Property investors lose out as lenders fail to pass on ECB rate cuts

Blackjack

Calina wrote: »

In 2006, 40% of new houses went to investors

Calina wrote: »

In the last year of the boom, they accounted for 40% of new property purchases to the detriment of FTBs.

amos13 wrote: »

(I'm not going to get into the "they pushed the prices up" argument again, anyone who has any idea of the concept of economics and the supply/demand model will know this isn't true, or else refer to the above comments).

Amos, are you trying to suggest that the demand of 40% of new properties by the investor sector had no upward influence on price whatsoever?.

Please do explain further.

Duckjob

Blackjack wrote: »

Amos, are you trying to suggest that the demand of 40% of new properties by the investor sector had no upward influence on price whatsoever?.

Please do explain further.

He won't, he stomped off in a huff :P

Dandelion6

SimpleSam06 wrote: »

Its got nothing to do with some "Irish psyche".

I think it does. From an immigrant perspective I'm amazed at how often I hear "rent is dead money". It's like a mantra for Irish people. I've never heard this said so often in other countries I've lived in.

The lack of rental protections is obviously an issue, but things are even worse in for example parts of the US and people still don't have the obsession with owning property that you have here.

The_Conductor

Dandelion6 wrote: »

I think it does. From an immigrant perspective I'm amazed at how often I hear "rent is dead money". It's like a mantra for Irish people. I've never heard this said so often in other countries I've lived in.

The lack of rental protections is obviously an issue, but things are even worse in for example parts of the US and people still don't have the obsession with owning property that you have here.

I'd be inclined to agree- even on this forum there are die hard believers in this. Trying to logically show them how landlords in some properties were subsidising their accommodation- and how by renting it afforded them a much higher standard of living than they would otherwise be able to afford- is a loosing battle. Its all a case of- "but I'll own the property in 40 years time"- totally ignoring all other factors- and also ignoring the fact that so what, you own the property in 40 years time- where are you then? There are no pockets in a shroud....... With the proposed reforms of death duties I'm not so sure its even a good idea to own a property outright in 40 years time..... You may have spent your life working for the taxman........

amos13

back again.

sorry didn't mean to storm off in a huff, just had other things to do....it is the weekend and all

all points above clearly taken, and well made, but I still believe the property market will recover. strictly speaking I wouldnt be over confident in the Dublin property market, because prices in Dublin have been over inflated way beyond that of the rest of the country (which I agree has also been overinflated also). strict credit criteria will loosen again in a few years once the banks regain sufficient liquidity. remember the banks make money from lending it. but also, the average industrial wage last year was 32-35k, and the average price for a 3 bed semi was 300-350k. if single people were buying houses then yes, people would be getting mortgages ten times their wages, but I don't know anyone personally who bought a house themselves, its mostly couples or friends buying together, so this divides the debt. And I stand by my argument about the irish psyche, as posted above, I was constantly told by many friends while I was renting that it was dead money. And mortages also rarely last their full term of 35-40 years, as salaries go up over time, people tend to pay off more to reduce interest and pay it off earlier. Irish people don't want to be paying rent when they are retired. Also, housing booms have a trend of following periods of high unemployment when a country gets back on its feet, its a sense of "we didn't have any assets for so long, time to get them now we can".

amos13

Blackjack wrote: »

Amos, are you trying to suggest that the demand of 40% of new properties by the investor sector had no upward influence on price whatsoever?.

Please do explain further.

sorry just read this. yes they had an influence, I'm not saying they had none whatsoever. what I'm saying is that there was already a demand there. even if the demand was say, 30-35% of the 40%, there was still a significant demand for rentals, its a chain - demand for accomodation leads to demand for landlords to provide it leads to demand for builders to build. is this not true?

I've also just read the daft report that was mtnioned earlier saying that the rentals dropped over the last few years...and according to the national rent index, which is adjusted for inflation, it actually increased month on month from 2003. there was a lag in late 2003 but then it picked up again drastically. The writer of the report himself said
Everyone renting in Ireland will feel relief from the familiar pressure of ever-increasing rents.

