Housing bubble starting to pop?

gurramok

JimmySmith wrote:

The only people i know that earn less than €30k who are 30 or older are complete wasters. And there are very few wasters that i know.

Come to think of it. I know of very few older than 25 who earn less than €30K.

By your logic, half the workforce is in the age 18-25 bracket as half the workforce earn less than €30k (average wage for everyone which is a approx fact!!)
Considering about 10% of that workforce are transient migrant workers where vast majority can't afford a 300k hse if they wanted to, something doesn't seriously add up in your numbers.
Point is the pool of above average waged people(ftb) who can afford a 300k+ mortgage has dwindled in recent years, most who could afford have bought already and those who are waiting who cannot afford any more increase in prices are renting/saving not out of choice.
Salaries(5% pa) have not risen in last few years to match house price growth(15-20%+)and coupled with inflation, the ability to afford has been going down not up.

finnpark

For those who claim that the property market and economy is going to continue anaswer the following questions:

(1) Why are AIB selling their property and leasing it out?
(2) Why are BOI doing this and other morgage lenders?
(3) Why are some major estate agents selling up considering their is such a boom?

The above know the market better than any of us and they all seem to think the end is nigh as reported on the front page of the Irish Independent today.

http://en.wikipedia.org/wiki/Irish_Property_Bubble

JimmySmith

gurramok wrote:

By your logic, half the workforce is in the age 18-25 bracket as half the workforce earn less than €30k (average wage for everyone which is a approx fact!!)

Look up what average really means. I've posted the definition of average before. I'm not going to do it again.

gurramok wrote:

Considering about 10% of that workforce are transient migrant workers where vast majority can't afford a 300k hse if they wanted to, something doesn't seriously add up in your numbers.

Not everyone wants to or can buy a house. Nothing new.

gurramok wrote:

Point is the pool of above average waged people(ftb) who can afford a 300k+ mortgage has dwindled in recent years, most who could afford have bought already and those who are waiting who cannot afford any more increase in prices are renting/saving not out of choice.

Where exactly are the figures to show that most who can afford to buy have bought already?

gurramok wrote:

Salaries(5% pa) have not risen in last few years to match house price growth(15-20%+)and coupled with inflation, the ability to afford has been going down not up.

And yet people are still buying houses Everyones salary rises, bonus, overtime, etc are not the same.

SimpleSam06

JimmySmith wrote:

Take a trip down to your local builders providers and see for yourself the difference in materials.

Surely, you supply the time machine so I can look at prices circa 2000, so.

JimmySmith wrote:

Did i say materials on their own? Did i not mention several other reasons? I did you know, some even more costly than materials. read it again. Did CiaranC not mention supply and demand. And there are many more reasons, but whats the point in listing them if you ignore the ones that dont suit you. Its a waste of time even answering you anymore.

I answered every single reason you supplied. That you didn't bother to read them is your problem, not mine.

JimmySmith wrote:

Talk about a blinkered view and throwing out arguments to suit your own point of view. And anyone here can find articles from all sorts both for and against a crash.

Oho, if its so easy, I'll tell you what, you find articles from reputable sources to support your end of things, then you can rail against my articles.

What, they don't exist?

JimmySmith wrote:

Now you're just talking bollox. You asked for reasons. I gave you some, CiaranC gave you a whopper of a reason and now your picking on bad grammer (take out the word 'rates') and definitions (a sure sign your full of it).

Yes Jimmy. I, the ECB, the IMF, ESRI, and CB are all full of it. The whole world is crazy sure, you're the only sane one. And my mind reading skills are a bit rusty. If you say credit rates, I have no idea what you mean.

JimmySmith

finnpark wrote:

For those who claim that the property market and economy is going to continue anaswer the following questions:

(1) Why are AIB selling their property and leasing it out?
(2) Why are BOI doing this and other morgage lenders?
(3) Why are some major estate agents selling up considering their is such a boom?

The above know the market better than any of us and they all seem to think the end is nigh as reported on the front page of the Irish Independent today.

http://en.wikipedia.org/wiki/Irish_Property_Bubble

Noone is claiming the market is going forever, just that noone here has a shred of evidence of an imminent downturn.

Businesses are financial beasts that do all sorts of things to make money and save some tax etc. I'm sure they have their reasons. I wouldnt read too much into any of these dealings unless you know the financial gymnastics behind them.

