremongering! Obviously if thousands of tenants leave the market then it could mean trouble. But its not actually happening is it? And whether you are affected or not all depends on your property. Many LL's have never rented to foreign nationals.
Economic migrants typically prefer to rent than buy. But opportunities now available in Warsaw seem better from a disposable income and cost of living for many Poles located here presently. Many are returning home, more so in the UK due to lack of work and currency devaluation of sterling. However, had Poles/CEE etc not have come to Ireland from 2004 on, the property market would have hit the skids then, IMO. But this delaying of the problem and continuation of the hype until the end of 2006 will ultimately cause a bigger headache.

I think this article is a bit behind the times. Housing are starting to sell again, albeit at 7%-10% lower than 2006 prices.
What was peak average price in 2006 and what figure are you thinking about??

It's just a rehash of whats being said here, hence the fact that it has nothing new to contribute. And it suits them to report it cause it makes their situation look better.
Probably true. But people’s disposable income is being eaten by higher costs. My disposable income and its purchasing power seems less in 2008 [anecdotally] compared to 2007, even though my salary increased 5%. Less income means less to spend on rent and other things, most notably curtailment of restaurant eat outs. With Ireland so closely tied to America and UK for business, unemployment is going to increase quickly. The euro strength to the dollar and sterling will also be a catalyst that will cause IMO major economic problems and rapid unemployment. How can the government balance the books based their projections without borrowing hugely. Consumers in Ireland do not have the same option of borrowing their way out of the problem. They have done this already in a reckless manner and many are now up to their eyeballs. With the credit crunch combined that is why the banks are saying no more! Delinquency may soon be a new word for the banks to add to their vocabulary.
 

contractor

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MichaelDes said:
Immigration saved the property and labour market problems from 2003 onward. It led to more persons to buy into the BTL dream. Now these migrant workers are leaving the false ceiling is exposed.
This obviously depends on your property and location. I think there is a particular type of apartment suited to low income migrants. This would suggest that there will not be a wide spread "crash" in the rental market. Irish people need homes too and seeing as they are not buying homes then its safe to assume the majority are renting (you will not find many late 20s+ willing to live with their parents).

MichaelDes said:
There are too many houses and not enough renters. Rents therefore IMO will follow house prices. This is an unusual vicious circle that will lead to negative cash flow on rent with a asset that is slow/non-existent to sell.
You cannot ignore the fact that many homes have no rental potential at all. People hit by the property crash may attempting to jump into the landlord business but will fail. These of course are being added to the statistics and making it look like tough times in the landlord business when in reality they belong in the property crash category.


MichaelDes said:
Economic migrants typically rent than buy. Opportunities in Warsaw seem better from a disposable income and cost of living for many Poles located here presently. Had poles etc not have come to Ireland from 2003 on, then the property market would have hit the skids around that time,IMO. But by delaying the problem will ultimately cause a bigger headache.
The construction industry has addressed this by drastically cutting the supply of new homes. There is a double lag effect. A lag as existing new builds are snapped up and a loag in statistical data.

MichaelDes said:
What was peak average price in 2006 and what figure are you thinking about??
I don't know. But in my experience houses are selling and people are moving. It's a buyers market for sure and people who move now are not concerned with profit. They consider a house a home and not an investment. Speaking long term, now is the best time in years to buy.


MichaelDes said:
Probably true. But people’s disposable income is being eaten by higher costs. My disposable income and its purchasing power seems less in 2008 [anecdotally] compared to 2007, even though my salary increased 5%. Less income means less to spend on rent and other things, most notably curtailment of restaurant eat outs. With Ireland so closely tied to America and UK for business, unemployment is going to increase quickly. The euro strength to the dollar and sterling will also be a catalyst that will cause IMO major economic problems and rapid unemployment. How can the government balance the books based their projections without borrowing hugely. Consumers in Ireland do not have the same option of borrowing their way out of the problem. They have done this already in a reckless manner and many are now up to their eyeballs with the banks are saying no more. Delinquency may be a new word for the banks to add to their vocabulary.
No disagreement that we are in economical tough times. But we're in it with the rest of the world so lets just get on with things. There are industries booming at the moment, the IT industry for one. Do you think you'll hear that on the news? Of course not cause good news doesn't sell! :p
 

murphaph

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Too many variables to predict which way it'll go IMO.

Anecdotally I have seen no poles go home since early last year when 2 people I employed went back home to complete their studies. No other poles that I employed (retail sector) have gone home or even left work. I know a lot of them have plans to go home eventually but only when they are assured of finding a half decent job back home and have built the house in the country with their irish salaries. I'd say the bulk of poles heading home or elsewhere in the short term will be in the construction sector-maybe others can comment on what's happening there?

If prices fall, houses will become more available (so long as credit is!) to ftb'ers who may be living at home or renting. If living at home it will have a +ve effect on rents as it will reduce the available rental stock, if living in rented accomodation it will have a -ve effect, UNLESS they buy a house from a recent reluctant LL who was just letting out while trying to sell, as this will also reduce the available rental stock and should push rents up or at least reduce the fall somewhat.

Remember that even in mature property markets with slow economies with massive amounts of rental stock decent rental yields are still available so as long as you bought a good while ago I'd say you'll be alright as you can afford to reduce your asking price and still cover costs whereas recent BTL'ers will have to sell up.