This doesn't sound like the rents were stagnant or decreasing at all! He goes on to say

If our housing boom-and-bust cycle is comparable to our European neighbours, then we can expect it to take a minimum of 3-5 years for the market to recover


If you would like to read for yourself, here is the link http://www.daft.ie/report/Daft-Rental-Report-Q3-2008.pdf

So to conclude, the very site you referred to in your argument is supporting mine.

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Calina

When I came back to Ireland in 1999, renting could be construed as dead money. The cost of renting was beyond the cost of purchase, even for a single person, so it was a nobrainer to buy.

The issue in Ireland is not so much that people want their own homes, but that property was also seen as a get rich scheme. This is why I constantly highlight the investment property issue particularly with respect to 2006.

However, in the current circumstances, when you see people seeing 100K haircuts on entry level apartments depending on when they bought...and yes that is happening where I live...you will find a certain amount of revulsion. The refrain I am hearing most often now is not "rent is dead money" but "you are lucky...you are so flexible". From homeowners.

I think you need to understand that the property market is a lot more nuanced than you give it credit for. Psyches can change; I think that's happening. Part of the buy buy psyche in Ireland is linked to poor tenancy legislation and a monumental lack of trust between market participants in the rental market. #

You're making a number of worrying assumptions however.

1) We have rising unemployment at the moment. Forecasts suggest that this could hit 12% by 2010. I am hopeful that it won't, but during 2009, for every one woman made unemployed, eight men last their jobs. This is a worrying demographic split from a social point of view. It's also worrying because traditionally the ones who HAVE to take time off to have children are women. As a result, it's not good to be relying on women per se to pay mortgages particularly if a disproportionate number of men are unemployed.

2) That latter point is a key argument against assuming that there will always be two incomes to pay off a mortgage

3) Salary inflation has happened in the past; it's not guaranteed into the future and because of the nature of the employment market in Ireland right now - ie very little - and globalisation and offshoring of many service jobs which are not, in any case, all that highly paid, it's unwise to rely on it. I am aware that there is anecdotal evidence that banks took prospective salary inflation into consideration for certain professions; I do not think it was wise given that one of those professions is starting to lay off qualified newbies.

4) the reason, for the most part, that people didn't buy on their own is because a single salary cannot, at this point in time, fund a property alone. This did not used to be the case; and it should not be the case as it puts an unnecessary strain on family finances. It's also worth noting that interest rates are historically low and their long term trend is up. In the past, interest rates have been historically high on low principles, and their trend was down. I would prefer the latter because the former does not necessarily mean that salary inflation will leave you better off, particularly if interest rates are rising. Ask anyone on an interest only mortgage what the last 18 months were like while rates were going up rather than down to get a feel for the impact that would have.

I see no reason why property prices in Ireland won't recover at some point in the future; the problem as I see it, they won't start recovering until they hit bottom and I don't believe they are anywhere close to that for the time being. I suspect that because of the property ladder scenario in Dublin being particularly common, certain property types there will take a hammering for a while to come...outside Dublin, I think anywhere with a lot of non-locally owned/occupied property, eg parts of Leitrim and Donegal, and Roscommon, are heading for a hard time.

The_Conductor

The one thing I would say- is that First Time Buyers have consistently been below 25% (and at the peak of the market in 2006, as low as 17.2%) of the market for approved mortgages. The vast majority of construction in the previous 6 years has been aimed squarely at the FTB market- with very little in the "trader-upper" category. Even with the fall in construction- that which is still being constructed, is primarily ye 1-3 bed apartment with no garden.

Aside from anything else- most people who purchased in the last 10 years, did not do so on the basis that it was where they intended to stay longterm. Most people hanker after their 3 bed detached with a reasonable sized garden. For most people- that is an impossible dream- they just don't know it yet. As people reach the stage in life when they need to make choices and decisions regarding children etc- these will come to the fore.

The announcements from Ulster Bank, First Active and RBS at the weekend, about the very low probability that further cuts will be passed on in full (aside from the .25% they have no intention of passing on from Thursday's cut) mean that the average home owner will be facing the same dilemma as the property investors before long.

