Monday 23 January 2017

Ask the experts: How do you see the Irish residential market behaving in 2017?

Eamonn Spratt, Chairman, Real Estate Alliance

1. How do you see the Irish residential market behaving this year? (2017)
Our agents nationwide estimate 6% growth in 2017, off the back of an 8.4% increase last year – however, there is a lower level of expectation in the commuter counties at 3.8%.
We have already noticed a tailing off of receiver/bank/fund sales and a marked increase in first-time buyers at viewings in the latter weeks of Q4, setting the trend for 2017.
A lack of supply is continuing to push prices upwards, which is bringing builders back into the market.
2. In what locations do you expect to see most capital value growth?

Stronger price centres such as Dublin and Cork city will see most growth, due to the easing of the Central Bank mortgage lending restrictions.

Our agents in Dublin are predicting a 6.8% rise in 2017 and we are already seeing the positive effects of first-time buyers returning to viewings.

While expectations in the commuter areas are lower at 3.8%, a complete scarcity of suitable supply in the rest of the country is expected to fuel increases of 7.3 in our larger rural towns nationwide.

3. Are prices static or falling in any locations that you can think of?

Prices were static in commuter towns such as Ashbourne, Blessington, Naas, Maynooth and Celbridge in Q4, with low growth figures in 2016.

4. Where do you see rents going in 2017?

Rents will continue to rise until supply improves. Until building starts, this issue won’t be dealt with. In Dublin, new stock is under construction and now that first time buyers are re-entering the market, there may be a little easing.

However, the introduction of rent controls in the capital may see many landlords look at exiting the market, reducing the amount of available stock.

5. What impact (if any) do you think the combined effects of last Budget’s Help To Buy scheme combined with the Central Bank’s end of year tweaks to its lending regime will have on the market?
The combination of these measures has already given an injection in to the market with first-time buyers suddenly in evidence at viewings in the capital in November.

The moves have given the younger generation a foot on the ladder to buy a family home.

6. What are your views on Rebuilding Ireland, Minister Coveney’s plan to sort out the housing crisis?

The State needs to fast track the supply of affordable homes to address the void of local authority construction over the last decade.

The Minister seems to be passionate about the task in hand, but the proof will be in the building.

7. What steps would you urge the Government to take in 2017 to help solve the housing crisis?
Until the procurement process is speeded up and the provision of services to zoned lands are enhanced, this vehicle won’t get out of second gear.

We have zoned lands, developers are ready to build, but nationally they are finding that they can’t get the required services in due to a multiplicity of agencies such as Irish Water.

Local authorities also need to be realistic and introduce a phasing of upfront monies to include development fees and contributions.

Local authorities have also changed the format of the bond that they are now accepting, looking for payments upfront whereas previously an insurance bond would suffice.

8. How do you see the supply situation at the moment? Where do you think it will go in 2017?

Development financing is the key to solving the housing supply shortage as home building becomes potentially profitable again for builders.

The majority of new housing is set to be delivered outside the Greater Dublin and commuter area where the issue now is financing to fund construction – especially in areas where the house price is substantially under €200,000 but a need for housing exists.

The State can impact housing supply by introducing a phased payment structure for developers to including development fees and contributions.

9. In your experience, what percentage of buyers are paying cash? Do you think this will rise or fall this year?

Our REA Average House Price Survey for Q4 shows that 31% of purchasers are cash buyers, a drop of 16% on the December 2015 figure of 37%.

The highest percentage of cash buyers are in the rural towns outside the commuter areas, where the figure stands at 38%, down from 44% this time last year.

In Dublin city, we have seen a large increase in mortgage-funded purchases over the past year, with just 22% cash buyers in Q4.

10. What would you buy if you were an investor spending (a) €250,000, (b) €350,000 and (c) €600,000. (specificially to a property type and a specific area address egs: three bed semi in Chapelizod/ two bed apart in Portlaoise etc) and why?
(a) Spending €250,000 – Three bed semi in Tallaght area achieving €1,600pm
(b) Spending €350,000 – Three bed semi in Firhouse / Knocklyon area achieving €1,850 - €1,950pm
(c) Spending €600,000 – Four apartments in north Dublin that yield 10% per annum and will appreciate in value.

11. In your view how is the supply side of the residential property market sitting at the moment?
Supply is extremely low – as an example, there are only 62 properties for sale in the Tallaght area at the moment.
There is a big under supply of suitable properties for people to downsize to, such as bungalows in towns, and also very few 4 or 5 bed detached in the stronger rural towns for families.
12. If supply is at a record low right now why aren’t enough people selling?

The lack of suitable supply to trade up to is an issue throughout the market not just at the lower, new or first-time end.

While the Central Bank mortgage restrictions have been eased for first-time buyers, second time buyers still cannot afford to save the massive deposits needed to make the step-up from a 225,000 home to a 400,000 home – thus keeping supply low at the starter end.

13. Is it a good time to be a first-time buyer? State why?
Yes. We are seeing evidence of a sudden return of the first-time buyer to viewings, especially in the Dublin area, since the lifting of the Central Bank restrictions.

The 16% annual fall in cash buyers points to a willingness of banks to lend again and compete for business.

However, the choice is limited and there are little to no new schemes available, especially outside Dublin.

14. Is it a good time to trade down? State why?

If the rate of growth is consistent across the market, you have more to gain on the larger asset, and they may inform your decision.

If I own a house worth €1m, and growth is forecast at 5%, then I stand to gain €50,000 in value over the year. If I am moving down to a €300,000 house it will appreciate by €15,000 – the difference is €35,000.

For older couples downsizing, there is a lack of suitable smaller accommodation nationwide.

15. Is it a good time to trade up? State why?
Yes. There should be strong interest in what you have to sell. The average house price rose by 8.4% last year and recent announcements have been positive for the market.

Also, the value differential between a three-bed semi or similar and four-bed detached either in an estate or the country is now much less than any time since the 90s.

Assuming that you can get the finance, it is a good time to sell.

16. In your view, will there be enough new homes to meet demand in 2017?

It is difficult to see the construction sector meeting the significant demand in the stronger centres in 2017.

17. Is there a danger of another property bubble forming as some are claiming? Explain

That fear always exists in a cyclical property market. At the moment, the restrictive nature of deposit limits for second-time buyers and very short mortgage approval time limits are serving to keep a rein on the market.

For a market to overheat you would need much more freely-available credit. This is not the case at the moment.

Not many people are purchasing for a quick return – they are either owner occupier-led or investors looking at yields over a five to ten-year play.

18. In your view, how can we best facilitate the roll out of new homes required to solve the crisis?

We need available and affordable development finance, the provision of serviced zoned land and a realistic expectation from local authorities around associated development costs such as  phased payments for development fees and contributions.

19. In your view, what particular challenges are buyers facing in regional towns?
The main issue is a limited supply of suitable four bed homes which provide an opportunity for the starter home family to trade up.

A higher percentage of cash buyers, who are outbidding young mortgage buyers, are able to purchase and complete as they can bypass many of the time factors associated with the modern mortgage process.

20. Do you believe developers when they say building is not taking place because the cost of building is still too high relative to what people will pay? What is your view here

The cost to build to date versus the selling price of the new home has been a genuine prohibitive factor for developers, especially in areas where the average house price is less than €200,000.