Double-digit rent inflation a warning sign for policymakers

Ronan Lyons, Economist

9th Feb 2014

Ronan Lyons, Daft's in-house economist, commenting on the latest Daft research on the Irish property market.

Double-digit rent inflation a warning sign for policymakers

The latest Daft.ie Rental Report shows that rents in Dublin in late 2013 were rising at 11% a year, the fastest rate of inflation in rents since mid-2007. Coupled with a 5% increase in rents in 2012 - and a marginal increase in 2011 - this now means that rents in Dublin are almost 18% higher than they were when they reached their lowest point in mid-2011.

While Dublin rents remain just over 15% below the peak seen in mid-2007, they are effectively at the same level as early 2006, when the average rent in the capital was €1,250. In contrast, rents in Munster, Connacht and Ulster are about 20% lower now than in early 2006 and did not increase during 2013. The rental market in Ireland's four other cities and Leinster is between those two extremes, with rents rising by 4-5% during 2013 but still 10-15% lower than in early 2006.

The latest figures confirm a trend that dates back three years, when falls in rents stopped abruptly in Dublin but largely continued elsewhere. To understand these trends, one need look no further than the laws of supply and demand. The graph below shows the number of properties available to rent on the first of each month, from the start of 2006 to February 2014.

The sharp fall in rents across the country in 2008 and 2009 was associated with a significant increase in the number of properties available to rent. Since then, though, there has been a sharp fall in stock sitting on the market, particularly in Dublin. A prospective tenant looking for a place to live in Dublin in February 2009 would have had almost 6,700 units to choose from. Five years on, there are fewer than 1,500 to choose from, less than half a month's typical supply.

Meanwhile, demand is clearly city-led. The young make up the bulk of renters and where they choose to live is driven by one factor above all others: the availability of jobs. As is the case with all other developed countries, Ireland's rural areas simply cannot create jobs as well as Ireland's cities so, for those who choose to stay in Ireland as they enter the labour force, it is the cities where they look for a place to call home.

The clear signals the market is sending out about a surplus of demand over supply in Dublin in particular raise questions about Ireland's construction sector. The 36 months from January 2011 to December 2013 saw barely 2,000 new dwellings started in Dublin, whereas best estimates suggest that the capital currently needs that number of new homes every four months. Until construction restarts in Dublin in a meaningful way, it is quite likely that we will see rents continue to rise in many parts of the city, while the next generation of tenants is pushed further out from the city and their jobs.

For much of the last half-century, with renting in decline, trends in the rental sector were something of a niche interest. However, the fraction renting in Ireland has doubled in less than a decade. With nearly one in three households now renting, the rental market can no longer be treated as a topic of only secondary importance. Ireland's competitiveness depends on cheap accommodation - both for sale and to rent - so double-digit inflation in rents concerns everyone.

HIGHLIGHTS:

Rental Price Index
Rental Price Index

Stock and flow of properties
Stock and Flow of Rental Properties


SNAPSHOT:

Snapshot of Rental Prices Nationwide
Snapshot of Rental Prices Nationwide

Discuss This Article

  • Re: The Daft Rental Report Q4 2013

    Posted By: Joe Date: Monday February 10, 2014 @10:23AM

    Rents are still well below 2007 leavles. But if we are going to blame someone it should be the governments new policy of raising tax by taxing property both private homes and comercial property, landlords costs have dramatically increased and a lot of new reqirements and charges.

    Rates
    Property tax
    increase in Interest rates on loans
    Insurance
    Energy costs
    waste colection
    Prtb registration
    Income tax
    B.E.R. energy rating certs required now for renting
    New property standards compliance (major cost)
    soon now water charges

    All these put pressure on to increase rents.
    Otherwise landlords just exit the sector which they have being doing in droves over the last few years because of lack of profitability.

    Far greater return in irish gov. bonds!!!! (but risk) ?

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Selina Date: Monday February 10, 2014 @02:53PM

    As the early sunshine of the property recovery sparkles across Dublin city , many are dazed by the new reality and unable to see clearly. As with shock of the banking crises that rolled out into a property crash many are in denial but through gritty realism rental prices explores the hidden needs that drive often baffling human behaviour. Many rental judgements are open ended but we draw fundamental truths from the lack of supply , shining a searchlight into the dark corners our lack of understanding . The builder /developers are gone, housing need remains in Dublin for families who want homes. Noonan talks about 30,000 houses that need to be build each year , realistically that is not going to happen in the next 5 years. Rental prices going to rise by 30% - 35% in Dublin in the next 3 years .. I am talking year on year cumulative effect

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Don Date: Monday February 10, 2014 @05:07PM

    Its surely cheaper to buy than rent plus you own the property afterwards , renting is dead money , if you pay a mortgage some is interest some goes to repay the loan so its only the interest thats the cost , My mortgage is €300 next doors rent is €650 , my monthly interest is only €60 thats the real cost .