It could also be asked.
(1) Why were millions piad for AIBs property?
(2) Why were millions piad for BOIs property?
(3) Why are companies buying assets sold by estate agents?

Because the buyers know the property business better than any of us and they all think its not in any danger

Now, i have to go out and fix my gate, that my landlord would have fixed if i was renting God damit

JimmySmith

SimpleSam06 wrote:

I answered every single reason you supplied. That you didn't bother to read them is your problem, not mine.

Where? A liar too. Simplesam indeed. Its not worth the effort typing anything else to you.

SimpleSam06

JimmySmith wrote:

Where? A liar too. Simplesam indeed. Its not worth the effort typing anything else to you.

None are so blind...

Hope you didn't pay too much for that gated property you should be fixing.

gurramok

JimmySmith wrote:

Look up what average really means. I've posted the definition of average before. I'm not going to do it again.

Instead of your calculations for those above average earning couple who can afford a 350k-400k hse, i'll show you what its like for the average earning couple
Average salary is 30k, by normal calculation mortgage is 5x salary, for couple = 300k a bank would loan them.
A €300k mortgage costs €1,370 approx incl relief(http://www.jeacle.ie/mortgage/ie/), take home pay is €4264 for both(http://www.esatclear.ie/~grabe/TaxCalc/TaxCalc.html). They stump up any size deposit they want.
Affordability for that average waged couple is 32.1% at present int. rates, if rates go up by 1% as most analysts say within the year, affordability is 35% for that averaged couple which is tipping dangerously.

JimmySmith wrote:

Not everyone wants to or can buy a house. Nothing new.

Exactly, vast majority of buyers are Irish people, most immigrants are in lowly paid jobs and rent.

JimmySmith wrote:

Where exactly are the figures to show that most who can afford to buy have bought already?

Common sense when int. rates with its easy credit were historically low?
Most who did, and could afford it then, different situation now.
There are now fewer couples and more single people than before, those changing demographics result in fewer buyers at those prices.

JimmySmith wrote:

And yet people are still buying houses Everyones salary rises, bonus, overtime, etc are not the same.

Oh yes, salaries rising 5%pa while hse prices are at least rising 3 times as fast.
Does it help that in last 5 years that half of all jobs created in last 5 years were low paid? (i quote George Lee who himself quoted from govt stats)
And the other half were not highly paid ones either, IT salaries stagnated for a long period and IT is a big sector target for high salaried jobs.

Pa ElGrande

LONDON: Higher interest rates and more relaxed bankruptcy laws threaten to inflict more bad debt pain on British banks this half after they suffered an extra £700mn ($1.3bn) hit in the first half of the year.

More UK insolvencies, high fuel, utility and council tax bills, and the time lag before tighter lending has an impact are likely to delay any improvement in bad debts.

That is what banks had said last week as they reported a combined bad debt of almost £3.4bn for their UK operations, up 27% from a year earlier, according to Reuters estimates.

Banks have likened the time it takes for bad debts to feed through the system to "a pig moving through a python", and most said it would be premature to say the peak has been seen.

British banks brace for continuing bad debt pain
http://www.gulf-times.com/site/topics/article.asp?cu_no=2&item_no=101419&version=1&template_id=48&parent_id=28

Consumer spending has been boosted by increase in house prices, but these seem to have come to an end.

One London analyst says US house prices may actually fall for the first time. If that were to happen, the damage to US consumer confidence could affect the global economy, which has depended heavily on US growth.

US housing 'saviour' on slide
http://www.unison.ie/business/stories.php3?ca=80&si=1664142 [free registration required]

As we are an open economy directly exposed to an external shocks, things are not looking good for the consumers in our major trading economies, looks like they are maxxed out on credit and ready to tank. This can be the trigger that eventualy deflates the Irish housing bubble.

seamus

finnpark wrote:

(1) Why are AIB selling their property and leasing it out?
(2) Why are BOI doing this and other morgage lenders?
(3) Why are some major estate agents selling up considering their is such a boom?

AIB and BOI owned some large sites in prime property locations. It actually costs money to own land, as businesses have to pay capital gains tax on the capital appreciation of their assets. As the property market became more and more expensive, they may have found that the costs of having every site surveyed and priced once a year, coupled with the financial burden of it meant that the most cost effective option was to sell up.

Certainly the idea of leaseback is not new - Microsoft are well known for spending millions on purpose-built buildings, then selling them to a company who lease them back to Microsoft - it's a legitimate tax trick.