Who knows. I'd say rents will fall myself but I don't think it'll be catastrophic. How do people think all this will affect commercial rents, if at all?
 

Afuera

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Remember that even in mature property markets with slow economies with massive amounts of rental stock decent rental yields are still available so as long as you bought a good while ago I'd say you'll be alright as you can afford to reduce your asking price and still cover costs whereas recent BTL'ers will have to sell up.
This is a very valid point. BTLers who entered the game late definately have the largest risk of getting burnt if their is a softening in the rental market.

It's important to remember though that it's possible that a large number of recent BTLers may have been "reluctant" BTLers, which would be unfortunate. I.E. Those who needed to trade up from their own PPR, couldn't sell, but found a lender willing to fund the purchase of their new property and the payments of their old one as an investment. I think that until quite recently this was highly encouraged by banks.

I notice that nobody has made a mention yet of how the landlord-tenancy legislation could impact things if there is a softening in the rental market. Under the relevant act, rents can not be set at more than the market rate. It means that if a tenant notices that there are cheaper places being advertised on daft nearby them, they don't even have to move out to obtain a rent reduction. All they would need to do is request the landlord to set the rent to the market rate of X (they might have to wait until they have a Part IV tenancy first). If refused, it will cost them EUR 20 to send a complaint to the PRTB, whereby the landlord will be forced to reduce it.

Does anyone else feel that this will become an important factor in determining the future of the Irish rental market?
 

MichaelDes

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This obviously depends on your property and location.
Few IMO are well located with strong rental demand but that does not desist in causing problems for others.

You cannot ignore the fact that many homes have no rental potential at all. People hit by the property crash may attempting to jump into the landlord business but will fail. These of course are being added to the statistics and making it look like tough times in the landlord business when in reality they belong in the property crash category.
Many of these type of investor may stay in denial about the achievable value of their property and decide to wait out for a bounce, which may take a while. So these will be more than just short term distortions. This addition to rental stock will add considerably to the rental scene. Supply and demand ultimately dictates price of rents.

The construction industry has addressed this by drastically cutting the supply of new homes.
Normally I would agree that with less supply, then demand would shore up. But the supply of new builds has been so great in the last number of years, the build up will take a long time to work through. The amount of property to let on daft IMO will increase significantly during 2008. In the past flippers were not concerned about the hassle of renting for £8k-10k per year preferring vacant dwellings, since capital appreciation was the only aim. Now rent, even if not covering the IO is vital as these builds do not sell. Nationwide - there are many of these types.

Admittedly again, although most are not well located for rental they still will unfortunately affect better located, prime stock within the catchment. People have cars, so what’s another five minutes extra drive for a big monthly saving etc.

No disagreement that we are in economical tough times. But we're in it with the rest of the world so lets just get on with things. There are industries booming at the moment, the IT industry for one. Do you think you'll hear that on the news?
The winds of recession will hit Ireland the most. Mortgage equity withdrawal and consumer debt have added considerable fuel to the economy in the past. Now these props are gone, the fundamentals don't look sound. Financial companies/pundits/journalists expect Ireland to be affected more than most. Compare the Iseq to its rivals – it’s a pariah by international standards.

Of course not cause good news doesn't sell! :p
True - although recessions work in cycles so it's no great calmity to have one. IMO this one though will be the most protracted since WWII, not just for Ireland but globally. High inflation or stagflation, unemployment and slowdown in global economics do not bode well for a country so reliant on exports to the States. Per capita though Ireland exports a hell of a lot more than China so long term it will bounce back.

Does anyone else feel that this will become an important factor in determining the future of the Irish rental market?
Extrememly important and thanks for the information. For once legislation may have got something right for a change.
 

badabing

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Renting a house in D15 at the mo, no probs, decent yield, and if I had 15 more they would all be let by the end of the week.

Interesting anecdotal note
Most of the welfare recieving prospects are saying they are having alot difficulty securing accom as alot of landlords are not accepting the welfare cheque..presumably these landlords cannot find it in themselves to support our economy with rent tax for some reason, I can only presume they do not intend to stay in for the long haul..I'm not complaining, less competition for me, long may it last
 

landlord

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Renting a house in D15 at the mo, no probs, decent yield, and if I had 15 more they would all be let by the end of the week.

Interesting anecdotal note
Most of the welfare recieving prospects are saying they are having alot difficulty securing accom as alot of landlords are not accepting the welfare cheque..presumably these landlords cannot find it in themselves to support our economy with rent tax for some reason, I can only presume they do not intend to stay in for the long haul..I'm not complaining, less competition for me, long may it last
The only reason why I havnt rented to social welfare tenants in the past is that before they can get all the paper work together which usually seems to be at least weeks, I have always managed to let it to someone who is "ready to go". Perhaps this is the local councils fault...I dont know?
 

Welfarite

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The only reason why I havnt rented to social welfare tenants in the past is that before they can get all the paper work together which usually seems to be at least weeks, I have always managed to let it to someone who is "ready to go". Perhaps this is the local councils fault...I dont know?

Interestingly enough, "social welfare tenants" do not get their rent supplement from SW. It is paid by HSE via Community Welfare Officers in local Health Centres. There are plans afoot, AFAIK, to transfer this function to local councils/LA as every Rent Supplement recepient must be accepted on a council/LA housing list before RS application is processed.
 
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