Surging rental market to increase investor confidence

Fintan McNamara, Chief Executive, IPAV

13th Jun 2007

Fintan McNamara is our guest blogger, commenting on the latest Daft research on the Irish property market.

The latest Daft Rental Report for June 2007 shows that year-on-year rent inflation is now at 11.9% - the highest growth since the Daft.ie Rental Index started in January 2002, and a sign that buyers may have new reasons to invest in Irish property.

It marks a total change in mood in the rental market compared to the 2001-2004 period, when rents fell by up to 20%. Falls at the time were partly due to the introduction of various section type reliefs, such as the expansion of Section 50 relief for student accommodation and the introduction of the Rent a Room scheme, as well as the prevailing low interest rates.

In urban areas and college towns, the findings from this report tally with the recommendation from the Union of Students in Ireland (USI) that students requiring accommodation from September should secure their accommodation at least three months ahead of the academic year. The Report from Daft.ie clearly indicates that sourcing quality rental accommodation is becoming as much a problem as was the case in the late 1990s.

The surge in the last two and half years is in no small way due to strong demand arising from significantly increased immigration following EU expansion. Estimates vary but this could be as much as 150,000, many of whom are seeking rented accommodation. Furthermore, the eight increases in interest rates since December 2005 have undoubtedly contributed to higher rents.

It is noticeable from the Report that there is a significant drop of 1300 in the number of rental units advertised on Daft.ie this year in comparison with last year. This indicates that many tenants may be staying put in their accommodation. It may also be that tenants are availing of increased rights in the form of part four, or four yearly cyclical tenancies, introduced in the Residential Tenancies Act 2004 (RTA 2004) in increasing numbers.

The average rent nationwide now stands at just under €1,400 - almost €300 more than for the equivalent figure in May 2004. This is a major jump and equates to an increase for the period of 27%. The Report shows rents have increased in Dublin by on average 12% during the past year, with the increase in Limerick and Cork even higher at 14%.

Dublin 2 remains the most expensive location for renting a two-bedroom property (€1,751 on average) with Dublin 4 (€1,694) and Dublin 18 (€1,602) also above the €1,600 mark. A two-bedroom apartment in Cork city costs on average €1,028, compared to €921 in Galway, €790 in Limerick and €743 in Waterford.

West and North County Dublin remain the most affordable locations in Dublin for a two or three-bedroom property, based on a typical joint application and mortgage interest relief.

For a two-bedroom property, where one double-room is let out, the typical net mortgage burden in these areas is just €861 (North Co. Dublin) and €824 (West Co. Dublin) - all other areas in Dublin typically cost more than €1,000. Put another way, with post interest relief post rent-a-room income payments of just over €1,000, it's cheaper to buy a 3-bedroom property in West Co. Dublin and let a double-room than it is to buy a 2-bedroom property and rent out a room anywhere else in Dublin apart from North Co. Dublin.

For investors, expected yields generally remain below 4% but have risen in recent months. Average yields are highest for two-bedroom properties (3.55%) and lowest for five-bedroom properties (2.71%). Regionally, the highest expected yields are to be found in Dublin City Centre (3.97%) and West County Dublin (3.88%). Outside Dublin, average yields remain highest in Limerick City (3.79%), followed by Cork City (3.52%).

The consensus among many economists is that house price inflation has been of the order of 300% over the last decade. The Government's intervention in the property market in April 1998 failed to check house price inflation but caused rents to rocket, which in turn led to calls for rent control. A housing commission was set up to increase security of tenure for tenants and within three years the government gradually reversed all the measures set out in 1998, but retained the penal stamp duty rates. Interestingly, although some 2700 disputes have been lodged with the Private Residential Tenancies Board set up under the RTA 2004, disputes in relation to market rent have hardly featured at all.

