Irish property market bound for recovery

The_Conductor · 09-10-2009 2:26pm

john_boy_123 - banned permanently for registering to get around a forum ban.

hobochris · 09-10-2009 2:35pm

I think the problem with this thread Is the definition of what recovery means has not been defined.

To some its going back to boom prices(Which imo is a laughable concept) and to others it means returning to a state where the average person could purchase a home without going into near crippling debt.

Personally I favor the second as the definition of property market recovery.

Unfortunately it means many who invested in a property rather then purchased a home will lose out, but at the same time no one put a gun to their heads made them buy at peak prices.

The demand for property has passed its peak due to a surplus.to play devils advocate: Given Ireland's massive supply of apartments, smart thinking would suggest that any money to be made in Irish property from here in would be in housing, as I doubt many want to raise a family or be stuck in an apartment for the rest of their lives.

I don't know about others but when I think about raising a family its a house I see myself in not an apartment.It would be naive to thing that the same level of profit made from property will be seen in the next 20 years in Ireland.

</my two cents>

Diarmuid · 09-10-2009 2:35pm

spockety wrote: »

These are the figures which come from a guy who reckons that on a ~270K mortgage, interest rates going up to 20% only increase the monthly repayment by about 450 euro????

:eek:
:eek:
:eek:
:eek:

Lots here could gain a lot by spending some time here

alfranken · 09-10-2009 2:39pm

john_boy_123 wrote: »

I think the other John made good sense with his whole argument did you read his comparison of a guy who is a pessimist renting for 900 a month and then the place next to it going for 295 it makes a complete mockery of what your trying to say Calina. Also have a look at zyx's comments.

As for control of 2nd hand property if they go into default where do they go Nama...who controls Nama the gov therefore indirectly they do control 2nd hand property that go into default.

Are people still doing the rent is dead money arguement?

hobochris · 09-10-2009 2:43pm

alfranken wrote: »

Are people still doing the rent is dead money arguement?

some still are, I think of rent(especially during these times) as cleverly biding your time.Many renters will eventually buy but not at these prices.

alfranken · 09-10-2009 2:46pm

Can someone answer something about NAMA, it seems to me that the banks are dependant on getting money (at bubble prices) from developers, if they were told tomorrow they wouldn't get a thing then the caca would hit the fan. Developers (didn't O'Carroll not pay interest for 2 years) are riddled with debt and the only way they can survive is to get rid of their property at bubble prices. The only way NAMA can succeed is with bubble prices and if there's so much value now who is going to pay crazy prices?
Over the last 5 years people have been badly stung with crap apartments and the like, these were supposed to be the starter homes or the first rung on the ladder but they won't be sold on for a long time. Imagine raising children in some of these places.
If property falls on average 40%, then it will take a rise of 60% for people to make their money back. This is not what people planned for. Speculating on glorified shoe boxes in the short term was seen as a get rich quick scheme by many.
Also why the talk of the US and UK recovery, I thought Ireland was different!

ZYX · 09-10-2009 3:11pm

Diarmuid wrote: »

Unfortunately for zyx, his figures are pie in the sky stuff.

Well I based the figures on AIBs 10 year mortgage, Gurramocks rent and estimated price for his appartment which he seemed to agree with. Where are the figures "pie in the sky"? You can argue all you want about where you think prices are going and whether to buy or not. It still does not change the fact that it is cheaper to buy Gurramoks appartment now than it is to rent. It may become even cheaper in the future, I am not disagreeing with that but the figures I gave are not "Pie in the Sky"

gurramok · 09-10-2009 3:17pm

john_boy_123 wrote: »

I think the other John made good sense with his whole argument did you read his comparison of a guy who is a pessimist renting for 900 a month and then the place next to it going for 295 it makes a complete mockery of what your trying to say Calina. Also have a look at zyx's comments.

You're banned(you the same John?

) but for the others, i was told hard luck in that I could not afford 295k by ZYX.
Why should I move from a 2bed in D4 to the outer suburbs/commuterland for a cheaper price because of the resent asking price here when its a no-brainer to rent with all the facilities beside me?

