property prices growth accelerates again!the madness continues!

JimmySmith

ronbyrne2005 wrote:

no one is advocating renting for your whole life but five/ten years renting from now (2005) isnt that bad a move when you consider house prices cant go much higher rents are very low relative to house prices and you may benefit from a correction over next decade which imo is inevitable as interest rate rises are inevitable. rents actually went down between 2001 and 2003 in dublin when you fator in inflation and house prices did dip in real terms in 1979/1980.
read these anyone considering buying now.
http://www.housepricecrash.co.uk/
http://www.thetrumpet.com/index.php?page=article&id=1181

But seriously, anybody who listened to this very same advice 5 years ago (and it was in abundant supply) is only too aware now that its the same record over and over and is only guesswork still. Even God doesnt know what will happen to property prices. Its a gamble, and anyone who gambled 5 years ago, even 1 year ago is probably very happy today.

Jivin Turkey

ronbyrne2005 wrote:

270k apartment say 250k mortgage
30 year mortgage
total repayments(principal +interst) (assuming interest rates average 5% for loan duration(relatively low) and 1% for other costs of ownership-interest ,repairs etc)
=490kapprox in real terms after allowing for inflation,and 20k down payment,the aprtment is costing ya 510k over the 30 year period,so unless it doubles in value after inflation you dont make a profit.

Not sure if this has already been pointed out but if you buy this house (and live in it, possibily even rent a room?) don't you for go having to pay rent of say €800 pm (€10k pa for simplicity), totalling €300k over 30 years, thus even if the price of your property remained the same (€270k) you are still making a profit of €60k (300+270-510)?

hmmm

Jivin Turkey wrote:

Not sure if this has already been pointed out but if you buy this house (and live in it, possibily even rent a room?) don't you for go having to pay rent of say €800 pm (€10k pa for simplicity), totalling €300k over 30 years, thus even if the price of your property remained the same (€270k) you are still making a profit of €60k (300+270-510)?

uhm you do realise that you have to pay interest on the 300k you borrowed?

hmmm

shoegirl wrote:

They are not totally wrong you know. My rent for the last year went up by 7.7%. However my pay rise was only 4.5%. However if I'd had a variable rate mortgage the recent rate rise would have been lower than my pay rise, which would have left me paying effectively less rather than more.

Obviously there's no link between interest rates and your rent increase. My rent stayed the same. My rent has stayed the same for over three years. Next year interest rates could go up by 1% - it's irrelevent, it'd be like basing your calculations on the price of bananas.

Overall this leaves me slightly worse off. Likewise on a fixed rate mortgatge I'd have paid no more until the fixed rate term ran out.

On any normal house in Dublin you'd pay a lot more in fixed interest mortgage repayments than you would pay in rent.

The other problem is that once you pay off a mortgage you no longer pay monthly payments, whereas if you rent you can expect it to permanently keep increasing. This means that the 400 euro per month you now pay might be 2000 euro in 30 years time - if not more! Unless you have an enormous pension you simply are not going to be able to afford this - which will mean that you will end up working until you drop dead.

Gah! Fantasy economics. You forget that your salary is also increasing, as is your pension investment. Gah this is so off the wall. You're going to call me an arrogant f**k but you need to do a course on economics.

(This by the way, is my theory on why pension provision is so poor and low in Ireland - people are investing in property to avoid being priced out of the rental market as pensionners).

I agree that people are investing in property as a pension. Those people now have 2 problems:
1. They have all their eggs in the property basket
2. How are they going to finance their day to day expenses as pensioners?

On the other hand there is no guarantee that housing prices will continue to rise. However historically in Ireland they have not fallen in value since the 1950s. Favourable demographics would suggest that unless Ireland's fortunes change dramatically property will hold its relative values for at least another 25 years. However I am NOT suggesting that anybody invests right now.

I'm glad not. House prices in Ireland have been stagnant until the recent boom. Any number of shocks could change the dynamic of the economy. Demographics do look decent for the next 20 years. What happens the 20 year olds of today who are investing in their house as a pension when they try to sell it in 40 years time?

The big danger is a short sudden shock similar to what happened in the far east in the late 1990s or a collapse in property values similar to the UK property crash. This would leave more recent investors out of pocket.

Yes.

I do think that a house is a wise purchase as a residential property as rents in Ireland are very poor value for money and tax relief pitiful. Also a lot of rented accomodation in Ireland is totally substandard and repairs/maintenance a nightmare.

