Glut of repossessed houses could depress prices ‘by up to 25%’

lima

Do you actually think that Stockholm, Bern, and London are comparable to Dublin?

These are some of the richest cities on earth. Why do you think these are comparable to Dublin?

kaymin

SeanSouth wrote: »

1. Someone has mentioned that the average worker should be able to purchase a family home for 150,000 in SCD. The answer to this is as follows
a) The cost of construction of a decent residential home (to current building regulations) costs in the region of 1300 euro per square metre to build. A small modest home of 120 Sq metres will cost 156,000. On top of that is the site cost. The most basic tiny site is costing a minimum of 150,000.

Nobody made this claim and it has pointed out to you repeatedly that you misunderstood what was said. You also chose to ignore to comments that the cost of construction have to fall so that people can afford to buy and builders profitably build new residences.

You also said average people can live in leixlip instead but ignore, when it is pointed out to you, the fact that property is 29% too expensive for the average person.

You ask for arguments based on fundamentals but ignore those posed to you.

SeanSouth

Calm down guys. Ive seen the 150,000 posted either here or elsewhere.One guy had calculated that the average wage was 45K and a couple purchasing could afford in the region of 150K. Anyhow It's not the point. The point is that a very small house costs in excess of 300,000 to build on a very small site and those sites are not even available.

SeanSouth

@LIma

What do you mean that London, Bern & Stockholm are some of the "richest cities on earth"

1) Do you mean they have the highest GDP per capita ?
2) Do you mean they have the highest salaries
3) Do you mean that they have the highest levels of natural resources

What do you mean and why can they not be compared with Dublin ?

Calina

SeanSouth wrote: »

Calm down guys. Ive seen the 150,000 posted either here or elsewhere.One guy had calculated that the average wage was 45K and a couple purchasing could afford in the region of 150K. Anyhow It's not the point. The point is that a very small house costs in excess of 300,000 to build on a very small site and those sites are not even available.

No. I am actually going to pull you up on this again.

You specifically are arguing against a claim that a house should cost 150K in SCD. SCD is far from being the average of the market.

If you're going to argue against that point, you come up with a source for where you saw that claim. I don't care where it was but I want to know who came up with it because it is not and has never been the core argument against property pricing as it is now.

SeanSouth

No, Thats not my argument.

My argument is that house prices in Dublin have already reached the bottom and that there are many fundamental indicators to suggest that they will rise rapidly in the next one or two years.

Instead of trying to get prickly about one particular point about my posting which if inaccurate in any way, I accept full responsibility for, why don't you instead tell us what your own view is and why.

You also have said some things which i didn't particularly think were accurate or true but didn't feel to need to pull you up on.

SeanSouth

OK here's the post that you are so adamant to protest, from user : Kaymin 20/12/13 at 23.01 and I quote :

"I don't think properties in SCD are good value at the moment because the gross rental yield they generate is very low"

"And I don't think the mini bubble we're witnessing is sustainable because if the average person earns €43k then the average house price should be no more than €150k. How many cash buyers can there be when the average person earns €43k? Currently the average price of a 3 bed semi is 250k"

Calina

SeanSouth wrote: »

OK here's the post that you are so adamant to protest, from user : Kaymin 20/12/13 at 23.01 and I quote :

"I don't think properties in SCD are good value at the moment because the gross rental yield they generate is very low"

"And I don't think the mini bubble we're witnessing is sustainable because if the average person earns €43k then the average house price should be no more than €150k. How many cash buyers can there be when the average person earns €43k? Currently the average price of a 3 bed semi is 250k"

I see.

You've misread it.

There are two parts here.

1) houses in SCD do not represent good value

2) the average price of housing is not in line with the average earnings of a person.

He doesn't imply that houses in SCD are average houses. You are making that assumption; I do not know why and I really don't care.

However, his points are valid.

Yields are too low for the long term and in other parts of the market there is a mismatch between available finance for the target customers and the price of the good.

But he didn't say houses in SCD should be 150KE - it is you are making that leap of misunderstanding.

SeanSouth

I have heard this same argument many times that the price of houses needs to be linked to average salaries. Regardless of whether the poster is referring to SCD,NCD,WCD or ECD or something else House prices are linked primarily to supply and demand and that's the only thing that makes sense. Wage levels are one consideration in predicting demand but only one of many.

I assure you that I have not misread the post. In the context of all the previous posts, we were only discussing SCD. Perhaps the poster was referring to something else in his post but he didn't make it clear if he was.

ezra_pound

SeanSouth wrote: »

I spent years (before the crash) posting on Askaboutmoney and other sites and crying that property prices were way too high. The crash eventually happened Prices then fell by the predicted 50% to 60%. That all happened six years ago. Prices had to fall then because developers were making supernormal profits, lands was making exhorbitant prices, salaries were out of line with the rest of europe, the quantity of building was unsustainable for a country of our size,credit was in freeflow to people who had no hope of paying back, the ratio of selling price to cost of construction was farcical, Irish house prices were out of sync with everywhere else.