Oh, if i was able to afford the asking price, after yr 10 how will afford a doubling of repayments?

john_boy_123 wrote: »

As for control of 2nd hand property if they go into default where do they go Nama...who controls Nama the gov therefore indirectly they do control 2nd hand property that go into default.

Where is this in Nama about defaults on 2nd hand property?

Anyone provide a link?

That 1yr moratorium don't count.

gurramok · 09-10-2009 3:19pm

ZYX wrote: »

Well I based the figures on AIBs 10 year mortgage, Gurramocks rent and estimated price for his appartment which he seemed to agree with. Where are the figures "pie in the sky"? You can argue all you want about where you think prices are going and whether to buy or not. It still does not change the fact that it is cheaper to buy Gurramoks appartment now than it is to rent. It may become even cheaper in the future, I am not disagreeing with that but the figures I gave are not "Pie in the Sky"

Hold on. Are you expecting wages to double in after yr 10 so I can afford doubling of repayments?

10yr fixed is good alright, its what happens afterwards that would put me on the street!

ZYX · 09-10-2009 3:28pm

gurramok wrote: »

Hold on. Are you expecting wages to double in after yr 10 so I can afford doubling of repayments?

10yr fixed is good alright, its what happens afterwards that would put me on the street!

Well Gurramok, you think interest rates will average 8.5% in 10 years time. I doubt it but I suppose you never know. However I bet your rent will be higher than 900 a month. If we have inflation averaging 5% then you can expect your rent to be €1450 in 10 years, and more than double to €1870 in 15 years and €2400 in 20 years. Unless you believe average interest rates are going to be 12% or so then you can expect your rent to average higher than your interest repayments

spockety · 09-10-2009 3:35pm

ZYX wrote: »

Well Gurramok, you think interest rates will average 8.5% in 10 years time. I doubt it but I suppose you never know. However I bet your rent will be higher than 900 a month. If we have inflation averaging 5% then you can expect your rent to be €1450 in 10 years, and more than double to €1870 in 15 years and €2400 in 20 years. Unless you believe average interest rates are going to be 12% or so then you can expect your rent to average higher than your interest repayments

I don't think that in a normal market there's a lot to argue in terms of renting vs buying in the long term. As you point out, for the mortgage holder their monthly repayment remains relatively static or immune to inflation as well as having a finite life of repayments, while the renter suffers inflation and pays for life.

However, we're not in a normal market. We're in a falling housing market, and a deflationary society. So making long term decisions based on todays housing prices and interest rates probably isn't very clever.

gurramok · 09-10-2009 3:39pm

ZYX wrote: »

Well Gurramok, you think interest rates will average 8.5% in 10 years time. I doubt it but I suppose you never know. However I bet your rent will be higher than 900 a month. If we have inflation averaging 5% then you can expect your rent to be €1450 in 10 years, and more than double to €1870 in 15 years and €2400 in 20 years. Unless you believe average interest rates are going to be 12% or so then you can expect your rent to average higher than your interest repayments

My rent is not determined by inflation, its determined by supply and demand.

Where are you getting your mortgage figures from?

I went to AIB website and the best they offer is 5yr fixed on the FTB package for a 271k 2.92%IR 25yr mortgage (24k deposit)which works out at 1408 a month.

http://www.aib.ie/personal/mortgages/New-Mortgage-Interest-Rates gives the 10yr one but it does not come up for a FTB for calculating?

ZYX · 09-10-2009 3:46pm

gurramok wrote: »

My rent is not determined by inflation, its determined by supply and demand.

Well rent goes to make up inflation. I think you can assume rents will rise in next 10 years. It could be more than inflation it may be less than inflation.

gurramok wrote: »

Where are you getting your mortgage figures from?

I went to AIB website and the best they offer is 5yr fixed on the FTB package for a 271k 2.92%IR 25yr mortgage (24k deposit)which works out at 1408 a month.

http://www.aib.ie/personal/mortgages/New-Mortgage-Interest-Rates gives the 10yr one but it does not come up for a FTB for calculating?