I feel that you are taking your experiences of renting and applying it to the market as a whole (an "opinion" in my books). Just because you have had a bad experience does not mean everyone has, I get on very well with my landlord. Your maths on the rent=poor value for money is just wrong, I know you don't believe me.

I recently went through grief with the agency who were "managing" the house I rent only to discover that the reason they were so difficult about getting simple repairs sorted was that the proprietors wife was the landlady - in other words they had a vested interest in minimising the cost of repairs!
These people also have openly admitted in the past that they are not declaring it for tax - and these are supposed to be property professionals!!

Turn them into the Revenue. It's easy, just fill in your rent relief form. Their time will come. Then move place I'd suggest.

On the other hand you could invest in the equity market and take your chances there......

An investor spreads their risk over multiple asset classes. The speculator buys a single asset class. Speculation is not investing.

Jivin Turkey

hmmm wrote:

uhm you do realise that you have to pay interest on the 300k you borrowed?

Looks like I looked at it in quite the simple form, but all of this is very interesting from the point of view of someone considering buying their first house

ronbyrne2005

JimmySmith wrote:

But seriously, anybody who listened to this very same advice 5 years ago (and it was in abundant supply) is only too aware now that its the same record over and over and is only guesswork still. Even God doesnt know what will happen to property prices. Its a gamble, and anyone who gambled 5 years ago, even 1 year ago is probably very happy today.

the fact that people were questioning it 5 yrs ago makes it more likely that there is a bubble because the talk of a bubble has been going on for so long.its not guesswork ,look at the fundamentals of property prices over past 100 years and you'll see this, top economists are telling us this,yes its a gamble but its an even bigger gamble now than 5 years ago! does that mean you take the gamble? no. Even the "happy person" who bought 5 yrs ago could be be sad in 5 yrs time! theres a rule in investing that when your investment goes up more than YOU expected sell and bank the profit,too many people get greedy and get burned when the investment loses value

RainyDay

It's about time that, as a society, we showed our disapproval for the kind of tax scams mentioned elsewhere in the thread (undeclared rent, no stamp duty paid etc) by taking action as & when they arise.

I don't buy the 'dead money' arguement either. But if you are looking to 'settle down' in Ireland, then I'd recommend that you buy a property now if you can afford it. Even if the 'bubble' bursts, your mortgage payments will still remain the same. Worst case, any plans you have for trading up to a bigger property may be delayed a few years. THe substantial impact of risk of being priced out of the market is a bigger concern than the 'negative equity' issue. I confess that I do worry about the wisdom of people in their early 30's taking out 30-35 year mortgages. They are going to be still paying for their house as they retire! By contrast, having bought our house 10 years ago, the mortgage will be cleared as we hit our 50's and our little girl hits secondary school.

But I'd find it hard to recommend Irish property to an investor now. And as for the 'more obscure the better' school of property investment which is running off the Riga or Bejing to thrown their cash into something they know little or nothing about, the less said, the better.

ambro25

Nuttzz wrote:

i agree, low rates and the availability of credit, any one in their 30's will remember back 10/15 years ago and shuddering at the idea of being over quater of a million quid in debt, now its normal.

I must be abnormal - I don't have any debts whatsoever (and I do know that it makes it that much harder to obtain finance/mortgage and the like...banks don't like people they don't own )

Nuttzz wrote:

outsourcing is getting bigger, i know of some irish IT companies that are moving their development to India, others that are brining in eastern europeans on lower wages and replacing their staff (as they leave) with eastern europeans.

But that's been happening in the US, Continental Europe and the UK for absolute yonks! Some of the Indians themselves are starting to outsource :eek: Are you telling me that Irish people have been cosying that much to the Tiger psyche that they've ended living under a rock?

Jazzz

Where are the Indians outsourcing to...?

ambro25

South Africa, China and Brasil, depending upon the particular sectors of industry/services.

JimmySmith

ronbyrne2005 wrote:

the fact that people were questioning it 5 yrs ago makes it more likely that there is a bubble because the talk of a bubble has been going on for so long.its not guesswork ,look at the fundamentals of property prices over past 100 years and you'll see this, top economists are telling us this,yes its a gamble but its an even bigger gamble now than 5 years ago! does that mean you take the gamble? no. Even the "happy person" who bought 5 yrs ago could be be sad in 5 yrs time! theres a rule in investing that when your investment goes up more than YOU expected sell and bank the profit,too many people get greedy and get burned when the investment loses value

Still all speculation.

dahamsta

JimmySmith wrote:

Still all speculation.