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Bob Date: Wednesday March 12, 2014 @10:32AM

    @ Don,

    You're thinking is correct, except you have to value the foregone return on the equity you have in the house as well, then add in things like property tax and repair

    Example:

    Don owns a house worth 150,000, on which he owes, say 50,000, and makes payments of 300 (of which 60 interest) monthly on this. The average monthly cost of repairs and taxes comes to 180, so his net cost to live is 240.

    His neighbour rents and pay 650, but in doing so gets to keep his (equivalent) cash pile of 100,000 which he invests at, say, 5% net return per annum. This equates to a monthly return of 417. If he uses that to pay his rent, he is left having to cover 233 a month.

    So in this example, Don's neighbour is actually 7 euros a month better off renting.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: TC Date: Monday February 10, 2014 @07:27PM

    The shortage isn't all just about increasing construction levels. Residential landlords still won't buy (no matter how many properties are brought to the market) unless it makes financial sense. At current yields, it makes sense if you are buying with cash, but in many cases it makes no sense if you have to borrow (depending on how much bank interest you are paying). This is because of the 75% interest restriction introduced in Emergency Budget 2009.

    Let me give a simple example:

    < a landlord with several buy to lets has rents totalling €100,000
    < he pays the bank interest on his loans of €100,000.

    For tax purposes, he has broken even and was therefore deemed to have no tax liability. However, from 2009 onwards, he can only subtract 75% of the €100,000 bank interest (i.e €75,000) as an expense from his €100,000 rents, leaving him with a false profit of €25,000 taxable at 52% which is the effective tax rate.

    This means that the landlord who,in reality has made no profit at all, has to pay tax of €13,000! However, if he were to let out the same properties for commercial use, e.g. as dental or doctor's surgeries, he can still deduct 100% of the bank interest and on the same set of figures, would have no tax liability at all!

    It's no wonder therefore that mortgaged residential landlords are leaving the business in their droves as it has become a business for the wealthy cash investor who pays no bank interest and is therefore unaffected by the 75% restriction and only pays tax on his real profit.

    The formula for calculating the tax liability for a mortgaged residential landlord is real tax liability plus an additional 13% of whatever interest has been paid to the bank (52% effective tax rate x 25% bank interest disallowed).

    Ronan Lyons appears to have taken no account of this change to the tax code which will have a huge negative impact on the number of residential rental properties coming onto the market in the future.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: barnie Date: Monday February 10, 2014 @08:25PM

    who would want to be a landlord taxedto the hilt

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Mario Date: Monday February 10, 2014 @08:44PM

    I believe Landlords are just plain greedy and use the new regulations such as BER and Water costs as an excuse, plain and simple. I, as a tenant have to pay for bin collection, electricity, water, tv, internet, phone, gas boiler/garden maintenance - not the landlord. I'm the one who get's hit by increasing energy prices.

    I've been renting houses for as much as 1800Euro/month. The mortgage on these houses is as low as 700Euro/month, what is the rest of my rent used for, I wonder... Especially, when considering the poor quality of housing in general (mold, draught, leaking roofs, bad insulation etc.) and landlords constantly failing to fix indicated defects and even trying to blame those on the tenants, taking a generous amount out of the tenant's deposits to get their own homes fixed/modernized/extended.

    The housing situation in and around Dublin is a disgrace. It's almost an insult having to look one of those obese, grey haired people into their greedy eyes when handing them the rent + 1, 2 or 3 months deposit. All they do in return is buy more property in order to exploit even more hard working people.

    In my opinion the rent prices could be brought down significantly by limiting the number of properties a single individual may own and highly taxing any additional properties, which are clearly owned for speculative reasons.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Anonymous Poster Date: Monday February 10, 2014 @10:24PM

    Mario, You could well do with reading your response again.
    *You say landlords are greedy, do you know all of them or maybe just 5 or 6?
    * How do you know what the mortgage is on a landlords house? A house for €1800 per month will cost €350,000 min. The rent wont cover that.
    *Some landlords are inconsiderate as are some bin men, gardai, doctors and tenants. But not all. Consider perhaps that some landlords may not be able to afford repairs or upgrades. How do you know what they spend their money on?
    *your notion of obese, greedy, grey haired people with greedy eyes is more a reflection on your bitter view of the world which probably translates into explaining your experience thus far. An experienced agent / Landlord can spot an aggrieved potential tenant a mile off. That is probably why you are having such a bad time.
    *My advice is to lighten up, smile and your life will improve immeasurably.
    *If landlords were restricted as you suggest, then mobility in the workplace would be lost and all would suffer, including you.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Stavros Date: Tuesday February 11, 2014 @12:23AM

    Looking to enter the property market before prices start to spiral . Had considered buying an apartment ( near luas line south ) and leasing it for a few years before moving in . Is this a good idea with rising taxes ?