At least the archetypal FTB is not relying on rental income cashflow to service his/her debts- in a market with rental supply increasing by 10-12% month on month........

Calina

amos13 wrote: »

sorry just read this. yes they had an influence, I'm not saying they had none whatsoever. what I'm saying is that there was already a demand there. even if the demand was say, 30-35% of the 40%, there was still a significant demand for rentals, its a chain - demand for accomodation leads to demand for landlords to provide it leads to demand for builders to build. is this not true?

Unfortunately, at the same time, the CSO revealed an overhang of unoccupied property of around 230,000. A lot of investment property in Ireland was not bought for rental but for flipping - speculation if you like. Current estimates - and figures are hard to come by - suggest that we have around a quarter of a million empty properties and I believe the census figures for Dublin gave a figure of 40,000 empty properties for Dublin City but haven't got them to hand - which would suggest that a lot of the demand was not utility driven but speculation driven.

I need to look at the DAFT rental counts again because a) my experience and b) my recollection of their detail over that time was that rents were generally nominally stagnant or not rising in line with inflation. Certainly that was my experience at the time as well. They are certainly on the way down at the moment, however.

Calina

smccarrick wrote: »

The one thing I would say- is that First Time Buyers have consistently been below 25% (and at the peak of the market in 2006, as low as 17.2%) of the market for approved mortgages. The vast majority of construction in the previous 6 years has been aimed squarely at the FTB market- with very little in the "trader-upper" category. Even with the fall in construction- that which is still being constructed, is primarily ye 1-3 bed apartment with no garden.

Ironically if said apartments were designed for long term habitation I wouldn't have a problem with this. Unfortunately, a lot of the 1 and 2 bed apartments are not, so they are unsuitable for long term single, or trader downers for the simple reason that they have zilch storage and consist of disproportionately small rooms. In 2006, this was still absorbed, wholesale, by investor-speculators.

smccarrick wrote: »

Aside from anything else- most people who purchased in the last 10 years, did not do so on the basis that it was where they intended to stay longterm. Most people hanker after their 3 bed detached with a reasonable sized garden. For most people- that is an impossible dream- they just don't know it yet. As people reach the stage in life when they need to make choices and decisions regarding children etc- these will come to the fore.

To be fair, they were sold that scenario, regrettably. Again, it wouldn't matter if the starter homes were actually long term habitable but they are not. Any of the starters I've looked at I honestly wonder how two people live in them; I found them claustrophobic.

I'd also add that this is primarily an urban issue - outside the cities - and it was a bigger issue in Dublin than anywhere else - people bought or built houses that were not for ladder trading purposes.

smccarrick wrote: »

The announcements from Ulster Bank, First Active and RBS at the weekend, about the very low probability that further cuts will be passed on in full (aside from the .25% they have no intention of passing on from Thursday's cut) mean that the average home owner will be facing the same dilemma as the property investors before long.

At least the archetypal FTB is not relying on rental income cashflow to service his/her debts- in a market with rental supply increasing by 10-12% month on month........

A lot of FTBs I think in the current climate may well be keeping a low profile. I think the time of buying something just to have something is gone.

amos13

Calina wrote: »

When I came back to Ireland in 1999, renting could be construed as dead money. The cost of renting was beyond the cost of purchase, even for a single person, so it was a nobrainer to buy.

The issue in Ireland is not so much that people want their own homes, but that property was also seen as a get rich scheme. This is why I constantly highlight the investment property issue particularly with respect to 2006.

However, in the current circumstances, when you see people seeing 100K haircuts on entry level apartments depending on when they bought...and yes that is happening where I live...you will find a certain amount of revulsion. The refrain I am hearing most often now is not "rent is dead money" but "you are lucky...you are so flexible". From homeowners.

I think you need to understand that the property market is a lot more nuanced than you give it credit for. Psyches can change; I think that's happening. Part of the buy buy psyche in Ireland is linked to poor tenancy legislation and a monumental lack of trust between market participants in the rental market. #

You're making a number of worrying assumptions however.

