Ireland Calling by John Spain
Has the Irish real estate market finally bottomed out?
Posted on Friday, August 16, 2013 at 09:09 AM
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|Property signs in Dublin city center earlier this year.|
It's an obsession that bankrupted the country, but it seems there is no end to the Irish love affair with property.
Despite all we have been through since our property bubble burst and destroyed the state finances and the economy, some people here are starting to believe that it's time once again to get back in the property game.
There is a growing feeling that the worst is over, that prices have reached the bottom and that from here on the only way is up.
Now, where have I heard that before?
Oh yes, now I remember. It was when I went to see a two-bedroom apartment in the south Dublin suburbs back in 2006 with a friend of mine who was thinking of buying. It was a snip at €425,000, the estate agent told us, predicting that it would be worth half a million within a year. The only way is up, he said.
Although it had a designer kitchen and cool minimalist furniture, the rooms were small. Plus it was at the very end of the commuter line from the city.
“I’m not sure about this,” I told my friend, who was desperate to get on the property ladder. I thought he should be able to do better for that kind of money. He agreed and decided not to buy.
The following year, 2007, prices peaked and the market started to implode, with overpriced apartments in the outer suburbs losing their value fastest in the following years. Last year I saw an identical apartment in the same block for sale for €195,000. In my view, it's still overpriced.
It's now over five years into the property crash in Ireland, the worst ever in Europe and one of the worst ever in world history. Prices have gone down and down, year after year. There appeared to be no end in sight.
Nationally prices have fallen by over 50 percent since the peak in 2007. That's an average figure, so although the fall in some parts of Dublin has been slightly less, in other areas and other sectors (apartments rather than houses) the fall has been higher, over 60 percent.
After five years of falling prices it seemed like the collapse was going to continue forever. But this year, at last, there have been signs that we may have reached the bottom.
At the end of last month, the Central Statistics Office (CSO) made headlines when its analysis of the country's property market showed that prices had risen by 1.2 percent over the preceding 12 months.
The CSO's Residential Property Price Index is a monthly survey, and this was the first one to show an increase rather than a decrease since the crash began back in 2007.
The news confirmed what most people were sensing, that the market was bottoming out and that prices -- particularly for houses in good areas for family homes -- are unlikely to slip any further.
In the better areas, agents are claiming that prices are up at least five percent this year. With no building since the crash, demand for family homes is strong and the supply is limited because sellers have been waiting for the crash to end and for prices to recover.
In some select areas like the Southside suburb of Dalkey/Killiney (where Bono lives) or the Northside suburb of Howth (where U2 drummer Larry Mullen lives) agents are claiming that family homes are up at least 10 percent since the start of this year. And the strongest demand is not for the kind of mansions where the U2 boys live, but the average three or four bedroom family home.
Typical of this kind of home is the small Evora Park estate of ordinary sized houses in Howth. A house there which had been on the market for just two or three weeks was snapped up 10 days ago.
The asking price for the modest four-bedroom semi-detached house was €495,000 and the speed of the sale would indicate that somebody agreed to buy at the full amount.
Which is interesting, because the last house to sell on this road was in January 2010 (three years back) and it made €420,000. It was identical, apart from having a slightly smaller back garden.
Since then, prices have fallen by at least 20 percent, even in the better areas like Howth. So even if you factor in a five to 10 percent gain since the start of this year and allow a bit extra for the extra garden space, the house which sold in the past couple of weeks should have been around €400,000, not €495,000.
That indicates a significant strengthening of the market. But it's for a particular kind of house and it's not at all clear yet how solid this is.
Since we're talking about Howth, the story of another house on a much more expensive road in the same seaside village on Dublin's Northside is a cautionary tale.
Claremont Road in Howth is about as exclusive as you can get; it's the road where Mullen lives. With direct access from the back gardens to the beach, the mansions on the leafy road have always been in demand among those with a million or more to splurge on a dream home.
But the story of one house on the road shows how all the excitement about the "return" of the property market should be treated with caution, especially if we're talking about big houses.
Back in 2007, as the boom reached its peak, a local developer demolished an existing house on the road and in its place he built a substantial modern home with big reception rooms and bedrooms and a light-filled kitchen/breakfast room with floor to ceiling windows overlooking the beach.
The mansion was featured heavily in the press and the developer told reporters that he reckoned the house could fetch as much as €7 million.
But by the time he had it finished the market had peaked, and when he put it up for sale in late 2008 prices were starting to turn downwards. So he pitched the price at €4.8 million.
Despite extensive media coverage it did not sell and the following year (2009) the developer reduced his asking price again to €3.75 million, saying that if he went any lower he would lose money.
But still the house did not sell. In fact, despite further price reductions over the next three years, it did not sell until this year when a few weeks ago it was bought quietly for €1.15 million.
That's a long way off the original €7 million. Or even the "reduced" price in 2009 of €3.7 million.
It's an example of how uneven the much-hyped “recovery” in the Irish property market is. Modest houses, in better areas, which make good family homes, are selling quickly at prices that are up slightly on last year. But there are still many apartments in outlying areas and houses in ghost estates in rural areas that nobody wants.
The other big unknown at the moment is what is going to happen when the banks start releasing repossessed homes on the market. As we reported in detail in this column recently, there are tens of thousands of people here who are way behind in their mortgages and have little hope of catching up.
Most of them bought during the boom and they are now in negative equity, with their houses worth half what they paid for them.
During the boom, tens of thousands of people here also got into property as an investment, the so-called buy-to-let market. As the economy has slid, many of these are also in deep trouble, and estimates indicate that at least one-third of these homes are likely to end up back on the market.
Two weeks ago one of the main banks said that their figures were showing that up to 20 percent of those behind in their mortgages are “strategic defaulters,” people who are deliberately not paying because they reckon that by going deep into debt they will be able to cut a deal to reduce the amount they owe. No doubt there are such cases in the present uncertain climate.
But the reality is more likely that in most cases, the people are simply choosing to pay their credit card bills and other loans and expenses first and are putting the mortgage on the long finger.
The accusation of “strategic defaulting” has led to a furious dispute here with the banks, with people saying they don't understand the pressure home owners and even investors are under.
Whatever the truth, the reality is that many people here are going to lose their homes and those apartments and houses will be back on the market.
A court judgment here in 2009 prevented banks from repossessing houses, but new legislation has now changed that situation and in the coming year or two the banks will be taking back houses from people who can't pay their mortgages and selling them again. That will keep considerable downward pressure on house prices.
So is it a good time to buy here? Yes, if you're a young couple who want a family home to live in for the next 20 or 30 years.
Such houses are not going to get much cheaper and the sooner you get in the better. But there won't be any doubling of house prices in five to 10 years as happened during the boom.
Those days are gone forever. And good riddance. See more: Irish Economy , Irish Business , Irish Property , Irish News