I don't mean to be nasty, but just saying that demonstrates a fundamental misunderstanding of economics. Economics is based entirely on statistical probability and analysis, and opinion. It's an inexact science by definition. So anything anyone says is speculation. The only way to "win" is to back up arguments with statistical evidence and theory. Even with that, random factors can come into play and ruin everything, or the probability can go out the window for no apparent reason.

adam

D'Peoples Voice

The Taiwanese property market in the 90s was quiet similar to ours now. If you ever have the time, it's worth reading about it.

A bubble exists if people are buying now in anticipation of higher prices, at a time when such prices are out of sync with the underlying return to the asset.

Are Irish prices a fair mutliple of rent?
I did an analysis of this a few years back, and all I can say is that it depends greatly on the area. In some parts of Dublin the rental yield was as low as 2%(before tax on rental income) or a P/E ratio of 50 times. That is, you have to hold the property for 50 years before you get your money back in the form of rental income(assuming you pay no tax on your rental income).
But for that again, in other areas(usually far out surburbs), the rental yield was as high as 5.15% (before tax on rental income) or a P/E of under 20 times.

Therefore there was still value on many places but for that again there are some very overpriced properties! I would say if the Government ever want to do themselves a favour, they should make it compulsory for property sellers to disclose the rental yield on a property. Then and only then can house buyers realise how much of the price is building in unrealistic house prices increases!

hmmm

D'Peoples Voice wrote:

Are Irish prices a fair mutliple of rent?
I did an analysis of this a few years back, and all I can say is that it depends greatly on the area. In some parts of Dublin the rental yield was as low as 2%(before tax on rental income) or a P/E ratio of 50 times. That is, you have to hold the property for 50 years before you get your money back in the form of rental income(assuming you pay no tax on your rental income).
But for that again, in other areas(usually far out surburbs), the rental yield was as high as 5.15% (before tax on rental income) or a P/E of under 20 times.

Therefore there was still value on many places

Can you name for me one single other investment type where people ignore the effects of tax in calculating their return? Have you included costs (furnishings, electricians, empty periods) in your calculations?

ambro25

D'Peoples Voice wrote:

In some parts of Dublin the rental yield was as low as 2%(before tax on rental income) or a P/E ratio of 50 times. That is, you have to hold the property for 50 years before you get your money back in the form of rental income(assuming you pay no tax on your rental income).
But for that again, in other areas(usually far out surburbs), the rental yield was as high as 5.15% (before tax on rental income) or a P/E of under 20 times.

Even the higher end of your bracket is still a p*ss-poor return. When I bought in France, it was as an investment, not speculative (because the market was pretty stagnant back in very early 90s): buying small (studio/1bed apt) in cash or less than 10% financed, renting only to 1 student direct (no 'managers' involved) with parents as rent caution - returned close to 13% after tax per annum. Now that, as an investment, made sense - and in a stagnant "non-bubbly" market. I'm just not seeing that possibility anywhere in Dublin atm because of the bubble effect: property price rises have vastly outstripped rental price rises, to the extent that one (rental) is not *as expected* fuelling the other (property buying for rental = gain) anymore, but the curve is pretty much tapering. Put simply: getting to the situation where too many properties to let, and not enough tenants.

For the little story, and as an example of how out-of-the-blue forces can turn your investments into possible moneypits overnight: the FR govt decided to force my eloped big brain to travel back to FR, and voted taxing at 25% minimum from the first €0.01 for any revenue obtained in FR by any overseas resident, as opposed to the hitherto-applicable tax thresholds.

That proposal was tabled at the Assemblée National on 30th December (I think it was back in '96 or '97), voted, rubber-stamped and applicable as of 01 Jan (2 days later). Knee-jerk reaction to public noise about providing youth with worldclass education, only for them to f*ck off and seek their fortunes abroad, etc. Still in force today, btw (I'd be careful with that rental yield for the property in France, for those Irish persons concerned - the 'correction' by the French Taxman is often brutal and a rather painful experience ).

Anyhow - whereby my investment resturn fell back to less than 4% or so: not good enough anymore, so I chucked the student out and sold up, with a nice two-finger salute to the taxman to boot.

Nuttzz

ambro25 wrote:

But that's been happening in the US, Continental Europe and the UK for absolute yonks! Some of the Indians themselves are starting to outsource :eek: Are you telling me that Irish people have been cosying that much to the Tiger psyche that they've ended living under a rock?

