End of tenants market?

OMD

Treehouse72 wrote: »

I made no mention of absolute numbers, nor did I express a preference for what yield is neutral over the longer term. But it doesn't really matter because sales prices are still so high that whether we use a 5% or 7% gross figure the drops in sale prices still need to be of the order I suggest. But if you must, here is an Irish Independent article from this year that suggests 7% is indeed a gross yield one should be looking at:

http://www.independent.ie/lifestyle/property-plus/lucrative-yields-to-lure-investors-back-2060330.html

This article, on Manhatten, says that the 5.5% yield there is "modest", suggesting that a higher yield would be neutral:

http://www.globalpropertyguide.com/North-America/United-States/Rental-Yields

In those tables we also see Miami yelds touching 7%. And remember those figures would have been collated during the property bubble.

Most revealingly, NAMA is working off a 6% yield! As explained by Ronan Lyons (one of the most respected property economists in Ireland) here:

http://www.ronanlyons.com/2010/05/25/rents-stabilise-during-the-first-months-of-2010/

I agree with all this as it backs up my point that a 7% yield is not sustainable in the long term. Indeed in the article you quote from Ronan Lyons(one of the most respected property economists in Ireland) he says:

"The problem is that yields show that people seemed to believe that the medium-term average cost of borrowing would be in the 3% range, not in the 5% range. The potential elephant in the property market room, therefore, is that the yield realistically will have to settle at somewhere close to 5% – perhaps 5.25% or so – to have anything like a normal property market"

Treehouse72 wrote: »

On your other point, the metric by which you come to the conclusion that yields aren't important in Ireland is simply incorrect. The issue isn't what types of property we have. The issue is that any property for sale in Ireland has a rental equivalent. Ronan Lyons again:

http://www.ronanlyons.com/2009/06/19/yields-on-residential-property-point-to-scale-of-the-challenge/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+RonanLyons+%28Ronan+Lyons%29

He also says (in June 2009, same link):

So yes, yields do matter very much indeed, and all the evidence suggest that the 5% - 7% range is where it should be. Use either one and you'll see sales prices are STILL miles and miles out of whack. Which is the point I was making to begin with. Multiply by 14 or 20 - the truth is probably somewhere in between, but all the numbers will tell you is that prices need to fall a lot more.

I don't know where you are getting the idea that yields are unimportant. I never said that. On an individual property or small group of properties yield is essential. My point is I don't think when you take the market as a whole, that it makes sense to base the price of properties that are mainly houses as a multiple of rent on properties that are mainly apartments. It is not the yield that I am questioning it is how that yield is calculated when looking at the market as a whole. Indeed add to this we are comparing estimated selling prices on one hand with asking rents on the other.

By the way the average Dublin rent is €940. Using Ronan Lyons's 5% yield that means the average property should be worth €225,000. It is actually worth €240,000. So based on those numbers, and accepting all their faults, it tells me prices have 5% further to fall.

Treehouse72

OMD wrote: »

I agree with all this as it backs up my point that a 7% yield is not sustainable in the long term. Indeed in the article you quote from Ronan Lyons(one of the most respected property economists in Ireland) he says:

"The problem is that yields show that people seemed to believe that the medium-term average cost of borrowing would be in the 3% range, not in the 5% range. The potential elephant in the property market room, therefore, is that the yield realistically will have to settle at somewhere close to 5% – perhaps 5.25% or so – to have anything like a normal property market"

OMD, I am not trying to sell you the 7% figure. You are the one that brought that up in quoting McWilliams. I repeatedly said in my past post that it doesn't matter if we call it 5% or 7% - either figure suggests sales prices are ludicrously out of line. Where one settles along that range is simply a measure of things like how much profit you want, where interest rates are, where we are in the economic cycle etc. It doesn't really matter - even the smallest sustainable yields imaginable still suggest property is no less than 30% overpriced.

And for what it's worth, I take Ronan Lyon's point above to be that 5% is a minimum requisite yield to keep ahead of likely rising interest rates over the medium term. But I'm very tired, so maybe I'm reading that wrong!

