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Property oversupply - how long will it take for this to correct?

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  • 27-01-2013 3:36am
    #1
    makeorbrake
    Registered Users Posts: 4,664 ✭✭✭


    Leaving property prices totally aside, how long is it likely to take for some sort of convergence of supply and demand in areas which right now have a serious overhang?

    I'm thinking in terms of towns like Longford. There are properties on offer for less than build cost - nothing remarkable about that - as I guess the point is that if in effect - the property under-performs in terms of what can be achieved in rent, then a higher sales price can't be justified.

    What I'm wondering is - how long will it take for local demand to converge (or at least come somewhere close to..) the level of supply that already exists?


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    #2
    [Deleted User]
    Posts: 0 ✭ [Deleted User]


    makeorbrake wrote: »
    Leaving property prices totally aside, how long is it likely to take for some sort of convergence of supply and demand in areas which right now have a serious overhang?

    I'm thinking in terms of towns like Longford. There are properties on offer for less than build cost - nothing remarkable about that - as I guess the point is that if in effect - the property under-performs in terms of what can be achieved in rent, then then a higher sales price can't be justified.

    What I'm wondering is - how long will it take for local demand to converge (or at least come somewhere close to..) the level of supply that already exists?

    In relative terms, and perhaps with a slight over-simplification, the correction will take longer the further away you get from the 3-4 biggest population centres - and will take longer for apartments than houses.

    Places like Longford and Leitrim have an oversupply of property that will take a couple of decades to unwind, TBH.


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    #3
    carpejugulum
    Registered Users Posts: 523 ✭✭✭carpejugulum


    There will never be demand for a lot of the finished and especially partially-finished houses.


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    #4
    the_syco
    Registered Users Posts: 37,300 ✭✭✭✭the_syco


    If the estates are built far away from centres of high employment, I doubt the oversupply will ever "level out". I've seen some estate build on areas prone to flooding, and/or whose access is along a single lane with grass in the middle, and I can't say that these will ever be filled up.


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    #5
    makeorbrake
    Registered Users Posts: 4,664 ✭✭✭makeorbrake


    Thanks for your posts.

    I had a momentary lapse of reason - when considering purchasing a property in one of these areas. ...now come to my senses again and will keep looking (elsewhere)!


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    #6
    Zamboni
    Registered Users Posts: 4,305 ✭✭✭Zamboni


    carpejugulum wrote: »
    There will never be demand for a lot of the finished and especially partially-finished houses.

    Everything has a price. Everything.
    Every single one of the properties in this country would sell if they were put up for sale at market clearing prices. This will never be allowed to happen.
    We are and will be told that they can't sell. They are and will be left to rot. This is intentional.
    They will then be demolished at the expense of the tax payer.

    Long term economic value = tax payer funded demolition of oversupply.


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    #7
    gaius c
    Registered Users Posts: 3,528 ✭✭✭gaius c


    Got to bear in mind what banks will lend and right now, it's not a whole lot. Apartments outside cities will be changing hands for cash amounts I reckon because banks will simply not lend against them.


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    #8
    murphaph
    Registered Users Posts: 19,022 ✭✭✭✭murphaph


    Zamboni wrote: »
    Everything has a price. Everything.
    Every single one of the properties in this country would sell if they were put up for sale at market clearing prices. This will never be allowed to happen.
    We are and will be told that they can't sell. They are and will be left to rot. This is intentional.
    They will then be demolished at the expense of the tax payer.

    Long term economic value = tax payer funded demolition of oversupply.
    The value of a shell or perhaps just the foundations of a house or housing estate might really be negative. The land it's on may be worth more as agricultural land now. The problem is, there's a load of concrete "polluting" the agricultural land that costs money to dig out and dispose of, to allow the land to actually be used for agriculture again.

    Property like this really could be considered worthless in some circumstances, especially if the land isn't very productive in the first place.


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    #9
    carpejugulum
    Registered Users Posts: 523 ✭✭✭carpejugulum


    Zamboni wrote: »
    Everything has a price. Everything.
    Every single one of the properties in this country would sell if they were put up for sale at market clearing prices. This will never be allowed to happen.
    We are and will be told that they can't sell. They are and will be left to rot. This is intentional.
    They will then be demolished at the expense of the tax payer.

    Long term economic value = tax payer funded demolition of oversupply.
    Evidence?
    Why would anybody buy a bunch of concrete shells in the middle of nowhere?


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    #10
    Zamboni
    Registered Users Posts: 4,305 ✭✭✭Zamboni


    murphaph wrote: »
    The value of a shell or perhaps just the foundations of a house or housing estate might really be negative. The land it's on may be worth more as agricultural land now. The problem is, there's a load of concrete "polluting" the agricultural land that costs money to dig out and dispose of, to allow the land to actually be used for agriculture again.

    Property like this really could be considered worthless in some circumstances, especially if the land isn't very productive in the first place.

