Stable rental market is good news for Foreign Direct Investment (FDI)

Barry O'Leary, Chief Executive of the IDA

18th May 2012

Barry O'Leary has been Chief Executive of the IDA since 2008 and has worked for IDA for over 30 years

The results of the latest Daft.ie quarterly rental report illustrate how the property market is finally finding a floor and that is good news for the economy as a whole and for Foreign Direct Investment (FDI) into this country.

Rents are stabilising nationally and even rising very modestly in some locations like Dublin and Cork as the sector recovers from a dramatic downward spiral which started in the latter half of 2007.

Thankfully the trends suggest residential rental prices are stabilising around currently attractive levels, meaning that gains in competitiveness of recent years will be locked in.

For example taking the country as a whole, rents actually fell slightly (0.7%) in April compared to the same period in 2011. There is a pronounced urban and rural divide in the latest figures, with the bigger cities like Dublin and Cork able to command a slight premium over other areas.

It appears that Ireland now has what it didn't have in the runaway years of the boom - a stable rental market.

For example the Daft.ie rental index has remained at the same level for the last three months and it has barely changed since the start of the year. Even the number of properties available for renting has remained broadly in the same range.

While there is concern among some property owners that rents and prices have not returned to boom levels, the market emerging from the economic crash appears more sustainable, which is something the IDA would always welcome.

One of the factors helping to keep prices stable is the flow of FDI which has come into Ireland during 2011 and in the first four months of this year. The creation of jobs at leading companies like Eli Lilly, Microsoft, Cisco, Mastercard, PayPal, SAP, Mylan and Amgen creates strong demand in the private rented sector from employees of these companies.

Many of the staff who work for these leading firms are young and they often prefer to rent rather than buy, providing a valuable income stream for those who rent out accommodation, particularly apartments in urban locations.

IDA Ireland is glad to see that Ireland is now very much a value location.

At the tail end of the boom costs here were becoming prohibitive for some potential FDI clients, but now Ireland is marketing itself as a value location, not just in terms of property, but also in terms of people costs, energy costs and infrastructure costs.

Our FDI clients are making huge capital investment decisions in favour of Ireland and we recently calculated that just 10 IDA client companies alone would require over 1.5m square feet, predominantly for manufacturing.

We estimate this will lead to a need for 1,500 construction workers over approximately 2 years. The new buildings are required for the life sciences, ICT and data centre sectors. This is separate from the take up of office space by other IDA clients in Ireland in recent times.

Property solutions are integral to Ireland winning its fair share of FDI business, and Ireland gets a very high share of FDI when one considers the size of the country.

As a result this organsiation works closely with bodies like NAMA and the local authorities on designing property solutions for current FDI investors and potential FDI investors.

For example at a senior level we work closely with NAMA on accessing potential sites for FDI projects.

Clearly companies of global importance who come to Ireland (or who are already here) have specific requirements for high spec buildings of large scale. The property development and construction industries now face a challenge to come up with imaginative ways to meet this demand.

After the difficult years of the economic downturn, the property development industry is now hungry again for growth and expansion. Working closely with partners like IDA, the industry should be able to benefit from the strong flows of FDI which have come into Ireland in recent times.

HIGHLIGHTS:

Rental Index
Rental Price Index

Stock and flow of properties
Stock and Flow of Rental Properties


SNAPSHOT:

Snapshot of Asking Rental Prices Nationwide
Snapshot of Rents Nationwide

Discuss This Article

  • Re: The Daft Rental Report Q1 2012

    Posted By: NAMA wine lake Date: Friday May 18, 2012 @06:43AM

    Well done to DAFT for making the time and effort to produce what is probably the most comprehensive overview of asking prices in the country. The results back up the monthly actual private rents index captured by the CSO as part of its inflation reporting and show that since the start of 2010, rents have been broadly stable. The CSO in fact was running at 2-4% annual increases for the past few months until April’s returns showed a 1% decline, which may be related to the reduction in rent assistance levels in January 2012.

    But as for Barry O’Leary’s commentary !! It’s almost embarrassing to see the attempts at linkage between FDI and residential rents and much of the commentary is given way to commercial property and rents which has little to do with DAFT’s numbers.

    If FDI were related to rent levels, what would the noughties tell us? Apparently FDI held up well after the 2008 Irish crash, yet rents fell by 25%. Rents in Dublin city centre are still close to twice those in central Belfast. What does that tell you about competitiveness?