As I said Gurramok I am looking at interest only. If you look at repayment mortgage then while the initial repayments are higher the savings over renting are huge as per the example I gave before

ZYX · 09-10-2009 3:54pm

spockety wrote: »

I don't think that in a normal market there's a lot to argue in terms of renting vs buying in the long term. As you point out, for the mortgage holder their monthly repayment remains relatively static or immune to inflation as well as having a finite life of repayments, while the renter suffers inflation and pays for life.

However, we're not in a normal market. We're in a falling housing market, and a deflationary society. So making long term decisions based on todays housing prices and interest rates probably isn't very clever.

I agree with you to a certain extent. It all depends on how much you feel property prices will fall. As I have said AIB are offering a very good 10 year mortgage. If you wait 2 years to buy will that type of rate still be available? It is hard to know. But say in 2 years time they offer a 10 year rate 1% higher. That will cost you €17000 extra over the 10 years (based on this €260,000 property). In other words the price of the property would have to have dropped 17000 to make the waiting worthwhile. That is not counting the extra you would have spent on renting. Maybe it will drop that much and more maybe not. Maybe AIB will offer an even better rate. Who knows.

The point is it is not as simple as saying prices are falling so don't buy. There are many things to take into account. If you can get a good deal today, say knock 20% off the current estimated value of the property then it may make very good sense to buy.

20goto10 · 09-10-2009 3:58pm

gurramok wrote: »

My rent is not determined by inflation, its determined by supply and demand.

Where are you getting your mortgage figures from?

I went to AIB website and the best they offer is 5yr fixed on the FTB package for a 271k 2.92%IR 25yr mortgage (24k deposit)which works out at 1408 a month.

http://www.aib.ie/personal/mortgages/New-Mortgage-Interest-Rates gives the 10yr one but it does not come up for a FTB for calculating?

No, rents are determined by location, condition and interest rates. Interest rates go down and rents go down. People who connect the recent decline in rent with supply and demand are simply wrong. Rents have fallen because the landlords can afford to drop them. And the lag of a year or so before the decline will not be repeated the other way around. Rents will go up the moment rates are increased, possibly even before hand as the ECB are very good at giving plenty of notice. And it will have nothing to do with supply and demand. There may be some who figure any money is better than none, but only within reason.

Diarmuid · 09-10-2009 4:02pm

gurramok wrote: »

http://www.aib.ie/personal/mortgages/New-Mortgage-Interest-Rates gives the 10yr one but it does not come up for a FTB for calculating?

AIB 10 year fixed is currently 4.74%
25 years at this rate results in

Fixed Loan Data
Principal: 	&#8364;271,000.00 		
Start date: 	October 2009
Interest %: 	4.74 		
End date: 	September 2034
Years: 	25 		
[B]Monthly payment: 	1,543.46[/B]
Total interest: 	&#8364;192,037.87

EDIT: OF course I don't know the point of this exercise because you can't get 10 year rates for a 25 year mortgage.

gurramok · 09-10-2009 4:03pm

ZYX wrote: »

Well rent goes to make up inflation. I think you can assume rents will rise in next 10 years. It could be more than inflation it may be less than inflation.

There is no assumption that rents will rise over the next 10yrs. Hope you're not basing it on general inflation as thats not how it works. Rent rises/drops arising from market supply/demand contribute to overall inflation so saying inflation will rise yr on yr does not apply to every sector thats counted for calculating inflation.

20goto10 wrote:

No, rents are determined by location, condition and interest rates. Interest rates go down and rents go down. People who connect the recent decline in rent with supply and demand are simply wrong. Rents have fallen because the landlords can afford to drop them. And the lag of a year or so before the decline will not be repeated the other way around. Rents will go up the moment rates are increased, possibly even before hand as the ECB are very good at giving plenty of notice. And it will have nothing to do with supply and demand. There may be some who figure any money is better than none, but only within reason.

Thats based on amateur landlords. If they want to hike rents based on their mortgage outgoings, the tenant can simply move to a landlord who has a small mortgage who can undercut him to get the tenant hence market forces at play.