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Ken Date: Tuesday February 11, 2014 @12:54PM

    It’s no surprise that rent continues to increase in the Capital due to a lack of supply of properties to rent. This is not dissimilar to what we are seeing in the increases to property prices seen recently, particularly in the Capital.
    Everything centres around two main factors, supply and demand. There is ALWAYS going to be a level of demand for property, both to rent and to buy.
    Some rent because they cannot borrow and therefore cannot buy. Others rent because they need to live in an area for a particular amount of time but do not want to live there forever, e.g. working in Dublin but wish to raise a family in the country.
    Some people buy as they feel renting is a waste of money; they are “paying someone else’s mortgage”. Others buy because they can or it makes sense given their personal circumstances.
    As years go by, people grow up and this will always feed the demand part of the equation.
    Supply is the issue at the moment and will continue to be for the next few years. Lack of supply makes demand appear higher. This results in higher prices both for buying and renting. It’s like any commodity. Do you think gold would be as expensive if it grew on trees?
    A low supply will make whats out there more expensive. Ramp up the supply and watch the demand equalise and prices will stabilise. But there sits the biggest problem of all. Why are more people not selling? Why are more people not putting property up for rent?
    The answer is pretty simple. The solution isn’t. To put it simply, people aren’t selling unless the sale of the property makes sense for them. If they have a mortgage on the property, the sale will need to cover the mortgage. To put it briefly, anything in negative equity is goosed.
    If people aren’t selling, then people can’t buy. If people can’t buy, they still need to live somewhere so they rent. If these new renters can’t buy, they will stay in the rental properties and supply of rented accommodation goes down. One system is affecting the other.
    So what needs to happen? People need to be able to sell. How can they sell? Well some might suggest that the U.S. property market have a good system where negative equity does not exist. You simply return the property to the bank and walk away, no shortfall of debt. How could Ireland do this? Debt forgiveness.
    Now it would need to be properly regulated or all hell would break loose, but the noose around peoples necks due to the recession will continue to cripple the entire property market until its addressed.
    When people can sell, they will. When this happens, supply goes up. When supply goes up, demand stabilises as do prices. Then market confidence returns. When this happens, banks can lend, make a return on mortgages which increases profits and the economy begins to prosper.
    Some will return comments saying the above is over simplified and it is. I’ll be the first to admit it. But please give me a valid alternative or prove that this is not what is needed.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: John Date: Wednesday February 12, 2014 @01:37PM

    Ken

    Are you missing something here ? when someone sells a house they usually move to another house , they is no increase in supply. Only building new homes increase supply, which will not happen until prices increase and these is a profitable businss case for building new homes.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Ken Date: Wednesday February 12, 2014 @02:57PM

    Hi John,

    Valid point, there is absolutely a need for new houses to be built. This however is not the sole method to increase supply. The Celtic Tiger brought many part time investors with it. Plenty of "non professional" investors bought a second property and have mortgages on these. Where these are being rented and mortgages are being paid, there is no issue. But where they are not rented, or where there are mortgage arrears, these wannabe investors cannot get back out of the mistake they made when they thought they could conquer the investor market. This is just one example of another area that could supply property to the market.

    On the note of new homes not happening until prices increase, can we have comments from actual builders or quantity surveyors who will actually know of the cost of building a property. I completely agree that in some areas, the cost is still higher than the sale price, but I'd be surprised if this was the case everywhere.

    Ken

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  • Re: The Daft Rental Report Q4 2013

    Posted By: frank Date: Thursday February 13, 2014 @03:27PM

    I a small Dublin Builder/ Developer

    A site for a typical three bed cost about €150 per sq ft , to build about €240 including roads, fees etc , then you put in risk and profit for say €100 per sq ft , that totals €490 per sq ft ................problem is you can buy a similar house for €350 per sq ft ... that means FACT prices need and will rise before builder will turn a sod to make a living.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: TC Date: Wednesday February 12, 2014 @09:46PM

    Hi Ken, as we know, there is currently a large shortage of properties available to rent in certain locations. Most investment properties which are not rented (i.e. vacant) are therefore probably vacant because they are located in areas where there is no demand. Bringing them to the market will do little or nothing to increase supply in the areas where there is demand.

    Where there are mortgage arrears on a tenanted investment property which is repossessed and then sold to an owner occupier, there is still no increase in the overall number of housing units in existence. Also,the tenants who have moved out of the repossessed property will have to be housed somewhere and will add to the rental demand. Effectively all that has happened is that a rental property has become an owner occupied property with no change in the number of houses.

    The construction of new houses will not necessarily bring a large increase in the supply of rental properties. Many potential investors who need a mortgage to fund the investment will not be able to afford to pay an additional tax of 13% of whatever interest they pay to the bank (a consequence of the 75% interest restriction).

    The Government has a contradictory tax policy in place at the moment in relation to residential investment properties. There is an incentive in place (7 year CGT exemption provided purchase made by 31 December 2013) but also a massive disincentive in the form of the 75% restriction which, as things stand , lasts for the lifetime of the mortgage.

    Many residential investors are looking instead to the UK where 100% bank interest is still allowable and the wear and tear allowances are far more generous.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Anonymous Poster Date: Thursday February 13, 2014 @09:17AM

    This current situation as regards rising house prices and rents is down to the single fact that there is a shortgage of housing. Unless this is addressed properly by goventment intervention we are going to see month on month increases untill we get into unsustainable territory again which will create a bubble, will burst and created even more hardship and pain.