I have talked to Irish people who are remortgaging their houses to buy second properties in dublin to rent to the immigrant labour market, I also have talked to many immigrant workers here who tell me they are here for 4-5 years to make the money and then return home. What becomes of these 2nd houses when the immigrants head off?

JimmySmith

Ken Shabby wrote:

I don't mean to be nasty, but just saying that demonstrates a fundamental misunderstanding of economics. Economics is based entirely on statistical probability and analysis, and opinion. It's an inexact science by definition. So anything anyone says is speculation. The only way to "win" is to back up arguments with statistical evidence and theory. Even with that, random factors can come into play and ruin everything, or the probability can go out the window for no apparent reason.

adam

4 years of economics at uni tells me that you are right to a point. But what no-one takes into consideration when making these calculations is the drive for people to have their own home which is not measurable. Its not ONLY the investor holding up the market as a lot of people (including the economists who keep getting it wrong and saying - ah sure we'll be right next year) seem to think. Many people dont want to rent even if it costs them more to buy. Many people see being able to change your property, not having to move every few years etc as the driving reason to own property.

Economists track records are not good, for the simple reason that there are too many variables in the property market to predict future trends.

Anything can set the market going one way or another and unless anyone here has a crystal ball they are just guessing.

JimmySmith

Nuttzz wrote:

I have talked to Irish people who are remortgaging their houses to buy second properties in dublin to rent to the immigrant labour market, I also have talked to many immigrant workers here who tell me they are here for 4-5 years to make the money and then return home. What becomes of these 2nd houses when the immigrants head off?

But everyone who moves away plans to return home down the line. If they are still making more than they would at home, they will be less likely to move home.
Also, refugees wont be returning home.

I defrinitely think its a bead idea to invest based on the immigrant labour market alone though.

ambro25

JimmySmith wrote:

But everyone who moves away plans to return home down the line.

I don't. Am I the exception that confirms the rule, or symptomatic of a larger, growing body of migrants who do not experience homesickness, as wherever they go (once and for all, or in successive 'European flea hops') is always greener than 'back home'?

JimmySmith wrote:

If they are still making more than they would at home, they will be less likely to move home.

That depends on average wage here for their skills vs same in their home country. Min wage here may be €5 per hour, but back in LT, PL or Zimbabwe, there (i) may not be any min wage and/or (ii) the average may be €0.50 per hour. Even if it costs the immigrant €4.50 of each €5 earned to live here, he's still saving a full 'home wage' per hour. But as we all know, you don't retire, never mind buy a place and/or raise kids on €5 an hour in/around Dublin... so the likelihood is that they may go back home after a while - particularly once they acquire enough skills here to be that much more marketable "back home".

JimmySmith wrote:

Also, refugees wont be returning home.

But how many "refugees" have readily-employable skills(conductive of earnings with which to pay a rent)? As -say- a percentage of immigrants?

D'Peoples Voice

hmmm wrote:

Can you name for me one single other investment type where people ignore the effects of tax in calculating their return? Have you included costs (furnishings, electricians, empty periods) in your calculations?

Just look at number 1, that is why people never have too worry about rental income.

Tax Deductible Expenditure

Most expenditure relating to the acquisition and the ongoing costs of letting the property is deductible for tax purposes in one form or another i.e. for one tax or another. Typically expenditure is split into three categories.

Revenue Expenses – Income Tax
An investor is liable to income tax annually on the net rental income derived from a rental property. In calculating the net income, a tax deduction is allowed for certain revenue expenses, including:-

* Interest on loans used to acquire or construct the property
* Repairs & maintenance
* Rent collection fees
* Any rates or local authority charges
* Insurance
* Legal fees on letting agreements
* Management fees
* Losses arising on other Irish rental profits – Foreign rental losses are not available for offset against Irish rental profits and vice verse.

Capital Expenses – Income Tax
No deduction is given for income tax purposes for capital expenditure but an allowance is given for the cost of furniture etc. by way of capital allowances. These costs are written off over eight years at a rate of 12.5% of the original cost of the assets per annum.

Capital Expenses – Capital Gains Tax
The initial capital expenditure - cost of property plus related acquisition costs (solicitors fees etc.) and subsequent capital improvements to the property e.g. an extension are deductible for capital gains purposes on any eventual sale of the property.

Whether an item is capital or revenue expenditure can at times be a grey area. Care should be taken and each item of expenditure examined separately to determine if it is allowable as a deduction. In addition, no tax deduction is given for pre-letting expenditure e.g. interest costs before property is let.

OfflerCrocGod

Jazzz wrote:

Where are the Indians outsourcing to...?

Other parts of India.