What I don't get now is the people who still hold a view that property prices should continue to fall.I simply do not get it. In my view property is now at absolute bargain prices. We have overshot the bottom of the collapse and we are now experiencing a typical bounce.

1. Someone has mentioned that the average worker should be able to purchase a family home for 150,000 in SCD. The answer to this is as follows
a) The cost of construction of a decent residential home (to current building regulations) costs in the region of 1300 euro per square metre to build. A small modest home of 120 Sq metres will cost 156,000. On top of that is the site cost. The most basic tiny site is costing a minimum of 150,000. On top of that the builder must get a little profit. The minimum to build a small house is 300,000 to 350,000. Anyone dreaming for houses at 150,000 might as well start dreaming for a new Mercedes at 10,000. It can never happen. Builders cannot and will not build at a loss and we shouldnt expect them to.

2. Anyone hoping for prices to fall should be hoping that building activity increases to address the supply problem. Building activity will only happen when credit availability improves and the selling price of houses allows the builder to make a profit over the cost of construction and cost of site. Neither of these conditions are present at the moment.

3) For prices to fall, demand needs to abate. At the moment we are witnessing huge pent up demand. Young people in their 20s have held off purchasing for the past seven years and are extremely anxious to get into the market. Population is also growing. It is recognised that 25000 new houses per year are required to satisfy the current demand and at present we are building practically none. If we are building zero new houses and the demand is increasing then the prices can only go in one direction and rapidly.

4) For those who say that the supply is being distorted by NAMA and the lack of repossessions, I would say that the market is being equally distorted by buyers who have held back from buying in the hope of lower prices. There is about six or seven years of pent up demand by buyers who didnt buy into a falling market. These people now wish to buy and they are more than equal match for any flood of homes that may come from repossessions or from NAMA.

5) Our house prices are now substantially lower than other comparable capital cities. Lower than Helsinki, lower than Stockholm, lower than Bern, lower than London.

The only way for prices to fall from here is if development land was to become available for almost nothing. We know this cant happen as there is almost no land available or indeed,the amount of available land in SCD as a percentage of the land already built is not enough to affect the overall market price. So if NAMA gave away all the land it is holding for nothing, "in the common good" the amount of land in question is way too insignificant to affect market prices. The amount of mortgages in arrears for more than 90 days is approximately 100,000. This represents about 4-5% of the entire housing stock and if placed on the market suddenly is not enough to impact the market for any significant time period and in any case is a highly unlikely event.

Houses in South County Dublin were never cheap. They were always the reserve of the highly paid. They were never accessible to the average paid.
I estimate that the affordability of houses in SCD is similar now to what it was in 1990. In 1990 interest rates were higher but overall affordability was about the same.

I would be very interested to hear any views, based on fundamentals, as to why house prices are likely to decrease.

Super post.

kaymin

SeanSouth wrote: »

OK here's the post that you are so adamant to protest, from user : Kaymin 20/12/13 at 23.01 and I quote :

"I don't think properties in SCD are good value at the moment because the gross rental yield they generate is very low"

"And I don't think the mini bubble we're witnessing is sustainable because if the average person earns €43k then the average house price should be no more than €150k. How many cash buyers can there be when the average person earns €43k? Currently the average price of a 3 bed semi is 250k"

It's fairly obvious these comments were not a reference to just SCD- the 250 k average price of a 3-bed semi d is for Dublin as a whole. The wages quoted are for the country as a whole. Did you really think these wages / house prices were the average for SCD??

Wages are the key determinant of demand - if people can't afford what is being offered then there will be no sale.

SeanSouth

I agree with you that wages are an important component of demand but not the only component of demand, and especially not the only component of demand in SCD.

So who do you think are the main buyers of property in SCD. I understand it as follows :

1)Returned emigrants with good cash deposits returning to old neighbourhoods.
2)Young 20 something professionals with support from parents / family (I know several friends supporting kids with cash sums of up to 300K)
3)Foreign Investors
4)Irish investors who did well from Celtic Tiger years.
5) Foreign professionals relocating with big name multinationals

Young people without strong cash deposits and even with high incomes will still find it difficult to buy in this area without help from family.This is nothing
new. Its been like this for as long as I can remember. In the past you did also get another class of buyer in SCD and that was the "trader upper" but there are very few of these at the moment.

Someone else mentioned low yields. There is nothing wrong with 4-5% yields at a time when there is nothing to be earned from deposits in the banks.It should also be understood that SCD is primarily an owner-occupied residential market, not an investment market. Talking about yields in this market is not a relevant indicator of price direction. On the other hand you can expect that yields on generic apartment blocks in city centre locations have a very strong correlation with price.