    We will then be back to square one yet again, the only difference this time is that we have been down this road before, so where is our hindsight? and to be subject to the same outcome a second time with polar opposite economic and credit conditions where people will knowingly overstretch themselves is just sad.

    Vested interests must be at play here and joe public will be left to foot the bill yet again.
    The more the Irish property market unfolds the more it is realised that to have a fair and healthy market in this country is not in the Interests of the powers that be.

    I for one would consider emigration rather than to buy into a system that is totally manipulated and not functioning properly and could leave me a debt slave for the rest of my life.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Bob Date: Thursday February 13, 2014 @11:14AM

    Oh Anonymous Poster you have hit so many nails right on the head!!

    I totally agree that a new bubble in the capital is working its way into existence, proving that we as a society have learnt nothing from the last 5 years.

    I take previous points that new builds are required to assist with supply, however when the recession first hit, the properties we NOW see rising rapidly in price, contracted just as rapidly back then.

    One could argue that we can't/won't build on top of existing properties so new areas need to developed to live in. These may not be as attractive. One could argue that attractive areas will therefore retain their value. The problem is, the recession proved this to be untrue. Sunny Southside areas took sizeable price hits and will again if a new bubble is allowed to take hold.

    The government needs to get a proper hold on the property market. If they have 80 million to spend on consultants for water, surely they have a few euro to investigate the property market.

    Surely any economist, property expert or half educated Joe Soap can see that we are lining ourselves up for a fall again. You will however note that banks are not at the centre of this one. They've wised up, why has nobody else?

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  • Re: The Daft Rental Report Q4 2013

    Posted By: James Date: Friday February 14, 2014 @01:56PM

    Bob,

    The government will wait until the problem grows to extremes , then the next government will offer incentives to developers and when prices increase to make a profit then construction will begin. In 3 years time house prices in Dublin will have doubled.

    Its worth considering that Dublin house prices are 66% lower than average London prices, both markets suffer from lack of supply.

    Read this in 3 years time and you will know I was right

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Bob Date: Friday February 14, 2014 @02:16PM

    James,

    I don't disagree with what you are saying, but if Dublin prices double, who will be buying them? By this logic, a 2 bed apartment currently for sale in Dublin for 250K would cost 500K.

    Using a standard mortgage calculator online, a single borrower earning a gross income of €100K p/a can borrower about €470K. Not too many people would consider €100K p/a to be an average income, yet many would consider a 2 bed apartment as a starting point for buying into the property market, not what they would hope to end up with when they are maxed out on a top income.

    This is simply not sustainable.

    You are possibly right that the government will not act until the problem grows to extremes, but this does not make it right.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: john Date: Friday February 14, 2014 @04:19PM

    Bob,

    In london people live in much smaller places , you get 2 people living in 500ft2 and a whole family living in 900ft2 , this is what why its sustainable and why more and more Dublin people will live in less and less space and its all more afforable then. You can get two couples living in a 2 bed apartment in London then £500K is not a bad deal.

    Lack of supply always leads to increase prices ....... if the banks never lend a other cent this will happen .. investors are already yield 10 - 12 % in dublin . why would anyone put money in a pension.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: nostramartus Date: Friday February 28, 2014 @05:12PM

    I can't understand how anyone can seriously compare Dublin and London rents, even the most patriotic Irishman would have to concede that London has a population of 8 million and is the capital of a country of 63 million people. It's one of the world's most stable financial centers for over 100 years and the British economy is improving. I don't mean to insult Dublin it is a center for some of the world's best I.T. companies which is bound to distort rental yields in some areas,but lack of supply is largely a demographic issue where supply isn't meeting demand. Over 300,000 people have emigrated, we have an unemployment rate of 12% and N.A.M.A is only now finally unloading apartment blocks to foreign investors.

    Some of the near 100,000 properties behind on repayments are made of investors who bought multiple properties, when you combine these with the N.A.M.A apartment blocks many renters will become owners. The country can't afford to have the property market atrophy any longer, despite the government assurances foreign companies are buying these mortgages to process them and make a profit as quickly as possible. Buy to let investors are going to get burnt alive.
    Investors believed the banks would renegotiate loan payments and they would only have to pay back half their mortgage, in some isolated owner occupier cases this happened, with the banks now largely removed from the equation these foreign companies can sell to people who can make the payments without depending on rental yields.
    For 6 years we've been listening to predictions of price stabilization, ultimately renters will be forced into longer commutes to work as their need for 3 bedroom family homes increases, in the mean time a section of Irish society with no rights as tenants will continue to be bled as they struggle to pay back student loans on top of rent. 80,000 students have got places in colleges this year, a degree in U.L. or U.C.C is worth the same as one from U.C.D, rents will force them out of the capital as more and more realize there are no jobs waiting for them.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Anonymous Poster Date: Friday February 14, 2014 @04:51PM

    Fair point about London, but I doubt Dublin is going to knock its property down to build new smaller properties on top on the remains.

