Eight reasons why the property market is still struggling
While it may seem the market is picking up, appearances can deceive
In Dublin the northside accounts for most of the sales growth where transactions grew by 19 per cent last year, mostly accounted for by new homes. Photograph: IStock
1. House sales are down
Despite a perceived “pick-up” in the market and increased activity, actual house sales are down by about 10 per cent, and this figure is slightly higher in the capital. Between 2014 and 2015 the volume of sales nationally increased by about 10 per cent, but this year it looks like that number will return to 2014 levels, around 2.2 per cent of the Irish housing stock.
Sales are down generally because there are fewer houses available to buy. This is feeding into price inflation in the lower to mid-priced markets as buyers compete over fewer properties.
In Dublin the northside accounts for most of the sales growth where transactions grew by 19 per cent last year compared with just 3 per cent or less elsewhere, much of this is accounted for by new homes sales. Outside Dublin the strongest sales growth was in Kildare (22 per cent), and in the regional centres the transactions rose 18 per cent in Limerick, 14 per cent in Cork and 13 per cent in Galway.
2. Supply is critically lowLatest Sherry FitzGerald research says the stock of properties for sale is now “critically low” in all regional centres. In January just 1.4 per cent of the national private housing stock was advertised for sale, reflecting a fall of 13 per cent from January 2015. In Dublin the figure rose only slightly year on year and was primarily accounted for by new homes schemes in the Fingal region of north Dublin.
A normal market would need to have about 50,000 houses on the market at any given time, Ireland has barely half that stock at the moment.
3. Price growth has slowed
In general house prices are 3.5 per cent higher than they were in March 2015. The impact of the Central Bank ruling on lending last year has definitely had a cooling effect. In Dublin, where average prices are higher, it is more difficult to accumulate the required minimum deposit. First-quarter growth is still running at less than 1 per cent following barely discernible price growth in 2015. Annual house price inflation is running at about 1.2 per cent in Dublin, and 6.8 per cent outside the capital. Cork is rising faster at 8.8 per cent annually.
According to Pat Davitt, chief executive of Independent Property Auctioneers and Valuers (IPAV) there has been notable price growth in the outer commuter belt, ie Laois/Westmeath, up by about 10 per cent in some cases.
“The rules are driving first-time buyers further afield in search of affordability. Properties in towns with rail connections to the capital are moving quite swiftly. Improved modern public transport links to more towns would certainly have an effect on easing the housing crisis in Dublin,” says Davitt says.
4. Bullish asking pricesIt may be a hangover of the Celtic Tiger property psyche that many vendors at the upper end of the mid-market (€700,000 to €1 million) still cling to the belief that once prices started to recover the only way would be up, and that the substantial upward price shifts of 2013 and 2014 would continue unfettered. However, Dublin agents are reporting a near-glut of properties for sale at this level that won’t close until vendors revise expectations downwards.
The likelihood is that target buyers for these properties retain substantial outstanding mortgages on their own homes. Even if they sell their own properties, the proceeds they might accrue plus any approved mortgage will barely cover the asking price of the new property, and that’s before any refurbishment costs, which are soaring.
5. High mortgage ratesEven though average interest rates on new Irish variable rate mortgages fell to 2.7 per cent in March from almost 3.5 per cent a year earlier, this figure remains well above the euro-area average of 1.9 per cent, according to the Economic and Social Research Institute (ESRI). The ESRI says our low repossession rate on properties and distressed loans feeds into higher credit risk and consequently higher mortgage rates.
About 45 per cent of transactions are still funded by cash, while the balance is comprised of sales funded by mortgages from banks both within and outside Ireland. Investment properties, former buy-to-lets, and “trade down” properties are tending to be cash funded. Agents also observe that in the super prime €1 million-plus bracket, expat buyers are paying outright with cash reserves.
6. Renting back to peak levelsIt now costs more to rent a home in Dublin than it did at the peak of the property boom in 2007. The average monthly rental for a house in the capital in the first quarter was €1,454, according to the Residential Tenancies Board. The poor supply of new properties for first-time buyers is a key contributing factor to rising costs, and it’s likely to be at least another two years before the effects of recent measures to accelerate and incentivise new homes building in the capital will be felt. Meanwhile, it is costing many people more to rent than it would to buy, and rents are increasing at a rate of about 10 per cent annually.
Nationally, the cost of renting a home is rising, albeit at a slower rate compared with the end of 2015. Outside Dublin has experienced more subdued growth, and rental levels are about 14 per cent off their peak.
7. Not enough new homes
While demand is strong for new homes schemes, and sellouts on launch weekend are not unusual, the number of new homes being built remain well below expectations. About 1,400 new homes were sold last year in Dublin, accounting for about 30 per cent of new homes sales overall. More new houses sold in north Dublin last year than in the south and west sides of the city combined.
Property Industry Ireland (PII), published a report this week indicating more than 2,000 housing commencements in the first quarter of 2016 although 38 per cent of these were one-offs. It’s forecasting 11,000 units will be built in 2016, a long way short of what’s required nationally.
Construction costs are proving a deterrant to builders as they account for nearly half of the overall price of building a three-bed semi-detached house in Dublin, according to the latest Society of Chartered Surveyors Ireland figures.
The society recently called on the new Minister for Housing Simon Coveney to introduce measures to reduce VAT and bring down development levies on new builds in order to stimulate further development in Dublin. This was followed by last week’s announcement of a €200 million “local infrastructure fund” designed to help build between 15,000 and 20,000 new houses or apartments nationally from 2017.
However Keith Lowe, chief executive of DNG, anticipates a strong flow of new developments, many funded by Nama, starting in the next 12 months. “This will make it much easier for people to move, without bridging finance, as most builders will take a deposit and give time to buyers to sell their own home.”
Outside Dublin Davitt says builders are particularly impeded by the lack of public services, mainly sewerage.
“Some county councils are refusing planning permission on this basis. It is alarming that during the recession future planning was so completely neglected. This is a major issue that has to be taken into consideration by the Minister and targeted under the recently announced €200 million fund.”