Let's put it this way. For a modest 5% yield - which I think you are happy enough with and which I think might be ok too (I don't know for sure) - then for any property for rent at €1,000 you should be able to buy it for c. €200,000. If you can find me any properties in Dublin even close to this I'll tip my hat to you. (Be warned, I have a long rebuttal post ready to go chock-full of examples of how far off the maths are on this! I won't post it now because it just appears too hectoring and evangelical. Suffice to say many 3 bed semi-d's are available in this ballpark price to rent but absolutely nowhere near to buy. If we were to demand a 6% or 7% yield - and Irish bonds pay 6%!! - it's even more out of whack.)

I don't know where you are getting the idea that yields are unimportant. I never said that. On an individual property or small group of properties yield is essential. My point is I don't think when you take the market as a whole, that it makes sense to base the price of properties that are mainly houses as a multiple of rent on properties that are mainly apartments. It is not the yield that I am questioning it is how that yield is calculated when looking at the market as a whole. Indeed add to this we are comparing estimated selling prices on one hand with asking rents on the other.

By the way the average Dublin rent is €940. Using Ronan Lyons's 5% yield that means the average property should be worth €225,000. It is actually worth €240,000. So based on those numbers, and accepting all their faults, it tells me prices have 5% further to fall.

In the first para there you are saying we can't extrapolate from a market of primarily apartments to the market as a whole...and then in the second para you are using the average rent for that very market to prove that prices across the whole market aren't too high!! You can't have it both ways OMD!

And you still seem to be missing the point about the relevance of yield to the whole market. The reason yield matters is because any property you could buy, you could rent instead. That's all that matters, not the mix of apartments in the rental sector. Because that is the case the marginal rental yield sets (or influences) the sales prices of their direct equivalents that are for sale. Since 99% of properties in the country can be bought or rented, this rule must apply across the board.

OMD

Treehouse72 wrote: »

OMD, I am not trying to sell you the 7% figure. You are the one that brought that up in quoting McWilliams. I repeatedly said in my past post that it doesn't matter if we call it 5% or 7% - either figure suggests sales prices are ludicrously out of line. Where one settles along that range is simply a measure of things like how much profit you want, where interest rates are, where we are in the economic cycle etc. It doesn't really matter - even the smallest sustainable yields imaginable still suggest property is no less than 30% overpriced.

And for what it's worth, I take Ronan Lyon's point above to be that 5% is a minimum requisite yield to keep ahead of likely rising interest rates over the medium term. But I'm very tired, so maybe I'm reading that wrong!

Let's put it this way. For a modest 5% yield - which I think you are happy enough with and which I think might be ok too (I don't know for sure) - then for any property for rent at €1,000 you should be able to buy it for c. €200,000. If you can find me any properties in Dublin even close to this I'll tip my hat to you. (Be warned, I have a long rebuttal post ready to go chock-full of examples of how far off the maths are on this! I won't post it now because it just appears too hectoring and evangelical. Suffice to say many 3 bed semi-d's are available in this ballpark price to rent but absolutely nowhere near to buy. If we were to demand a 6% or 7% yield - and Irish bonds pay 6%!! - it's even more out of whack.)

Average rent in Dublin now is €940. Using a 5% yield, and allowing for 11 months occupancy, as Ronan Lyons did, gives you an average price of about €200,000. Current average price for a property in Dublin is about €240,000. How do you work this out to mean properties are at least 30% overvalued? By the way I have no problem with the idea that house prices are going to fall further. I do believe that based on the evidence from the Daft report, rents in Dublin have stabalised and may actually rise slightly.

Treehouse72 wrote: »

In the first para there you are saying we can't extrapolate from a market of primarily apartments to the market as a whole...and then in the second para you are using the average rent for that very market to prove that prices across the whole market aren't too high!! You can't have it both ways OMD!

Which is why I said "accepting all its faults". Why don't you just give figures for current yields as I asked you before? Then perhaps you could show me how out of step yields are.

Treehouse72 wrote: »

And you still seem to be missing the point about the relevance of yield to the whole market. The reason yield matters is because any property you could buy, you could rent instead. That's all that matters, not the mix of apartments in the rental sector. Because that is the case the marginal rental yield sets (or influences) the sales prices of their direct equivalents that are for sale. Since 99% of properties in the country can be bought or rented, this rule must apply across the board.

The part in bold is the part I agree with. My point is I don't think the rental market is the direct equivalent of the sales market. How can it be when one is 75% houses and the other only 42% houses? The average house in Dublin is substantially dearer than the average apartment. Also the investor market only makes up about 5% of sales at present.