    On another note, Dublin would love to be successful as London, but the reality is that Dublin does not have the infrastructure to come close to London.

    If 2 bed apartments rise to €500K a pop, I'll eat my hat

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Dave Date: Monday February 17, 2014 @04:51PM

    If property was worth 500k for a two bed six years ago...it can feasibly be worth 500k in six years time. Those who say that that's impossible would probably have said the same back in the nineties. There will always be vested interests here. Those that lost loads due to the property crash and those that were fortunate to sell at the height of the boom and are sitting on a fortune. Either way housing cycles go up and down. Prices are low now...it's clearly a good time to buy for everyone..especially those who begrudge landlords raising their rents.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Jim Date: Monday February 17, 2014 @05:01PM

    Anonymous Poster

    you may well be eating a lot of hats , prices are going to be above 2007 levels by 2015 at the latest , there is not a builder in sight , only 2000 new homes built in Dublin in the last 4 years , its not only hard to get a property to buy , rental is now in short supply , give it 12 more months another 16000 new couples will have formed looking for new homes ..... what going to happen then ? More and more people fighting for less and less property to rent

    In London people spend 40 to 45% of there income on rental , in Dublin its about 25 to 30% , people need to accept that a place to live is there number one cost.... its go a long way to go.

    Real Investors do not need banks when you can yield 10% plus.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Paul Date: Tuesday February 18, 2014 @09:07AM

    Jim,

    Why would anyone want this? Is it because you have a property which is in negative equity and want to be free of debt and be able to sell at a profit?

    If properties do continue to rise we are only going to see a property crash and it will happen long before prices reach that of 2007 for the simple reason that that amount of credit will never be available again from any bank, unemplyoment rates will not drop to the levels of 2007 in that period of time, the absolute multitude of taxes that we now pay decimate salaries not to mention gross salaries being alot less without taxation these days. Job uncertainty is a major factor also, I could go on and on

    The current situation is heading for a second property crash and the only way that will be resolved is if there is a major influx of properties being built year or year to ease pressure of the current bubble bubble forming.

    Only then will be see houses reach their true value which will mirror our economic condtions and when our economic conditions improve prices will rise.
    This is what a proper functioning market does.

    What is happening now is farcical and will implode before any good comes to this country. Maybe then we will have learnt our lesson about property including the Governtmen and maybe then the government will create a building industry to supply decent housing to its citizens instead of seeing the current rising property prices as a good thing which it is not as its doomed to failure.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Bob Date: Tuesday February 18, 2014 @12:36PM

    Paul,

    Finally, someone else is writing something with an element of sense to it!

    Previous posters are talking about property cycles and prices returning to 2007 levels. This is utter nonsense. As you stated, the amount of credit that was available in the past will never be available again. Banks simply won't release that much in such a relaxed manner again. They are learning their lesson.

    As I said myself in a previous comment, if the price of 2 bed apartment rises to €500K, a borrower or borrowers will need a combined income of €100K per year just to meet bank debt service ratios. If we are talking about €500K for a 2 bed apartment, what are we looking at for a 3 bed semi, a property one would argue is the average property size needed for a family of 4.

    Oh and FYI, while yes there is a need for new building, there are properties in NAMA and in repossession that could be sold. Others are part completed and could easily be completed and rented/sold. Look at the eyesore up at the Beacon in Sandyford, that thing must be 10 stories high, just waiting to become apartments.

    I wonder how many of the posters saying prices will return to 2007 prices are people who just want the prices to return to those levels and how many are people with actual knowledge of the industry?

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  • Re: The Daft Rental Report Q4 2013

    Posted By: arthur Date: Tuesday February 18, 2014 @03:06PM

    Jim,

    Look what is happening in the market.Kennedy Wilson etc and the newly formed

    R E IT S are not only buying commercial property,but apartment blocks.This is new to

    Ireland the buying of near finished and finished apartment developments by venture

    funds.If they hold for 7 years the pay zero capital gains.This is of course only a Dublin

    issue.In effect any new supply coming will be controlled by venture funds and rents

    to head higher.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Jim Date: Thursday February 20, 2014 @09:55PM

    Arthur,

    You make a very valid point............banks are becoming sidelined in the current market by highly mature investment structures backed by private funds. Banks known they are now losing market share and will soon panic offering more easy money for mortgages as more than 90% of mortgage payers return vast sums of capital to banks every month. All the board meeting in Banks HQ,s are about how to sell loans to boost profit ,shareholders are looking for return on investment.

    I work off market for a number of mainly euro investors in property in the Dublin area , we were doing about 70% completions on first offers in 2012 . Now our first offers are falling below 5% , we tend to be forced to making to 5 offers to complete , the market is now too much money chasing too little property..

    Property you want to invest in , everyone wants it ...... mainly the closer to the city centre the better ... this is an recent trend ...people want to walk or get on a bike .

    One customer from Munich completed 37 houses last year , yielding 8.7% on average ... that is good return on your money in any place.