There's also huge renewed competition in the Irish banking industry from the smaller players. AIB and BOI may very well have embarked on a restructuring plan and sold up some huge assets to release the capital for this restructuring.

I'm not explaining their actions away, just giving you a possible valid reason for them

coolhandluke

JimmySmith wrote:

I think you dont want to see the point so i'll spell it out for you.

The arguement i often see bandied about here is that houses are not affordable anymore. This example shows that they are very, very affordable. In fact if they felt like it and had another deposit they could afford ANOTHER house and still have enough money after they mortgage to live comfortably.
They dont feel they are p1ssing money up against a wall, and neither do i. You could also say a person renting a nice apt in the city centre for €400pm is p1ssing money up against the wall when they could be renting in Fatima mansions for €100 pm.

My bro and his girlfriend are fairly typical of anyone around the age of 30 or so that i know. They are a couple, renting and have decided they want a home of their own, where they want it. In fact they are earning less than most 30 year olds that i know of, due to about 5 or 6 years travelling the world, which i cant say was a bad thing. He earns 35K, she earns about 30K (hardly huge wages for 30 year olds). They dont want to share anymore, be it wioth another renter or their landlord. And you are always shareing with your landlord, even if you are renting the house on your own.

Its just a sad fact that single persons on less than €30K cant buy a home on their own anymore - ever. But there is a massive supply of couples, siblings, friends who will buy together. And a house is ridiculously affordable to them.

You don't seem to comprehend the difference between Affordability and value-for-money,just because someone can afford a house does not mean it is worth the money they are paying for it.
When common sense returns to the market and it will,there's going to be a lot of people stuck in a lot of properties,scratching their heads going how did i ever think this was worth that much.
Most of the people buying new developments today especially apartments are simply shoveling money into developers pockets,there's no reason for it only herd mentality.

Idleater

coolhandluke wrote:

You don't seem to comprehend the difference between Affordability and value-for-money,just because someone can afford a house does not mean it is worth the money they are paying for it.

Value-for-Money as you put it is entirely subjective. What is great value for money in my opinion is not in yours. Similarly, what you spend your money on (anything, not necessarilly property), I could say is a waste and not providing "value-for-money".


L.

chump

seamus wrote:

AIB and BOI owned some large sites in prime property locations. It actually costs money to own land, as businesses have to pay capital gains tax on the capital appreciation of their assets. As the property market became more and more expensive, they may have found that the costs of having every site surveyed and priced once a year, coupled with the financial burden of it meant that the most cost effective option was to sell up.

What the hell is this nonsense?

CGT is charged on the disposal of assets. It is (for the most part) 20% on the gain excluding inflationary gains (indexation).

Who says you need a site surveyed and priced each year?

lomb

loads of misinformation here as others have said, cgt is irrelevent basically (although indexation is no longer allowed from a recent budget)

seamus

lomb wrote:

loads of misinformation here as others have said, cgt is irrelevent basically (although indexation is no longer allowed from a recent budget)

Then ignore that whole part of my post
I was under the impression that in the same way that you can write off depreciation against tax, appreciation had the opposite effect.

whizzbang

I believe they are selling these assets to improve their cash to loans ratio. I'm not sure of the details but I believe that for every 100 euro they loan out they need to have 10 on deposit (those figures are made up but you get the idea).

By increaseing their cash reserves it allow them to give out more monster mortgages while meeting their deposit obligations. However they could be shooting themselves in the foot if they take all this cash and use it to underwrite loans that turn bad.

D'Peoples Voice

whizzbang wrote:

I believe they are selling these assets to improve their cash to loans ratio.

Or it might be that they wish to increase their loan portfolio!
By selling your property, which would cost you 5% to rent, then you have a huge wad of cash to fund your loan portfolio.
As long as the interest rates charged to your clients is above 5%, (excl chrgs, tax etc) then you are making more money for your shareholders, because your borrowers are in fact paying for your rent!
Not sure about estate agents though, I have no knowledge of their business models.

whizzbang

D'Peoples Voice wrote:

Or it might be that they wish to increase their loan portfolio!
By selling your property, which would cost you 5% to rent, then you have a huge wad of cash to fund your loan portfolio.
As long as the interest rates charged to your clients is above 5%, (excl chrgs, tax etc) then you are making more money for your shareholders, because your borrowers are in fact paying for your rent!
Not sure about estate agents though, I have no knowledge of their business models.