What is remarkable is that prior to 1998 - when the government took action on spiralling house prices - it was widely believed that rents were tracking runaway house prices. Now, rents have increased significantly while the housing market is showing signs of greater stability. However it cannot be too long before houses prices resume their inevitable upward trend. The report by Daft.ie will be good news for those investors interested in buying property to let, as they can expect strong rents for the foreseeable future, in comparison with more recent fixations solely on capital appreciation.



HIGHLIGHTS:


           The Daft.ie National Rent Index


           Irish Rental Market Falling Supply 2003-2007


AVERAGE RENTS SNAPSHOT:


Average Rents across Ireland in June 2007

Discuss This Article

  • Re: The Daft Report June 2007

    Posted By: Liam Date: Wednesday June 13, 2007 @08:06AM

    Your figures are correct but out of date, not many people around who are interested in Q1 2007 rental inventory at the moment. For an up to date perspective please look at daftwatch http://daftwatch.atspace.com/daftcounty_1.html .
    For those who aren't bother looking , rental inventory is up 60 percent since end of Q1

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  • Re: The Daft Report June 2007

    Posted By: SafeAsHouses Date: Wednesday June 13, 2007 @09:30AM

    Hmm, why does the report only go up to March? The number of place for rent has gone from 4000 in March to 5700 now?

    http://daftwatch.atspace.com/

    There are way more places for rent now then there has been since last July!

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  • Re: The Daft Report June 2007

    Posted By: howzat! Date: Wednesday June 13, 2007 @09:39AM

    Hello,

    It's interesting that the rental inventory on Daft in the middle of June 2007 is up nearly 50% since the middle of March 2007 but the report makes no mention of that.

    Rental inventory up nearly 50% in three months. WOW. Now that's newsworthy.

    Howzat.

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  • Re: The Daft Report June 2007

    Posted By: John Date: Wednesday June 13, 2007 @12:38PM

    I think the report only covers to the end of Q1, i.e. end of March, so that's probably why the more recent info isn't in it. Next report (Q2) should make interesting reading!

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  • Re: The Daft Report June 2007

    Posted By: Simon McCormack Date: Wednesday June 13, 2007 @12:39PM

    I have rented out a number of properties over the years and alwyas found there was a mad rush at the start of the summer to try to get new tenants. Would this explain why there is a large jump?

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  • Re: The Daft Report June 2007

    Posted By: YellowBrick Date: Wednesday June 13, 2007 @12:47PM

    That rush of supply back on to the market usually coincides with the colleges finishing up for the year (early - mid May) and the students going back home - it's a cyclical thing, so I'd expect supply to plummet as demand soars again around late August-early September.

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  • Re: The Daft Report June 2007

    Posted By: Declan Date: Wednesday June 13, 2007 @09:41AM

    A very interesting report but I have to question the volumes that you are quoting on your report!
    I've kept track of the volumes for rent on Daft in the Dublin area since January and from my calculation there has been a 22.6% increase in the numbers of properties for rent!

    Therefore there is not a tightening in supply!

    Also, I would agree that rents are increasing but it is not due to a tightening in supply, it is due to a higher quality of supply that has a higher asking price!

    I can point out a number of occasions where rents have stagnated or even decreased as the quality of the property is so low!

    From an annual perspective Dubin 2 will obviously show a dramatic increase due to the thousands of new appartments that have come on the market in recent months. Prior to this the best you could expect from the same region was a 2 up 2 down terrace house, shared by a student or a group of young adults!

    This report is not really of any benefit as it is edited in a biased manner and doesn't give an accurate picture!

    The volumes are increasing and will continue to increase in the comming months! Landlords need to give more to get more! Higher quality appartments will fetch a higher rental yields!

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  • Re: The Daft Report June 2007

    Posted By: A. Nunnimus Date: Thursday June 14, 2007 @02:03PM

    "From an annual perspective Dubin 2 will obviously show a dramatic increase due to the thousands of new appartments that have come on the market in recent months."

    What an odd statement! Such a large increase in supply would cause rents to fall, not rise!

    "from my calculation there has been a 22.6% increase in the numbers of properties for rent! ... This report is not really of any benefit as it is edited in a biased manner and doesn't give an accurate picture!"