    The government need to get a plan for building the right house in the right place ...I fear this we not happen and soon our Dublin rents will rise to central euro land levels of €19 per month per sq meter.... for some they will never own there own home ....is that a bad thing ?

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Anonymous Poster Date: Friday February 21, 2014 @12:38PM

    Jim,

    Banks will do many things, but one thing they wont do is panic and resort to offering easy money again. It simply will not happen. This is for two reasons.

    Firstly, banks have been burnt, badly, by the effects of easy money lending. Arrears are still a major factor and their cause is largely due to over lending. Some of Ireland's biggest banks are now state owned due to the bailout. Banks have wised up and WILL lend, but this lending will be under tighter control to limit the probability of arrears in the future. Loans will be structured so that if loans occur, repossession and sale of an asset will cover the underlying debt.

    Secondly, as questionable as our government is, they know that easy lending can't return because as a country we can't handle to repercussions and as a member of the EU and the Euro, we simply won't be let spiral out of control again by our European "parents"

    We can talk all we like about it, rents will rise, property prices will increase, but banks won't lend frivolously again for a long time, it at all.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: hugh W Date: Friday February 21, 2014 @05:35PM

    I don't think banks are any differant from any other business , they are motivated by profit .... lessons in banking are short lived .. look at the UK , when was hit by the global financial crises as bad as ireland .........there banks are now offering 95% mortgages.

    One other point , average london wages are £35K per annum , average london house price are £545K , there is little or no relationship between multipals of earnings and house price ... Bob keeps stating there is ?? The reason is that 50% of house both in Dublin and London are owned by investors with private wealth that do need your AIB (bust) or BOI (canadian owned)

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Anonymous Poster Date: Monday February 24, 2014 @11:32AM

    I think Bob means that income is linked to borrower capacity, and house prices are or should be linked to lender capacity.

    Standard would be that banks will lend up to about 5 times income, subject to other lending commitments and property value. E.g. if you have a car loan and credit cards, that will be taken into account when it comes to the max amounts banks will lend. The bank rules on this will be controlled tighter now than they were prior to the banking collapse.

    E.g. 2, a bank won't lend you €200K on a property worth 100K so in a way, the three pillars (income, lending capacity and value) are all interlinked.

    Plenty of comments comparing London to Dublin. While it can be accepted that with Ireland's good I.T. education and highly qualified workforce, we are not a London. Ireland's history has always been more focused towards buying rather than renting once college has been completed and careers begin. The notion of renting for life is a new idea to Ireland for the most part.

    Many Irish people will seek to purchase rather than rent into their latter years. You can take the Irishman out of Ireland, but you can't the Irishness out of him.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Tim Walsh Date: Monday February 24, 2014 @08:33PM

    The proportion of people renting in ireland (Dublin) has increased over the years and in particular since 2007. People owning their home is a thing of the past , many will never be able to afford to buy in Dublin .. like most european people 50 to 60% will rent for all their lives ....many may like to buy but the cost will be beyond there affordable range

    We must look at a place to live in a similar way to any service ....its a current expense not an investment. Those that wish to invest will do so and with high demand will make a good return. People that rent should be able to save more for retirement and pensions . Owning a house for some is living beyond one's means.

    To think that home ownership is for the majority is history, banks may push for people to take mortgages to bust profits as current owners repay each and every month ... will there be many takers ?

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  • Re: The Daft Rental Report Q4 2013

    Posted By: John Date: Tuesday February 25, 2014 @08:58AM

    Yet again we have people in negative equity predicting that housing is no longer something for a person to own just because they cannot deal with the prospect of fuure trends in the housing market dropping to a substainable level where future generations can buy their own home.

    Those in negative equity cannot face the propect that mistakes were made and those unfortunate to buy during the so called boom were caught out. The current situation of rising house prices will come to a point and collapse albeit under different circumstances than what we seen in the not so distant past.

    Markets canot be maniuplate forever, construction must start again and trends change very quickly.

    I have no idea how long property will rise in Dublin but I do know it will reach a point when a collapse will happen and more people will be left in a financial mess.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Dan Date: Tuesday February 25, 2014 @08:47AM

    I'm no expert when it comes to renting, or future planning. But how does life time renting work in practice?

    If I earn €40K now, that gives me about €2.5K net income per month. Of that, I can afford €1K per month of rent. The rest goes on a car loan, food, utility bills and so on and I might at the end of the month have a few quid to throw into savings.

    Now I threw some figures into an online pension calculator and on that particular calculator, it said I'd need to put away €827 per month from age 30 to age 68 to generate a retirement income of €2.5K per month. Allowing for tax relief at the higher rate, I'd still be looking at having to contribute €488 p/m according to the calculator.

    Now I accept that my figures are a little crude and I accept that all going well, my income will go up and so on, but if we are to become a renting society, should we not look down the line a little and see how feasible it could be?

    My father retired 3 years ago. He was a teacher and when he retired, he earned about €70K p/a. He got his lump sum which cleared the remainder of the mortgage and he now has a pension of roughly €30K. Now if he didn't have his own house, he'd still have to pay rent. How does he cover his rent, pay his utilities and food bills on today's rental prices?