    How could anyone possibly tell that without putting it up on the market and selling it at the best price offered?
    carpejugulum wrote: »
    Evidence?
    Why would anybody buy a bunch of concrete shells in the middle of nowhere?

    Why wouldn't they? If it was put up for the right price.
    But it won't be so we'll never know.


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    #11
    carpejugulum
    Registered Users Posts: 523 ✭✭✭carpejugulum


    Zamboni wrote: »
    Why wouldn't they? If it was put up for the right price. But it won't be so we'll never know.
    Because it costs more to demolish them than you can make of it.
    And nobody will want to buy a house there if you wanted to build them.


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    #12
    Zamboni
    Registered Users Posts: 4,305 ✭✭✭Zamboni


    carpejugulum wrote: »
    Because it costs more to demolish them than you can make of it.

    You cannot say that for every aspect of the oversupply of property in Ireland.


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    #13
    hawkelady
    Registered Users Posts: 1,357 ✭✭✭hawkelady


    I agree that everything has a price,, if a load of concrete shells in leitrim went on the market for let's say €5k !!! I'm sure it would be sold in the morning.
    I'd buy it , and I would hand it down to my kids/ grand kids ..
    Everything has a price.


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    #14
    StillWaters
    Closed Accounts Posts: 1,799 ✭✭✭StillWaters


    hawkelady wrote: »
    I agree that everything has a price,, if a load of concrete shells in leitrim went on the market for let's say €5k !!! I'm sure it would be sold in the morning.
    I'd buy it , and I would hand it down to my kids/ grand kids ..
    Everything has a price.

    Would you? It could cost €50k to demolish them. You could leave them standing, but they are unrentable, a health and safety hazard, need to be insured etc.


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    #15
    the_syco
    Registered Users Posts: 37,300 ✭✭✭✭the_syco


    Zamboni wrote: »
    You cannot say that for every aspect of the oversupply of property in Ireland.
    Some may be useful to level and build warehouses on top of, if near transport links, and the price is low enough.


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    #16
    StillWaters
    Closed Accounts Posts: 1,799 ✭✭✭StillWaters


    the_syco wrote: »
    Some may be useful to level and build warehouses on top of, if near transport links, and the price is low enough.
    But it would be cheaper to build on a blank site, anyway we also have an oversupply of commercial, retail and warehouse.


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    #17
    makeorbrake
    Registered Users Posts: 4,664 ✭✭✭makeorbrake


    StillWaters wrote: »
    Would you? It could cost €50k to demolish them. You could leave them standing, but they are unrentable, a health and safety hazard, need to be insured etc.
    I appreciate that what you describe applies in many instances. What I was considering was effectively finished - and seemed to be reasonably built (I say 'reasonably' - in so far as it's probably the same standard as all the other stuff that was thrown up in tiger times).


    So, if the discussion is framed around a dwelling thats to an acceptable standard - but in the wrong place, does it then have value nonetheless...
    ??


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    #18
    StillWaters
    Closed Accounts Posts: 1,799 ✭✭✭StillWaters


    makeorbrake wrote: »
    I appreciate that what you describe applies in many instances. What I was considering was effectively finished - and seemed to be reasonably built (I say 'reasonably' - in so far as it's probably the same standard as all the other stuff that was thrown up in tiger times).


    So, if the discussion is framed around a dwelling thats to an acceptable standard - but in the wrong place, does it then have value nonetheless...
    ??
    I suppose it comes down to, is it useful? can you rent it out at a level that you wont be subsidising it? If you cant, it makes no sense. There are places in the country that have such oversupply that demographics wont add up to make the units economically useful in our lifetime.


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    #19
    riclad
    Registered Users Posts: 8,184 ✭✭✭riclad


    I think nama owns thousands of apartments, some unfinished ,some rented
    out, some blocks are completely empty, they are not going to try and sell
    them all at the same time.
    OR they want to wait for a large investor to buy ,large blocks, like 100 units at a time.


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    #20
    makeorbrake
    Registered Users Posts: 4,664 ✭✭✭makeorbrake


    StillWaters wrote: »
    I suppose it comes down to, is it useful? can you rent it out at a level that you wont be subsidising it? If you cant, it makes no sense. There are places in the country that have such oversupply that demographics wont add up to make the units economically useful in our lifetime.
    Well, that's the point of frustration. From what I can gather, it can be rented out - and even get a better rental yield than 10%. How you might ask - well, I'm basing this on Zamboni's point i.e. everything has a price. The receivers will have to sell it for small money.

    However, when the numbers are so low (the rental), the question I ask myself is - is it worth the bother? When maintenance needs to be carried out, it's hard to justify spending time and money on that - as the income is so low. The same point applies when dealing with tenants. Is it worth the bother of dealing with tenants where rental is so low - whereas you could invest the same amount of time/energy on tenants in another property which will require a far greater outlay - but probably 3x the rental.
    The deal breaker for me - is that I am basing this on the lowest rents advertised - and based on 11 months (assuming one month without income). However, I don't know the market locally - and can't work out right now if it would even be possible to get tenants!