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  • Re: The Daft Rental Report Q1 2012

    Posted By: James Griffin Date: Friday May 18, 2012 @10:09AM

    What a wasted comment about competitiveness regarding Belfast , if you follow that logistic path then you would rate London 100% plus less competitive than Dublin ..i don't see London really suffering . winelake is typical of the race to the bottom strategy

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  • Re: The Daft Rental Report Q1 2012

    Posted By: Yields or Bust Date: Friday May 18, 2012 @11:40AM

    @James Griffin

    The NWL comment is spot on - property in the RoI is still way over valued. Repeat STILL way over valued.

    And please for anyone else out there these comments are virtually them same as I originally posted on the site 4 years ago. At that time I suggested that the ONLY method that should used to value property is a yield based approach. Of course many came out and rubbished my comments at the time and green shots et al were all the rage. Sadly for those on the other side of the argument at the time the intervening period has proven that in fact utilising a yield based approach has stood the test of time, as I suggested. ALL other methods have been found badly wanting.

    The numbers:

    Per Daft.ie the peak in asking prices (lows in asking rental yields) were recorded by Daft.ie in July 2007 @ 3.12%

    Ronan Lyons has recently calculated that an adjustment of c7% is required to bring 'asking' prices back to final 'contracted' prices off Daft.ie so in fact the true contracted low yields were actually 3.12% * 0.93 = 2.90%

    The falls in nominal rents since the peak period on average as per the latest report above are currently running at 25.7%. Reflecting the nominal falls against the peak contracted yields would give a number of 2.90% * .743 = 2.15%

    As NWL notes above the latest CSO rental numbers have suggested a softening of rents in April. This softening will continue as the adjustments to Rental Allowances work through and austerity continues apace. So the assumption that rents have now reached a floor and stability reigns as Barry O'Leary suggests, is naive. Rents are going lower. My own estimate is that from here until the end of the year I see nominal rents falling by a further 5%. (Not even accounting for the wider Euro malaise)


    Baking in an additional 5% fall in nominal rents from here adjusts further our adjusted peak rental yield above by c3.8% so 2.15% * .962 = 2.07%

    Now the 2.07% is a Gross Yield i.e. its the average for 12 months - in reality we should work off net yields as landlords and valuers live in the real world and in the real world renting property has its own costs. The industry standard is to adjust for 1 month to account for these costs however with the various additional property taxes which have already come in and are likely to come our way in future the 1 month adjustment understates the costs. It will likely be 1.5 months when the dust finally settles.

    So adjusting the Gross to bring back to Net reveals a net number based on peak prices of 2.07% * .875 = 1.81%. (This is an insane yield but the banks priced it so, anyway we know how their business models have fared since July 2007)

    In a normal property market the 1.81% should in fact read at about 7% so to revert back to the 7% will require prices to fall c74% from their peaks on average to normalise the folly. This is an average - various locations will be obviouslybe above or below this number but recent Allsops auctions are suggesting this is the type of fall we're likely to see before the market comes to its senses.

    The CSO data has property on average falling 49% from the peak. The dogs in the street know this is inaccurate, for a number of reasons, most notably that it doesn't include cash transactions. However from a PTT CSO fall of 49% to 74% - where yields suggest it should be - requires an additional fall house price of c50% from here basing off the CSO numbers.

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  • Re: The Daft Rental Report Q1 2012

    Posted By: john Hayes Date: Friday May 25, 2012 @09:17AM

    Some interesting facts to consider :

    In the midlands and north of England yields for property investors are generally 7 to 12%, but capital growth ( house prices have being growing at average of 1.5 above inflation for the last 20 years )


    In the South of England and London yields are generally 3 to 5% but capital growth averges 5% above inflation. and this is a global trend in USA and Asia

    So Yields or Bust i think your basis of argument needs some consideration as there is a inverse relationship to yield and capital growth


    I am an investor both in Ireland and the UK , and to me Dublin City is lacking 3 bed houses , the one and two beds apartments are under increasing durress due to family size increase. Construction stopped in 2008 and shows no sign of restarting which will cause a buddle down the road as rents will rocket due to the demographics.

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  • Re: The Daft Rental Report Q1 2012

    Posted By: James Griffin Date: Friday May 18, 2012 @08:17PM

    @yield or bust


    What load of nonesence.