    I'm afraid for our futures if we are to work all our lives renting, only to retire and have to move to lesser housing just to make ends meat.

    For what it's worth, we should still aim for buying, renting just makes the rich richer and the poor poorer. It's money down the drain.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Simon Date: Tuesday February 25, 2014 @08:19PM

    Anyone that bought property from June 2012 all the way up to July 2013 have done well and most could sell up to June 2015 max and make a handsome profit. If they were bought to live in no worries and they have bought well. Personally, I believe properties are going to remain on an upward trajectory for the next 18 months while we are spending the 24bn of bailout money in state coffers. After that you will have a return to more stable prices driven by a number of factors. Firstly, banks that are scrambling to avoid recapitalisation are not going to lend to builders. Secondly, the inevitable realisation is going to come that the economy is going to flat-line in terms of growth. Our economy is facing headwinds in terms of our obligations under both the Fiscal Compact and Six Pack. We are signed up to low growth. Consider that after all the government publicity and spin last year, only 7,000 additional net jobs were created in the FDI sector in Ireland and these jobs were created at huge expense. Without growth the debt burden becomes ever more severe creating even more fiscal drag. Thirdly, builders are not going to re-enter the market as construction teams have been decimated by emigration and builders that are still solvent (as rare as hens teeth) know, better than anyone, that recent gains could be wiped out in the blink of an eye. Costs, other than site costs and labour costs for builders have not fallen and material costs, contribution charges, water, ESB and gas connections have also not fallen and some have actually increased. Granted, some hedge funds are being tapped for site acquisition with a view to new build but I believe these people will not be able to time the market as construction has by it’s very nature a 12 to 18 month lead in time and that will be too late.

    Must mention NAMA because they are a major player. They have not sold significant amounts of their development sites and none of their green fields sites, neither have they sold down much of the 10% residential element of their loan books. By so doing they have helped to engineer shortages especially in the Dublin area. These shortages are also helping NAMA rent rolls as NAMA is now also the biggest residential rent collecting property Landlord in the country.

    What we are experiencing is not so much a dead cat bounce but rather an engineered bounce to try and avoid banks having to be recapitalised from money the government does not have. If for any reason the ECB is forced to increase interest rates our economy is immediately going to go into a reverse and all the government spinners in the world will not be able to disguise our economic reality. In conclusion property prices will rise for 18 months then resume a level trajector

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Anonymous Poster Date: Wednesday February 26, 2014 @02:08PM

    Lots of sense in what you are saying Simon, I agree with the majority.

    One would have to expect that the ECB cannot maintain such low interest rates indefinitely so it begs the question of when that will see a change.

    On the topic of NAMA, I couldn't agree more. There is sufficient property available for sale and development to cater for the growing demand for property in the capital. But it not in the best interests of NAMA or the government to release such property as this upturn in housing prices looks good on paper and can be spun into economic growth by the usual suspects.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Jim Date: Wednesday February 26, 2014 @08:55PM

    There is sufficient development land available for sale ...correct but ...

    To develop land into homes in Dublin lets say we need 10,000 units per year, that's about 850 per month , not a great deal giving organic growth and continue moves to the City. Average cost of development (land + fees+construction+ infrastructure) cost about €400 per sq ft , lets say that all units are 3 bed semi's sizes at average 1,200 sq ft , that's in total €4.8 Billion. In 2007, the builders put in about 10% of the money , the banks put in the balance and we had housing to meet our needs. Moving the clock forwards, the banks do not have the capital to give to any potential builders/ developers. The government does not have the money as the social housing list hits 98,000 people looking for homes. Only way this is going to play out is that rents are going to increase each and every month , more private investors will buy for return on yields of plus 10% and house price will increase as no housing is being built.

    Until private money is attracted into construction no homes will be build ...and no private money will be put in until house prices hit €500 per sq ft so that capital employed earns profit. When I say private money I am not talking about bust irish banks like AIB and BOI , who are now being bypassed in commercial and residential markets.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Anonymous Poster Date: Thursday February 27, 2014 @09:12AM

    Sorry Jim,

    Sounds like you know about this so I just want to clarify, are you saying it costs €400 per sq ft to build in Dublin, i.e.

    €400 x 1200 sq ft = €480K to build a 3 bed semi?

    I'm not saying you are wrong, but this seems very high.

    Using the first reinstatement value calculator online (was an Irish one), it gave a reinstatement value for a 1200 sq ft 3 bed semi as €197K so this would mean the price of the site is 283K.

    Granted, infrastructure is probably already there for the rebuild, but again, seems high for the price of land in a lot of Dublin areas do it not? Especially given how little land is needed to put a property on these days.

    I only say this as if you look at Daft's new properties for sale in Dublin that are 3 beds under 300K, you get about 40 to choose from. Are these all selling at a 200K loss?