1) We have rising unemployment at the moment. Forecasts suggest that this could hit 12% by 2010. I am hopeful that it won't, but during 2009, for every one woman made unemployed, eight men last their jobs. This is a worrying demographic split from a social point of view. It's also worrying because traditionally the ones who HAVE to take time off to have children are women. As a result, it's not good to be relying on women per se to pay mortgages particularly if a disproportionate number of men are unemployed.

2) That latter point is a key argument against assuming that there will always be two incomes to pay off a mortgage

3) Salary inflation has happened in the past; it's not guaranteed into the future and because of the nature of the employment market in Ireland right now - ie very little - and globalisation and offshoring of many service jobs which are not, in any case, all that highly paid, it's unwise to rely on it. I am aware that there is anecdotal evidence that banks took prospective salary inflation into consideration for certain professions; I do not think it was wise given that one of those professions is starting to lay off qualified newbies.

4) the reason, for the most part, that people didn't buy on their own is because a single salary cannot, at this point in time, fund a property alone. This did not used to be the case; and it should not be the case as it puts an unnecessary strain on family finances. It's also worth noting that interest rates are historically low and their long term trend is up. In the past, interest rates have been historically high on low principles, and their trend was down. I would prefer the latter because the former does not necessarily mean that salary inflation will leave you better off, particularly if interest rates are rising. Ask anyone on an interest only mortgage what the last 18 months were like while rates were going up rather than down to get a feel for the impact that would have.

I see no reason why property prices in Ireland won't recover at some point in the future; the problem as I see it, they won't start recovering until they hit bottom and I don't believe they are anywhere close to that for the time being. I suspect that because of the property ladder scenario in Dublin being particularly common, certain property types there will take a hammering for a while to come...outside Dublin, I think anywhere with a lot of non-locally owned/occupied property, eg parts of Leitrim and Donegal, and Roscommon, are heading for a hard time.

I take your points, I've seen the 100k haricuts in places like Ashtown in Dublin, but anyone who bought these at the ridiculous prices they were at a year ago were crazy, even in the climate of the time. However on your points about unemployment etc, BTL are generally long term investments, high unemployment will not last for the same term as the house (when I was referring to asset lives previously also, a 25-50 year asset life is how long the asset could be reasonbly be owned before death, not how long the actual house will last), and the same goes for salary rates - they are not going to stay at the current level forever. we all know we're going through a period of recession, but this isn't expected to last more than 3 years, at current estimates anyway. a lot of economists are of the belief that once the recession is over we will experience a long period of sustainable, steady growth, rather than extreme boom. If this is the case the economy will be a lot more stable and employment a lot more secure. people will begin to buy again, but for a while it will be the houses that are already there. I doubt that developers will see any of the benefits until the overhang is cleared.

Also, the financial services sector as you say is laying of a lot of people, but this is globally. again once the global economy picks up, so too will international companies begin to recuit again. redundancies are temporary measures for companies to get through the hard times, until they come out the other side

SimpleSam06

amos13 wrote: »

strict credit criteria will loosen again in a few years once the banks regain sufficient liquidity.

The banks won't be allowed to place themselves in the same position again. Right now world leaders are meeting to decide new and stricter financial rules.

gurramok

70,000 Poles to return home in a year, thats a deathknell to the BTL brigade.
http://www.independent.ie/business/irish/almost-70000-poles--to-return-home-within--a-year-survey-shows-1566869.html

Remember, each of the empty lets has a mortgage on them, these impending mortgage defaults affect the banks directly.

Nearly quadruple supply of lets in Dublin alone in just 2 years among the 20,000 lets on Daft.

Thats more trouble for canny.

SimpleSam06

gurramok wrote: »

70,000 Poles to return home in a year, thats a deathknell to the BTL brigade.
http://www.independent.ie/business/irish/almost-70000-poles--to-return-home-within--a-year-survey-shows-1566869.html

There were always Poles returning home though, since the start of the boom. The thing is they were replaced by new economic migrants from Poland and Eastern Europe. Have we got any numbers on how many are expected to come into the country over the next year, or has that slowed to a trickle?