ZYX wrote: »

As I said Gurramok I am looking at interest only. If you look at repayment mortgage then while the initial repayments are higher the savings over renting are huge as per the example I gave before

For the first 10years you may have a case on cheap rates, its afterwards where it bites hard for the rest of the term(more capital portion payments yes). If only 10 yr fixed mortgages were available for 10yrs

Same scenario can be applied for 2 or 5yr fixed rates, its what happens after
that should be looked at.

Diarmuid · 09-10-2009 4:05pm

20goto10 wrote: »

Rents have fallen because the landlords can afford to drop them.

Now that is someone with some serious business acumen!

ZYX · 09-10-2009 4:08pm

gurramok wrote: »

There is no assumption that rents will rise over the next 10yrs. Hope you're not basing it on general inflation as thats not how it works. Rent rises/drops arising from market supply/demand contribute to overall inflation so saying inflation will rise yr on yr does not apply to every sector thats counted for calculating inflation.

For the first 10years you may have a case on cheap rates, its afterwards where it bites hard for the rest of the term(more capital portion payments yes). If only 10 yr fixed mortgages were available for 10yrs

Same scenario can be applied for 2 or 5yr fixed rates, its what happens after
that should be looked at.

But gurramok, you are saying interest rates will double to average at 8.5% but rents will not go up much. I am not saying that is impossible but it is very unlikely.

gurramok · 09-10-2009 4:09pm

Diarmuid wrote: »

AIB 10 year fixed is currently 4.74%
25 years at this rate results in

Fixed Loan Data
Principal: 	&#8364;271,000.00 		
Start date: 	October 2009
Interest %: 	4.74 		
End date: 	September 2034
Years: 	25 		
[B]Monthly payment: 	1,543.46[/B]
Total interest: 	&#8364;192,037.87

Goto here http://www.aib.ie/personal/mortgages/First-Time-Buyer-Package

Put in 295k with a mortgage of 271k(about 92%). It does not offer 10yr fixed there. So whats the conditions to get 10yr fixed?

The_Conductor · 09-10-2009 4:09pm

Diarmuid wrote: »

Now that is someone with some serious business acumen!

I'd be more of the opinion that rents have fallen- because landlords can't afford to have vacant units- and tenants have oodles of choice in the main. In certain categories where supply is more constrained- rental income has held up very well- normal market economics apply.

ZYX · 09-10-2009 4:10pm

Diarmuid wrote: »
AIB 10 year fixed is currently 4.74%
25 years at this rate results in
Fixed Loan Data
Principal:     &#8364;271,000.00         
Start date:     October 2009
Interest %:     4.74         
End date:     September 2034
Years:     25         
[B]Monthly payment:     1,543.46[/B]
Total interest:     &#8364;192,037.87
EDIT: OF course I don't know the point of this exercise because you can't get 10 year rates for a 25 year mortgage.

Ok diarmuid, total interest you say is 192,037. If you rented all that time and in some fantasy world rents do not go up, then you would have paid €270,000. So as I said quids in. Based on your example you are better off by €80,000 by renting

By the way according to AIBs website their 10 year fixed rate is 4.21% APR.http://www.aib.ie/personal/mortgages/New-Mortgage-Interest-Rates

gurramok · 09-10-2009 4:11pm

ZYX wrote: »

But gurramok, you are saying interest rates will double to average at 8.5% but rents will not go up much. I am not saying that is impossible but it is very unlikely.

I see(i was getting mixed up between 5yr and 10yr). I'd be at the mercy of the variable rates then!

20goto10 · 09-10-2009 4:12pm

gurramok wrote: »

Thats based on amateur landlords. If they want to hike rents based on their mortgage outgoings, the tenant can simply move to a landlord who has a small mortgage who can undercut him to get the tenant hence market forces at play.

