Monday 8 April 2013
Increased supply set to benefit first timers
Harry Sothern, Chairman of REA gives his views on the increased supply due to come on the market. With the banks/building societies adopting a low or zero tolerance on interest only loans the number of buy-to-let type properties coming to the market is set to increase dramatically. Most of these will have been properties bought between 2004 and 2008. Many were 100% financed and are now in at least 50% negative equity. With the institutions adopting the stance that half a cake is better than none they will be ‘encouraging’ owners who can not make interest and capital repayments to sell or in worse case scenarios repossessing. The numbers involved are quite staggering – up to 50,000 over the next three years. The beneficiaries of this bonanza of relatively cheap properties will fall into three categories – investors, first time buyers and local business/trades people. Sales activity creates new spend (repainting house, new furnishings etc. etc.) which is good for the local area in which the property is sold. Not all will be rosy for the first time buyer either with many of the properties either unsuitable (apartments) or in areas in which they do not wish to live. Outside of our cities low prices will continue to dominate the semi-detached market for a number of years to come. Semi-detached owners looking to trade up will find it difficult to obtain a reasonable price for their home whilst this overhang of buy-to-let repossessions still remains. Purchasers on the other hand will be a little bewildered at the variance in price – the non-stressed homeowner wishing to sell at a reasonable price compared to the bargain basement repossessed property down the road sold at a distressed auction. The key, as always, is likely to lie in location. If a purchaser wishes to live in a certain area then they will likely have to pay a fair price if no repossessed property is for sale in that area. During this time the middle and upper end of the market will see very little new supply. Sales at this end are less likely to be forced/stressed and are more likely the result of relocation, divorce or bereavement. There is a natural and understandable reluctance to sell for less than build/buy cost therefore most will choose just to stay put unless they fall into the above categories. Non city areas will not see any new build in the foreseeable future with repossessed/stressed homes taking care of that demand. Despite the negatives there are also some positive signs. The Dublin market is picking up with demand outstripping supply in many areas. The promise of an increase in lending by the main institutions will inevitable see prices rise. The neighbouring counties to Dublin and main cities will benefit but not for a few years. Rural areas will take longest of all to see improvement. Rents will move upwards as some of the repossessed buy to lets (which are already tenanted) are bought by owner occupiers. Very few one off houses will be built as long as second hand country homes remain at existing price levels. With 30% Capital Gains Tax, the possibility of land frozen around the site and low site price it is simply not economic for farmers to sell sites. Of course the single greatest impediment to improvement in the market is the difficulty in obtaining sufficient finance for most borrowers. There seems to be a strange conundrum at work – the banks are telling sales agents how keen they are to loan money whilst most borrowers will paint a picture of how difficult it is to obtain the finance the require. The lending criteria adopted are too severe and is greatly affecting recovery. Whilst we all accept that the lending in the Celtic Tiger times was reckless our Banks/Building Societies seem to have overacted as a consequence. In conclusion the low instance of repossession of principal private residences surely sends a clear message to the lending institutions that Irish people will only give up their home when there is no other available option.