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    #21
    Cavehill Red
    Registered Users Posts: 6,109 ✭✭✭Cavehill Red


    murphaph wrote: »
    The value of a shell or perhaps just the foundations of a house or housing estate might really be negative. The land it's on may be worth more as agricultural land now. The problem is, there's a load of concrete "polluting" the agricultural land that costs money to dig out and dispose of, to allow the land to actually be used for agriculture again.

    Property like this really could be considered worthless in some circumstances, especially if the land isn't very productive in the first place.

    Negative value properties can be found in Detroit and elsewhere in the US for example. Auction prices of a dollar, because the place has been stripped to the bone, destroyed by the elements and is located in a feral, derelict part of town with no services or lighting, but still attracts annual property taxes, hence is not even worth the dollar.


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    #22
    hibby
    Registered Users Posts: 273 ✭✭hibby


    Zamboni wrote: »
    Everything has a price. Everything.
    Every single one of the properties in this country would sell if they were put up for sale at market clearing prices.

    Transaction costs can make something worthless. For example, if it costs E5000 in solicitor fees, auctioneer fees, registration fees, taxes, etc. to transfer ownership of a property, then any property whose value to the buyer is less than E5000 can't be sold.


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    #23
    makeorbrake
    Registered Users Posts: 4,664 ✭✭✭makeorbrake


    hibby wrote: »
    Transaction costs can make something worthless. For example, if it costs E5000 in solicitor fees, auctioneer fees, registration fees, taxes, etc. to transfer ownership of a property, then any property whose value to the buyer is less than E5000 can't be sold.
    Of course they do. Additionally, all the other costs eg. ongoing insurance, prtb fee(s), property tax, water charge (on the way), ground rent for electricity supply, etc.

    Presumably, Zamboni doesn't dispute this. These are just things that need to be factored in - when arriving at a realistic valuation for the property.

    One expense item that I was concerned about when assessing the viability of this particular property was the management fee. Is this something that is openly publicised somewhere? Even if the current fee is found to be acceptable, is it possible that this fee can rise dramatically? Anyone any experience with this?


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    #24
    D3PO
    Registered Users Posts: 7,879 ✭✭✭D3PO


    makeorbrake wrote: »

    One expense item that I was concerned about when assessing the viability of this particular property was the management fee. Is this something that is openly publicised somewhere? Even if the current fee is found to be acceptable, is it possible that this fee can rise dramatically? Anyone any experience with this?

    Yes it could rise dramatically. There are instances of large rises. Depends what you consider dramatic but 25% plus increases have happened reasonably regularly.


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    #25
    makeorbrake
    Registered Users Posts: 4,664 ✭✭✭makeorbrake


    D3PO wrote: »
    Yes it could rise dramatically. There are instances of large rises. Depends what you consider dramatic but 25% plus increases have happened reasonably regularly.
    That's also a cause for concern when looking at a property at that end of the market. Where at best, rental income is low and at worst, there may be periods where the property stands empty, something like this can put another dent in whatever meagre revenue the property can generate.


    I don't suppose theres any way this can be negotiated when buying? (I'd imagine not - but ask the question anyway just in case).


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    #26
    D3PO
    Registered Users Posts: 7,879 ✭✭✭D3PO


    makeorbrake wrote: »


    I don't suppose theres any way this can be negotiated when buying? (I'd imagine not - but ask the question anyway just in case).

    It wouldnt be possible the owner is not the Management Company. No single owner would have the ability to make such a deal. I guess you could have a seperate contract saying they will bear the cost of any maintenance fees above X level for x number of years but nobody would ever do that.


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    #27
    makeorbrake
    Registered Users Posts: 4,664 ✭✭✭makeorbrake


    D3PO wrote: »
    It wouldnt be possible the owner is not the Management Company. No single owner would have the ability to make such a deal. I guess you could have a seperate contract saying they will bear the cost of any maintenance fees above X level for x number of years but nobody would ever do that.
    Ok, thanks - that's what I suspected alright.


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    #28
    StillWaters
    Closed Accounts Posts: 1,799 ✭✭✭StillWaters


    It is an apartment? I would never buy an apartment at that end of the Market (presume we are talking sub €40k here). It just doesn't make sense. As you say the yield may be attractive but the income stream is unreliable and its too much work and too much risk for too little return.

    Look at houses instead or some dividend yielding stocks.


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    #29
    makeorbrake
    Registered Users Posts: 4,664 ✭✭✭makeorbrake


    StillWaters wrote: »
    It is an apartment? I would never buy an apartment at that end of the Market (presume we are talking sub €40k here)
    A small block of apartments at that end of the market, yes.
    StillWaters wrote: »
    It just doesn't make sense.
    Yes, I very quickly came to that conclusion.
    StillWaters wrote: »
    As you say the yield may be attractive but the income stream is unreliable and its too much work and too much risk for too little return.
    That sums it up perfectly.


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