    What exactly are you accusing Daft of? In what way have they been biased? And more importantly, why would it be in their interest to tamper with the message. These reports have caught on because they're ahead of the rest - and right. If they start twisting messages and are subsequently found to be wrong (e.g. about whether supply is up or down), surely that would damage the report. I just don't see why it's in their interest to fiddle with the numbers.

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  • Re: The Daft Report June 2007

    Posted By: BackAtHome Date: Thursday June 14, 2007 @02:35PM

    I think most of the confusion here is being caused by the fact that the report is for January - march, but the folks here who have been keeping their own figures are looking at January - June data, hence the discrepancies (report says fall, guys here say increase).

    I would also disagree about the report being biased - the figures are what they are - and as has already been pointed out, if Daft were just making up the figures to fit a certain point then the report would have long ago lost any credibility

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  • Re: The Daft Report June 2007

    Posted By: Tom Date: Wednesday June 13, 2007 @11:38AM

    "However it cannot be too long before houses prices resume their inevitable upward trend..."

    Is there anyone left in Ireland, other than vested interests such as this gentlemen, that actually believe this?

    Irish house prices reached current absurd levels with the help of ECB rates at 2% and insane borrowing. Spain and Ireland are the "bad boys" of the EU in this regard.

    Those days are gone. Interest rates have doubled and continue upwards. A readjustment in prices is inevitable.

    As an article in the UK Indo humourously pointed out, there is a certain biblical morality about the way the single currency has affected the different economies. The wise and prudent Germans are being rewarded for their self-disipline and the more reckless and short-sighted Irish and Spanish are being punished.

    It is more fun for many, of course, to be involved with the Irish property bubble, but the party is quickly drawing to a close.

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  • Re: The Daft Report June 2007

    Posted By: Harray Date: Wednesday June 13, 2007 @12:35PM

    Good work Daft - I'm glad to see open dicussions

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  • Re: The Daft Report June 2007

    Posted By: Augustine Date: Thursday June 14, 2007 @07:50AM

    The report says the number of houses for renting has decreased, but look the number of houses for sale. Before election date the no. of houses for sale on daft.ie was 92000 but now within 3 weeks it has reached 114,000. Owners want to sell out the houses instead of renting due to interest rate hikes and softening housing market.

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  • Re: The Daft Report June 2007

    Posted By: John Mac Date: Thursday June 14, 2007 @10:14AM

    Rents are increasing but capital appreciation is not, property investors in Ireland mainly are investing in the capital appreciation as opposed to the rental yields.

    They don't really care if rents are going up, as long as capital appreciation isn't they want to sell. Hence the large amount of properties for sale, short supply of rental properties.

    I've seen it happening now in a lot of rental properties where the landlord is putting the house up for sale and not looking for new tenants.

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  • Re: The Daft Report June 2007

    Posted By: Nostril Damus Date: Thursday June 14, 2007 @12:36PM

    "However it cannot be too long before houses prices resume their inevitable upward trend"

    This guys clearly has a vested interest in perpetuating the myth that the property market here has just started its crash.

    Interest rates go up, house prices go down. It's an age old idea, at the heart of modern economics.

    In my humble opinion this article is a feeble attempt to spin good news on the prospects for property investments.

    It is weak, and I think it will damage the Daft franchise in the long run. Stupid people don't notice these reports anyway so nonsense won't put them off daft.

    Those with a basic awareness of economics will be the ones reading this stuff, and they will be put off the "wisdom" of Daft's reports. Pity, because the first few reports were pretty good.

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  • Re: The Daft Report June 2007

    Posted By: Al Date: Monday June 18, 2007 @01:09PM

    "Interest rates go up, house prices go down. It's an age old idea, at the heart of modern economics." - someone wrote in response to Daft Report June 2007.

    However;

    There is no evidence that suggests that interest rates will be rising indefinitely. They will fall as well, and then house prices will rise dramatically. In the meantime watch what will happen when stamp duty if reformed this year..