    Your calculations are erroneous and incorrect ...yield has zore to do with house prices ... its a demand / supply curve only ....on your thesis the london property market has been overvalued for 20 years .. yields are less than 3% of new house prices ... you need to get out more .in the real world

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  • Re: The Daft Rental Report Q1 2012

    Posted By: MC Date: Wednesday May 23, 2012 @01:06PM

    @Yields or bust is spot on. You need to look at internationally accepted measures of value - not those from innumerate, illiterate cowboys & politicians who know nothing of economics. The banks truly took you all for a ride & now you are meekly letting them get away with it.

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  • Re: The Daft Rental Report Q1 2012

    Posted By: Joan Somers Date: Monday May 21, 2012 @09:45AM

    "The CSO data has property on average falling 49% from the peak" what does that actually mean ? does is mean price reduction from peak of asking price to current asking price , In circa 2007 Portobello D8 , the so called peak of them marked for a 2 storey over basement ., prices we put on a €1.5M and soon reduced t €1.3M and sold for €1.1M - within 6months , today the would sell for €850K at auction . its that not a 30% drop from peak ?


    Another benchmark for where the actual property market is in 24 Obelisk Rise
    St Augustines Park, Carysfort, Co. Dublin a 3 bed terraced house in an estate , less that 797 sq ft sold at auction for €278,000 @ 350 per sq ft ....I like auctions and standard construction 3 beds as benchmarks .... I am also very familiar with that estate .

    I bought a similar house there in 1995 for €95000(converted from Punts)


    What I a putting into the debate is that over the long term even at todaysslump , property has outperformed most other investments , it also gives you some where to live , and the asking price to asking price falls are overstated in Dublin ,
    The communter counties of kildate meath wicklow are were the real problems are .. where lack of demand and oversupply drove off a cliff.

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  • Re: The Daft Rental Report Q1 2012

    Posted By: Joan somers Date: Sunday May 27, 2012 @09:16AM

    Population of Ireland is 4,588,252

    Census 2011 results show that Ireland’s population has continued to grow strongly since 2006, increasing by 8.2% to 348,404 to 4,588,252. The total number of non-Irish nationals has increased by 124,624 persons or 29.7 per cent from 419,733 to 544,357


    House building has stopped , number of people renting has increased from 300,000 (2006) to 475,000(2011) . and rents have decreased by a whopping 1 % ... yes 1 % ... thus tells the real storey .. in the worst recession in decades,,,,

    Add to the pot that no housing is being build .... you can do all the crazy yield to value calculations you want ... house prices will reflect demand in rental and icrease over the years as the population hits 5 million

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  • Re: The Daft Rental Report Q1 2012

    Posted By: John Harvey Date: Friday June 1, 2012 @06:57AM

    I remember in 1995 standing in line hoping to be lucky enought to be get a three bedroom new build house in obelisk court blackrock for £87,000 punts . no one then was hoping to make money from capital growth , we thought the price would acutally gone down.....what drove the market was lack of supply in south dublin for 3 bed houses ... this was the start of the boom and crash ...there was simply not enought housing being build...after years of no supply ....this will happen again.. its just waiting for the braoder economy ( euro wide) to pick up.

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  • Re: The Daft Rental Report Q1 2012

    Posted By: John Farrel Date: Friday June 1, 2012 @08:32AM

    I am one of the irish profeesional working aboard due to the recession , property in negative equity , renting it out ...like lots of others no incentive to sell ..... will i return to ireland in better times ..... likely at least 50% will , then tenants will have to find somewhere else to live ..... so the economy will drive everytime and there is a multiplyer effect if and when lift off happens ......everyone is correct the builders have stopped building since 2008 and by 2018 the pressure will mount.

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  • Re: The Daft Rental Report Q1 2012

    Posted By: Tony Pony Date: Tuesday June 5, 2012 @10:46AM

    There should be tax relief on rental income for ppl that need to move for work but cannot sell their house, so have to rent it out and then rent a house themselves closer to work. It would certainly increase mobility, it should definately be monitored for abuse and kept as a revenue netural basis for the person, i.e. no way of scamming it.

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  • Re: The Daft Rental Report Q1 2012

    Posted By: Oisín Date: Monday June 11, 2012 @04:55PM

    How are the "snapshot" prices derived? Is it an average of all properties matching the criteria? If so, it might be skewed by a few very expensive places - the government uses this possibility to justify woefully inadequate limits in the rent supplement scheme.
    It might be better then, to use the median of prices, or to exclude some outliers at the top and bottom, at least?