Interesting idea, but I think they already get their money from the German banks at less than 3% and then loan it out at more than that. I think they will use 500 million to underwrite 5 billion's worth of loans sourced from Germany rather than use it to give out 500 million's worth of loans from their own money directly. Either way they make a killing!

SkepticOne

D'Peoples Voice wrote:

By selling your property, which would cost you 5% to rent, then you have a huge wad of cash to fund your loan portfolio.
As long as the interest rates charged to your clients is above 5%, (excl chrgs, tax etc) then you are making more money for your shareholders, because your borrowers are in fact paying for your rent!

But renting is dead money!

Seriously though, it is probably a combination of reasons. Clearly, once yields drop below the interest rate, any widespread holding of property becomes speculative upon further capital appreciation. Banks are not in the business of property speculation but rather in the business of offloading risk to others in that property business. Banks lend to speculators but aren't speculators themselves. The bank is getting out before others realise the same thing and the game is up.

This is in addition to maintaing asset/loan ratios while lending more. Both make sense in the current climate of rising interest rates, an overvalued property market and warnings from international and Irish organisations.

Raskolnikov

D'Peoples Voice wrote:

Or it might be that they wish to increase their loan portfolio!

D'Peoples Voice is dead right. AIB had an sizeable asset in it's Ballsbridge property, the only problem was, it wasn't making them any money.

http://home.eircom.net/content/unison/biznews/8622023?view=Eircomnet

AIB chief executive Eugene Sheehy delivered an impressive set of interim figures this week as the bank garnered huge profits from the lending boom both here and in Britain, while its Polish arm also chipped in with a significant contribution for the first time.

Pre-tax profits surged to €1.214bn for the six months to the end of June, up 47pc on the €825m reported at the same stage last year.

At the earnings level the rise was a more modest but still eye-catching 29pc, while for the year Sheehy is predicting the bank will produce earnings growth of 20pc.

In the job now for just over a year, the most significant development under his watch has been the sale of Ark Life.

Ostensibly one of the reasons for the sale was to give the group a wider range of products which it could offer customers, a need which assumed huge importance with the maturation of thousands of SSIA accounts this year and next.

AIB now has the full suite of Hibernian products to offer customers, as well as retaining a 25pc stake in the expanded business.

If this sale signified anything, it is that there are no sacred cows as far as this chief executive is concerned.

And as if to prove the point, there have been other significant departures from the normal conservative management ethos of previous years, principally the sale of the group's headquarters in Ballsbridge.

The decision to sell was not, as many had assumed, driven by a belief that the property market had peaked.

Instead, Sheehy explained earlier this year, the sale was undertaken in order to fuel the bank's coffers so that it could take better advantage of the huge growth in demand for credit.

Mr Sheehy estimates that the €377m which the bank netted from the HQ deal will allow it to lend an additional €7bn to customers. With demand for credit surging by 33pc over the first six months of the year, it looks like a sensible move.
And there could be more. AIB owns an extensive portfolio of prime real estate, much of it surplus to requirements as technology assumes an ever greater role in day-to-day banking operations.

These asset sales are significant in another regard. They automatically diminish the attractiveness of the bank as a takeover target, something which has cropped up again and again in recent years, not just for AIB, but also for its biggest competitor, Bank of Ireland.

So by shedding surplus assets and taking the cash on to its balance sheet, management is not only equipping the bank to lend more, but it is also protecting itself against an unwanted predatory bidder.

That leads us to one of the most interesting strategic decisions facing the AIB boss - what to do with its stake in the US bank M&T. AIB holds a 22pc stake in M&T, currently valued at around €2.4bn.

If Sheehy wants to boost the coffers of the bank even further to take advantage of the huge lending boom at home, then M&T could provide the answer.

The 2005 results were significant in another respect. The huge rise in lending might have been expected to have been accompanied by an increase in the level of bad debts.

This problem plagued the banks for much of the 1980s and into the 1990s, but it is a testament to the strength of the economy, as well as the prudent lending criteria adopted by the bank, that it is no longer a problem.

Instead of increasing, the bad debt provision actually fell over the first six months of the year, down from €47m to just €12m.

There have been a number of warnings from the Central Bank over the potential problems which could arise from the nation's ongoing love affair with credit.

Personal and mortgage debt are at record levels and the Central Bank has expressed concern about the ability of borrowers to meet repayments as interest rates climb higher.

But Sheehy has said that the bank is very comfortable with its mortgage business.