    In current demographic situation there is no question of supply meeting demand in most areas.

    I would suggest, however that Irish housing marking will become even more sensitive to location and area.

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  • Re: The Daft Report June 2007

    Posted By: Holger Date: Tuesday June 19, 2007 @02:40PM

    well the situation is really strange - the interest rates are rising - strong demand on the rental market - from my point of view a lot of property on sale - the strange thing is on the rental market some locations that were cheaper up to now are getting more expensive - e.g. Bettystown/Laytown - already county Meath but not completely unattractive becaue of the dart connection to the city - I don`t know if many first buyers can`t afford their mortgage any more this will effect the market - surely the banks can`t buy all this property back and rent it to the former owners or am I wrong ? don`t get that at all - I am waiting for the prices to correct but instead in some locations they are still going up

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  • Re: The Daft Report June 2007

    Posted By: Maxwell Scott. Date: Wednesday June 20, 2007 @08:01PM

    Prices will go through the floor in the next 1 2 years and about time.

    Banks getting nervous - they are going to loose, no point having 1000000s keys to something worth less that was loaned.
    Supply - There is a huge supply of apts about to hit the market.
    Over priced - Prices are way over what they should be, sanity will prevail.
    Cost of property versus rental income does not compute here. Correction time.

    I will be picking up the keys for a new 2 bed for the price of a 5 VW Golfs by the end of this year, that all a few bricks is worth.

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  • Re: The Daft Report June 2007

    Posted By: AN Other Date: Thursday June 28, 2007 @10:00AM

    The most persistent explanation of house price increases for the past 5 years was that everybody needs somewhere to live. Now that everybody has a place to live (including some that are likely not able to afford it), and lots left over, what can we expect to happen to residential property prices?

    Investors are sitting on big mortgages with a consensus view that the days of capital gain are over (and with serious downside risk). Unfortunately, the differential between rent and interest income (which, without capital gain, appeared a very poor investment) is getting worse by the day.

    The free lunch days are over. Common sense is at last getting a say in the Irish market. The fact is, better returns are available by strolling down to your local bank branch and handing over your hard earned cash with zero risk to your capital.

    The biggest worry is for the economy. The lost jobs in construction and subsequent lost income tax, the lost stamp duty, the increased social welfare burden (don't bank on the good people who helped build it all leaving quietly and on que when we decide the time is right).

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  • Re: The Daft Report June 2007

    Posted By: Ronan Date: Thursday June 21, 2007 @12:16PM

    I think the reason the Rental market is getting so strong is fairly obvious! You'd be crazy to buy right now!

    There is a standoff between buyers who are deciding to rent paying the 20,000 for a years rent because the amount that goes against the mortgauge is NOTHING comapred to the drop that buyers anticipate for the next year (or two). Its people like me who are talking with their wallets. If prices were stable i'd buy, however I expect them to drop dramitically therefore i choose to rent untill they do. As prices decrease more people will leave the rental market, it too will take a massive hit and the many amature investors with only a few properties will have the horrible taste of bankruptcy.

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  • Re: The Daft Report June 2007

    Posted By: Anonymous Poster Date: Wednesday June 27, 2007 @05:17PM

    Limerick is the dark horse here Investors will buy to let before prices catch up with the general market.

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  • Re: The Daft Report June 2007

    Posted By: Holger Date: Monday July 16, 2007 @11:16AM

    "The biggest worry is for the economy. The lost jobs in construction and subsequent lost income tax, the lost stamp duty, the increased social welfare burden (don't bank on the good people who helped build it all leaving quietly and on que when we decide the time is right)."

    I strongly agree to that - as soon as it won`t be possible for foreigners to get a job here and the migration falls sharply this will speed up the whole correction on the property market - the property market is putting unnecessary risks on the Irish economy - face it - Ireland has no real export - there is a danger for US corporations moving on to Poland with their EU business and their service centers - and the development on the property market in Ireland has more severe effects than in other countries

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