The_Conductor

SimpleSam06 wrote: »

There were always Poles returning home though, since the start of the boom. The thing is they were replaced by new economic migrants from Poland and Eastern Europe. Have we got any numbers on how many are expected to come into the country over the next year, or has that slowed to a trickle?

Annecdotally, it has indeed slowed to a trickle, and for the first time in years, we have a renewal of emigration outwards from the country of Irish nationals. Some of the folk looking at geographic trends at NUIM are now suggesting between a 5 and 10% fall in the overall population, back towards around the 3.5 million mark. Keep in mind the 2006 census was the very peak of the boom.......

A possible 10% fall in overall population added into the mix....... Interesting.......

ZYX

gurramok wrote: »

70,000 Poles to return home in a year, thats a deathknell to the BTL brigade.
http://www.independent.ie/business/irish/almost-70000-poles--to-return-home-within--a-year-survey-shows-1566869.html



Thats more trouble for canny.

Not to doubt the Irish Independent, a paper never to let the truth get in the way of a story but according to the CSO, in 2006 there were 63,276 Poles living in Ireland. Pretty neat trick if 70,000 of these return home.

ZYX

SimpleSam06 wrote: »

There were always Poles returning home though, since the start of the boom. The thing is they were replaced by new economic migrants from Poland and Eastern Europe. Have we got any numbers on how many are expected to come into the country over the next year, or has that slowed to a trickle?

This is what is expected over next 18 years. http://www.cso.ie/releasespublications/documents/population/current/poppro.pdf
Basically states population to increase by 1.5million by 2026

The_Conductor

ZYX wrote: »

This is what is expected over next 18 years. http://www.cso.ie/releasespublications/documents/population/current/poppro.pdf
Basically states population to increase by 1.5million by 2026

I think this will be seriously revised to be honest.
There were an awful lot of assumptions made when they came up with those projections- assumptions which we now know to be wholly misplaced. The whole proposition is based on actual historical data from 1994 to 2006 (including the TFR (fertility) figures etc). Population and demographic experts in other institutions are now very much at odds with the CSOs projections.

gurramok

ZYX wrote: »

Not to doubt the Irish Independent, a paper never to let the truth get in the way of a story but according to the CSO, in 2006 there were 63,276 Poles living in Ireland. Pretty neat trick if 70,000 of these return home.

Well, an awful lot didnt state their nationality in the census. They probably add all those that have come since as well.

CPL, the big recruitment firm, seem to be the source of this news http://www.breakingnews.ie/business/mhidsnojqlsn/

ZYX

gurramok wrote: »

Well, an awful lot didnt state their nationality in the census. They probably add all those that have come since as well.

CPL, the big recruitment firm, seem to be the source of this news http://www.breakingnews.ie/business/mhidsnojqlsn/

CPL have just opened an office in guess where? Yes Poland. So they needed some free advertising. They sent e-mails to 500 Polish people. Where did they get the e-mail addresses of these people? Well they don't say but as a recruitment agency it was probably people already on their books. So of these 500 people who are actively seeking employment or in short term contracts 33% say they are planning to go back home. Hardly scientific. They then guess that half of all immigrants in Ireland are Polish and extrapolate the data to this 200,000 people. This info is sent to newspapers and lazy journalists print it.

Blackjack

amos13 wrote: »

sorry just read this.

I don't think you did.

So to conclude, the very site you referred to in your argument is supporting mine.

I never referred to a website. Below is what I asked:

"are you trying to suggest that the demand of 40% of new properties by the investor sector had no upward influence on price whatsoever?.
"

to which you responded:

amos13 wrote: »

I'm not saying they had none whatsoever. what I'm saying is that there was already a demand there.

You then went on to try to justify your argument, stating that there will be demand for Landlords (yes there will). However, when 40% of the available new property is being sought by landlords/investors only, do you not agree this has a significant upward influence on price (I refer you to the whole supply/demand theory)?.

The rest of you post, I have to say, made no sense to me whatsoever - I don't know what question you were answering, but it wasn't mine.