Commenting on the results of extensive stress-testing carried out on the mortgage book, he said the bank is not finding anything like the degree of concern one might expect, given the rapid growth that has taken place over the last number of years.

The level of delinquency, or bad loans, he said, is very low, adding that the bank is growing the mortgage business very aggressively, and believes that the fundamentals of the market are solid.

ronbyrne2005

why are they selling their offices and branches now? if they beleive property is only going up then it follows that rents will be likely to rise and their costs will rise. If this is such good move for them allowing them to loan more then why didnt they do it years ago? there was times when money wasnt easily borrowed from the ecb/moneymarkets yet they still didnt sell up prime buildings. If owning property is not their busienss why did they hold property for so long? Why dont they sell their properties to their own pension companies who own many of the big landmark buildings around dublin ,why arent the pension companies buying?? They can borrow nearly unlimited amounts of money in euro money markets at present so using it to loan more money is NOT the issue, a half billion in cash would only allow them to lend a further 5billion , irish private sector borrowed around 50-60 billion last year so an extra 5 billion is a drop in the ocean. The only reason is that they a)dont see rents rising much on near to medium term or b) dont see the asset prices rising much or any in near to medium term, if rents arent gonna rise much as in (a) then eventually asset prices must have to fall to make yields more attractive to investors.

lomb

i believe they have rents fixed at below market values for many many years (15 i think??) so it makes sense to sell. ron banks just arent in the property game, they have no interest in it AT ALL except to realize a loan back if a borrower defaults.
they buy and sell money, and selling money at a time when people want to buy it is their job just like you have your job to do and i have mine. selling the propertys and leasing back was seen as the best way to realise the goal of selling more money in a cost efficient manner.

SimpleSam06

ronbyrne2005 wrote:

why are they selling their offices and branches now? if they beleive property is only going up then it follows that rents will be likely to rise and their costs will rise.

No, that doesn't follow at all. In fact it is highly likely that rent and property prices will collapse in tandem.

ronbyrne2005 wrote:

then eventually asset prices must have to fall to make yields more attractive to investors.

The market doesn't care whether you're an investor or a first time buyer. Theres no law written or otherwise that says property specuvestors are due anything, and if the market decrees they will get a spanking, spanked they shall be.

shoegirl

JimmySmith wrote:

The only people i know that earn less than €30k who are 30 or older are complete wasters. And there are very few wasters that i know.

Come to think of it. I know of very few older than 25 who earn less than €30K.

This is stuff and nonsense. There are lots of older low-paid workers, mostly people who started working in industries such as IT and manufacturing, where wages have stagnated over the last 5-6 years. Many of them are well-qualified but don't have vocational or up to date qualifications, or live in parts of the country where wages are lower and jobs in their sector more scare.

Likewise there are a good number of under 25s on what I would consider huge wages. Its all dependent on region and sector. Some of the very best workers I have known in IT earn less than 25k a year and its down to poor luck rather than them being "wasters."

At the same time I know plenty of "wasters" earning 35k+ a year, please explain this one to me?

daveirl

This post has been deleted.

finnpark

Kenny Group Galway are selling up, annouced today. Selling out all their property worth 10s of millions, dont know exact figure:eek:

Real shock that. They are refusing to give a reason.

SkepticOne

finnpark wrote:

Kenny Group Galway are selling up, annouced today. Selling out all their property worth 10s of millions, dont know exact figure:eek:

Real shock that. They are refusing to give a reason.

EUR 475m. Dumping their entire portfolio. I blame askaboutmoney.com.

jdivision

Family dispute i heard

antoinolachtnai

The reason AIB are selling up is because they can get a better return on capital by having the cash available for banking activities. It's a bank, not a property portfolio. The cash could be handy too if they decide to buy another bank. Even if rents go up, they can still get a return better than what they would save by owning the property.

Pa ElGrande

Real estate prices have risen as much as 100 percent in the eight former communist states that joined the EU in 2004, driven by buyers from Western Europe. Many locals, with less than a quarter the buying power of their neighbors, have been locked out of the market, adding to frustration with EU membership and eroding support for budget cuts needed to adopt the euro.

East Europe's Soaring Property Prices Fuel Discontent With EU
http://www.bloomberg.com/apps/news?pid=20601085&sid=a6FDxTuyhiAs&refer=europe

When the "capital appreciation" fizzles out, any foreign investors will be hit with higher wealth taxes by the local governments, it will be a popular electoral move.