Look at it another way Treehouse72. You are saying if we went around Dublin and valued every rental property, (which are mainly appartments, flats & bedsits) the average price would be about the same as the overall average property price in Dublin (which would be mainly houses). I simply do not believe that.

I think if you looked at each individual rental property, and looked at the yield on each one, that the average yield on these properties would be higher than simply taking the average rent for the city and comparing it to the average selling price.

OMD

OMD wrote: »

We will see when the next report comes out. I say rents may be rising (as distinct to the 0.9% national fall last quarter). You say rents are falling and in Dublin "Postcodes" rents are plummeting. Dare I ask what quarterly drop will count as "plummeting"?

Just to come back to this. I said we would see when the next report comes out.

http://www.daft.ie/report/Daft-Rental-Report-Q3-2010.pdf

Rents rose in all areas of Dublin in last 3 months (period of this discussion) with the exception of West Dublin where they fell 0.1% (or plummeted 0.1% as Gurramok would say).

Yields in Dublin City Centre are now 5.5% with yields about 4.5% for Dublin as a whole.

ixoy

It'll be interesting to see if the budget affect this - potentially a considerable cut in disposable income plus the potential for property taxes that may be pushed on to renters.

gurramok

OMD wrote: »

Just to come back to this. I said we would see when the next report comes out.

http://www.daft.ie/report/Daft-Rental-Report-Q3-2010.pdf

Rents rose in all areas of Dublin in last 3 months (period of this discussion) with the exception of West Dublin where they fell 0.1% (or plummeted 0.1% as Gurramok would say).

Yields in Dublin City Centre are now 5.5% with yields about 4.5% for Dublin as a whole.

So we have the Q3 report.

Q1, Q2, Q3
North County Dublin -0.4, +0.4, 0.0
North Dublin City 0.0, -1.5, +0.9
Dublin City Centre 1.3, -1.9, +0.9
South Dublin City -0.3, -1.2, +0.6
South County Dublin 0.0, +0.2, +1.1
West County Dublin +0.2, -0.7, -0.1

The numbers are tiny to draw a conclusion that it is sustainable rise well into next year, we'll see. Though I'd agree that South County Dublin is rising as per earlier discussion. As well as my own back yard where I have noticed and stated that they are stuck for the last year partly in thanks to Google still hiring.

Last time you had claimed wrongly that the whole of Dublin were seeing rent rises which was factually incorrect. This time you can claim it on tiny rises of a few quid, fair enough. We'll have to wait and see what the trend will be since we are in IMF territory for the foreseeable future.

wyndham

ixoy wrote: »

It'll be interesting to see if the budget affect this - potentially a considerable cut in disposable income plus the potential for property taxes that may be pushed on to renters.

Cut in rent allowance/supplement resulting in a fall in rents is a possibility.

OMD

gurramok wrote: »

Last time you had claimed wrongly that the whole of Dublin were seeing rent rises which was factually incorrect. .

I did not claim that.

Treehouse72

OMD wrote: »

Yields in Dublin City Centre are now 5.5% with yields about 4.5% for Dublin as a whole.

How are you coming to that conclusion? What properties are you including in that? There are hundreds of properties renting and selling for prices in the city centre that are a long, long, long way from a 5.5% yield. For example:

http://www.daft.ie/searchsale.daft?id=561463
http://www.daft.ie/searchrental.daft?id=964598

Not sure they are precisely equivalent, but it would be close enough and it's 30%+ overpriced on the sale side.

Blackjack

OMD wrote: »

Yields in Dublin City Centre are now 5.5% with yields about 4.5% for Dublin as a whole.

What are you basing your Yield calculations on?

OMD

Treehouse72 wrote: »

How are you coming to that conclusion? What properties are you including in that? There are hundreds of properties renting and selling for prices in the city centre that are a long, long, long way from a 5.5% yield. For example:

http://www.daft.ie/searchsale.daft?id=561463
http://www.daft.ie/searchrental.daft?id=964598

Not sure they are precisely equivalent, but it would be close enough and it's 30%+ overpriced on the sale side.

Yields are on page 10 of DAFT report as previously linked. Analysis by Ronan Lyons.

Treehouse72

Ok OMD, I didn't see that - I'll have a look at it later.