Its not hiking rates. Its getting what they need otherwise why bother? It goes for anything that involves handing over money. Yes tenants can go find a cheaper landlord but the reality of the situation is that there is an overwhelming amount of rental properties are recent purchases, have been renovated (hence remortgaged) or the landlords have simply cashed in some equity to fuel their celtic tiger lifestyles. Yes, you may find someone who bought a house in pre 2002, has never remortgaged and is renting it out at a discount to other landlords. But it's highly unlikely that someone like that is in the property business for so long (through the boom) and has not been caught up in it all.

Diarmuid · 09-10-2009 4:15pm

ZYX wrote: »

Ok diarmuid, total interest you say is 192,037. If you rented all that time and in some fantasy world rents do not go up, then you would have paid €270,000. So as I said quids in. Based on your example you are better off by €80,000 by renting

If that's the exercise you want to perform you need to do a far more detailed analysis. ie how much will you spend on management charges/maintenance? How much interest would you have accrued on the difference between the rent and the mortgage payments? What happens if housing market underperforms/outperforms inflation etc.

Most will agree (me included) in the ideal market conditions you will be better off buying than renting. However we are not in those market conditions now.

The_Conductor · 09-10-2009 4:16pm

ZYX wrote: »

But gurramok, you are saying interest rates will double to average at 8.5% but rents will not go up much. I am not saying that is impossible but it is very unlikely.

If the ECB consider normalisation or rates to be in the 4.25-4.5% range for overnight rates- and the international norm is for margins to be 1.25-1.5% above ECB base rates- its a reasonable assumption that long term rates might be in the 5.75-6% range?

ZYX · 09-10-2009 4:17pm

gurramok wrote: »

I see(i was getting mixed up between 5yr and 10yr). I'd be at the mercy of the variable rates then!

No then you can fix again at whatever rate is going. I mean unless you decide never to buy (in which case financially you will be much worse off) then you are either going to have to fix or go variable.

oflahero · 09-10-2009 4:22pm

20goto10 wrote: »

People who connect the recent decline in rent with supply and demand are simply wrong. Rents have fallen because the landlords can afford to drop them.

Good God. We've found an exception to market forces, unique in this world. You should bring your argument to the couple whose apartment I looked at to rent a few months back when my lease was up. They'd bought in 2001 and subsequently bought a gaff to live in two years ago, but figured they'd hang on to the apartment because, well, sure it's a handy investment and property only ever goes up. They had overpriced the rent initially but had brought it down after no bites, still a bit overpriced, and were clearly very keen to get a tenant in, as they were feeling the two-mortgage pinch. I don't think I was the first to leave saying, "em thanks, but no thanks". It's still on the market today, with another hundred off, still empty after six months. There's a lot of people out there in similar positions, and these guys sure as hell didn't drop the rent because they could 'afford' to.

This is just the old argument of "I can't sell for less than I paid for it", repackaged for the amateur landlords. This is keeping prices sticky, both in sales and lettings. It's been said before, but it's no different from marching into Goodbody's brandishing your AIB shares saying "look here, I bought at €14 for these, I can't possibly sell them for €1, it's less than what I paid for them!"

spockety · 09-10-2009 4:24pm

20goto10 wrote: »

Its not hiking rates. Its getting what they need otherwise why bother? It goes for anything that involves handing over money. Yes tenants can go find a cheaper landlord but the reality of the situation is that there is an overwhelming amount of rental properties are recent purchases, have been renovated (hence remortgaged) or the landlords have simply cashed in some equity to fuel their celtic tiger lifestyles. Yes, you may find someone who bought a house in pre 2002, has never remortgaged and is renting it out at a discount to other landlords. But it's highly unlikely that someone like that is in the property business for so long (through the boom) and has not been caught up in it all.

Have you got statistics to back up you assertion that the overwhelming majority of property to rent in this country are recent purchases?

Because without any evidence to back it up, I call poppycock.

Diarmuid · 09-10-2009 4:25pm

smccarrick wrote: »

If the ECB consider normalisation or rates to be in the 4.25-4.5% range for overnight rates- and the international norm is for margins to be 1.25-1.5% above ECB base rates- its a reasonable assumption that long term rates might be in the 5.75-6% range?

It seems this lesson has still not sunk in, in Ireland.

Irish property market bound for recovery

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