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  • Re: The Daft Rental Report Q1 2012

    Posted By: John Farrel Date: Wednesday June 13, 2012 @11:27AM

    The differance between professional property investors and ameture it that the part times speculate on capital growth , I don't care about capital growth , cash flow is king .... if its in negative equity so what ! over the long term (20 years) prices go up , give me 400 to 600 net cash per month per property and I am happy

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  • Re: The Daft Rental Report Q1 2012

    Posted By: Jim McMahon Date: Thursday June 14, 2012 @09:50AM

    John ,


    Well said ... lots of first time buy to lettors bought of plans and now are in deep financial problems because they did negative cash flow and looked to make good capical growth .. your right cash flow is king

    Developer led housing is gone for the last 4 years and nothing going to happen for the next 4 years at least , meanwhile new builds of one offs in ireland has hit 5000 units per annum . Rents will go up and up .... house prices will continue to fall this year .... its hard to say by how much or the volumn or where ... Dublin is showing a bottom between the two canals... cash investors in ireland and overseas and looking for good standard 3 bed housing near the 5 mile radius of the city centre where you can get a good yield , 1500 pcm , finance cost of 800 pcm , gross margin 700 before tax and operating costs. if you go 50% LTV finance , ROI is 15% min per annum................................hows that compared to a equity pension.





    regards

    Vincent

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  • Re: The Daft Rental Report Q1 2012

    Posted By: Anonymous Poster Date: Monday June 18, 2012 @09:43AM

    Mortgages continued to decline in the first quarter of the year, decreasing by 0.6 per cent over the quarter and representing a ninth consecutive quarterly fall.

    The total value of mortgages outstanding on Irish banks' balance sheets currently stands at €79.9 billion. In contrast, the peak for home loans, including securitised mortgages, was hit in March 2009 at €149 billion.

    The majority of the mortgages are what is known as “floating rate”, and include standard variable rate, tracker rate, and mortgages with a fixed rate up to one year. Tracker mortgages accounted for 49 per cent of mortgages, although the figures had fallen by €276 million during the quarter.

    Fixed rate loans accounted for 13 per cent of outstanding home loans.

    This is massive deleveraging, mortgage payers are paying back a little more than €3 billion every 3 months. The housing market marsh is getting some gravel in it .........solid day are ahead.

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  • Re: The Daft Rental Report Q1 2012

    Posted By: Frank Burns Date: Tuesday June 26, 2012 @01:29AM

    This correction in the irish property is nearing completion , the deleverage is indeed amazing . by 2018 , not a single new home will be build by a developer or local council , yet mortgages with only account for €32Billlion , nice enviroment for a bubble again ......govements have the mental rentention of a sparrow ...boom booom ,,,again..

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  • Re: The Daft Rental Report Q1 2012

    Posted By: Frank Date: Thursday June 28, 2012 @12:42PM

    Property investors seeking high rental yields are piling into the Dublin property market where rents are increasing.

    Although stringent mortgage lending conditions have eased somewhat in recent months, rental growth in the Irish capital is still being underpinned by an irrationally tight mortgage market, which is pushing potential purchasers into the rental market.

    The rise in tenant demand is in turn helping to push rental values higher across parts of Dublin; an attractive proposition for rental investors looking to secure a decent property investment in Ireland.


    “Rents have gone up recently in Dublin and in some cases people are reporting that it is as cheap to pay a mortgage as it is to rent, said Ronan O’Hara, director of Savills in Ireland. “Access to credit also seems to have improved a little.”

    Aside from increasing rents, property prices are still falling as desperate vendors slash prices in order to secure a sale, consequently pushing rental yields higher in the process.

    Unsurprisingly, one major estate agent saw a 400% hike in the volume of purchasers viewing properties in Dublin during Q1 2012, with demand generally greatest for properties in Dublin.

    O’Hara added: “Property purchasers now feel comfortable bidding because they feel there is now genuine value in the market place. In addition to this, vendors are now in the main being very realistic, so prices are fair and buyers are responding favourably.”

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  • Re: The Daft Rental Report Q1 2012

    Posted By: Realist Date: Friday June 29, 2012 @10:02AM

    Just let two properties, one in Dublin 8, got a 6.6% increase in rent - the first uplift in many years and also in Kells Meath where I got a smaller increase on just under 5%, so there are increasing signs of stabilisation on the rental side. Lack of access to bank credit may restrict the purchase market for some time, but we won't know the true impact until 2013 when the artificial stimulus of first time buyer mortgage interest relief is taken out

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