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  • Re: The Daft Rental Report Q4 2013

    Posted By: KATE Date: Wednesday February 26, 2014 @10:07PM

    We should take an in-depth look at what is really driving the housing market at the moment. The last estimates I saw in this suggested that 66% of all purchases were cash purchases but that was a number of months ago. Since then I've seen reports which outlined that the number of purchases have increased but the number of mortgages issued over the same period of time has decreased, which would indicate that the percentage of cash purchases has been increasing.

    I understand there are queues around the corner at property viewings but I wonder how many of those cues are made up of the same people who are continually being outbid by cash investors

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  • Re: The Daft Rental Report Q4 2013

    Posted By: marcus Date: Thursday February 27, 2014 @01:36PM

    Anonymous Poster Thursday February 27, 2014 @09:12AM

    You make a very strong point until you look at a five bed new house for €2.5m for 3,000 sq ft , location , location !!

    There is an overhang of thrash on the market that investors are buying for cash and renting back at 1300 per month yield 11% - Developers on these have already suffered the 200K loss , this are insolveny sales on incomplete estates , I know I live near one

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Anonymous Poster Date: Thursday February 27, 2014 @04:55PM

    I'm not a builder so cannot confirm for sure, but as an educated person can deduce that if it will cost €480K to build a 3 bed semi, it will need to sell for more in order for a builder to make profit on it.

    Even with lack of supply driving up demand, is there really a decent risk/reward ratio for building if you were the builder?

    I think it's fair to say banks wont be giving builders 90% of the cost of the build like before. Its also fair to say that builders wont risk their own capital, if they even had that much unless the gain was substantial so building at this level is not going to happen.

    I also don't see private investor jumping on board at these prices. For a property that cost €480K to build, to get just a 7 or 8% rental yield you are looking at between €2.8K and €3.2K p/m rents.

    I don't know about you, but that rental property would want to be in Blackrock or Foxrock for me to pay over 3K a month in rent for a 3bed semi. Keep in mind, 3K per month requires a 36K net income just to cover rent.

    We are all throwing figures out there, not many of them make much logic though. 3K rents for 3 bed properties is nuts, we'll all be out on the streets

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  • Re: The Daft Rental Report Q4 2013

    Posted By: David Date: Thursday February 27, 2014 @08:25PM

    Can anyone tell me which country has the fairest housing market in the world? without government intervention, manipulation and true value for money?

    Also does this country have a good standard of living/ ie good schools, high employment, fair taxation (ie not paying for the mistakes of bondholders, and taxes going to the benefit of the population).

    I want to buy a house but feel Ireland is no longer an option, why bother?
    Comments please

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Anonymous Poster Date: Friday February 28, 2014 @08:45AM

    David, I can only hope you wrote that as a joke.

    I don't need to write a long reply other than to say look at each thing you mentioned. This country is the opposite in every regard.

    If you listen to some on this blog, you should buy NOW before its too late. If I were you, I'd go anywhere BUT Ireland. You'll pay too much for property, food, healthcare, water, utilities and all the rest.

    I'm still waiting on an air tax. I'm surprised they haven't thought of that one. Or a living tax, maybe we should pay tax for the privilege of being allowed to stay in the country.

    I'd leave, but like maybe, I have a massive mortgage to pay off for a shoebox!!

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  • Re: The Daft Rental Report Q4 2013

    Posted By: David Date: Friday February 28, 2014 @01:41PM

    Your Resply makes no sense....Buy now because there is more taxation to come?!
    Yes more taxation is on the way as is rising house prices as is ECB interest rates and what will happen then?

    Ireland is a basket case, the government is only interested in smoke screen politics making Ireland look good when in fact its a house of cards.

    I dont wanna be here when it falls yet again, and would rather relocate to somehwere that is less corrupt. The place is a joke.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Anonymous Poster Date: Friday February 28, 2014 @03:42PM

    David, perhaps you should read the email again, I was agreeing with you.

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  • Re: The Daft Rental Report Q4 2013

    Posted By: Kevin Date: Thursday February 27, 2014 @10:30PM

    It's inevitable that we are having a correction to the house prices that have incessantly decreased for the past 6 years - in the long term - we can afford these increased prices.
    If you look at the jobs pages- for the jobs that are well paid- it is difficult to reconcile the rates of pay available to the cost of houses and apartments. Houses now seem a lot more affordable.
    In the 6 years we've had sections of the economy that have been doing really well on the back of the recession - many who have performance-related bonuses – rental estate agents, financial services for insolvencies. and people have who signed into 30 year mortgage tracker contracts can move homes on the strength of these. Fact is, and always was, that this is exceptional growth that was always going to be long term and would correct any fall in house prices.
    Many others supplemented their income in buy-to-let, flipping properties, property development, releasing equity, etc. - revenue streams that are now also returning to Irish market.
    The government have also allowed expansion of the private sector over this period and we now have very large IT led current private investments and as these are jobs-for-life and have limited scope for cutting, decreases in taxes will be required to reward these firms We have been used to tax rises throughout the recession and again people have assumed this would go on forever. It won't, and again disposable income will be rise.
    There might well be excessive on-going demand in the Dublin for housing, but at the prices we have currently available it makes prefect logic to buy now

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