SeanSouth

@Kaymin

Thanks for your clarification however I can tell you that its not possible to build an average house in any location for 150K. The cost of the site would be in addition.

kaymin

SeanSouth wrote: »

So who do you think are the main buyers of property in SCD. I understand it as follows :

1)Returned emigrants with good cash deposits returning to old neighbourhoods.
2)Young 20 something professionals with support from parents / family (I know several friends supporting kids with cash sums of up to 300K)
3)Foreign Investors
4)Irish investors who did well from Celtic Tiger years.
5) Foreign professionals relocating with big name multinationals

Someone else mentioned low yields. There is nothing wrong with 4-5% yield at a time when there is nothing to be earned from deposits in the banks.It should also be understood that SCD is primarily an owner occupied residential market, not an investment market. Talking about yields in this market is not a relevant indicator of price direction.

Good luck with trying to find a 4-5% yield in SCD.

It seems like you can strike (3) and (4) from your list yourself given your comments about SCD being predominantly owner occupied.

Which leaves returned emigrants, foreign professionals and subsidised twenty something's - maybe this is enough to sustain current trends but i doubt it.

In my view even a small number of repossessions is enough to upset this trend and, from what I can tell, banks are readying themselves to initiate repossessions. PTSB have recently embarked on an exercise to prove strategic default is, on balance, actually occurring - presumably this is to justify their next steps.

SeanSouth wrote: »

@Kaymin

Thanks for your clarification however I can tell you that its not possible to build an average house in any location for 150K. The cost of the site would be in addition.

Which demonstrates that the cost of land and construction needs to fall rather than prices need to rise. Regulations need to become more pragmatic to facilitate this.

The_Conductor

Plenty of commercial property has been sold, and continues to be sold, at below the cost of construction. Nothwithstanding the shortage of property in South County Dublin- we do not have a functioning property market (or a functioning financial market). There is no fundamental reason why the current boom couldn't reverse (as it seems to be doing) and couldn't result in pre-existing property being sold for below construction costs...... There is no rule that this can't happen.......

SeanSouth

@ Kaymin, Is it your belief that the banks will repossess properties in SCD and then place them on the market at fire-sale prices, and once that happens supply will exceed demand to such an extent that prices will fall sharply ?

1% of properties in Dublin changed hands in 2013. In a normal market 4% of properties will change hands. There is an undisputed interest and demand for properties in that area and an undisputed lack of supply and yet you believe that a small amount of repossessions is going to wobble that market downwards.....................Your opinion and mine is different but everyone is entitled to their own.

Because a market is primarily owner-occupied residential, it doesnt mean that no investors are interested in it. Clearly some investors are buying there at 4% and 5% yields which can only mean that they expect higher prices and rents in the future. I have just checked through daft and can find no shortage of properties available at 4% and 5% yields.

SeanSouth

Lets not go into commercial property here. That's a completely different animal and I agree with you that commercial property is currently being sold below construction costs and that will continue as long as the supply exceeds the demand.

The residential market is completely different. The demand is increasing. The supply has dried up. As long as that is the case there will be no selling of properties below construction cost. As long as the demand is more than supply the only way to bring the market into equilibrium is by building more. To create the conditions for building more the market price must be greater than the construction cost and site cost combined.

The_Conductor

I have no reason to believe a significant number of properties will be repossessed in South Dublin. In fact- I suspect the percentage of houses without mortgages, may be higher in the area than elsewhere- given the limited construction that occurred in the past 20 years in the area- and the demographic profile of a significant number of people living in the greater area.

Fully half of property sales in the area are executor sales at present- the other half- includes NAMA offloading Stepaside and Beacon Court areas, Bernard McNamaras complex in Donnybrook/Stillorgan etc. There haven't been many private sales- even suggesting 1% of total stock is turned over, I suspect to be wildly optimistic (or pessimistic, depending on your point of view).

I agree- a far higher proportion of property in the area is owner occuppied than elsewhere, with the exception of a few recent developments.

Will banks repossess? Depends on a lot of factors- including the manner in which the ECB are taking over oversight of their loanbooks next June- which will presumably force banks to crystalise losses (the statements being that any new capital needed by the sector after that exercise, could potentially come from the new fund, however pre-existing losses could not be countenanced). Aka- hold off on crystalising losses as long as possible, keep them off the balanace sheets- and then when forced to recognise them, the banks will qualify under the new guarantee schemes- as opossed to needing new taxpayers money.

I seriously doubt there will be largescale repossessions in South Dublin- there will certainly be a few high profiles repossessions to show Joe Bloggs walking down the street that no-one is safe, but that will be the extent of it.

Lucan- and other commuter towns within easy reach of Dublin (I'm not talking about Navan etc- I'm talking about property which the banks will actually have no great issues offloading, because its so close to Dublin) which developed massively post 1990- will bear the brunt of reposessions, in my opinion..... Lucan stands out as a prime example of where you could easily repossess a few tens of thousands of properties, in a single geographic region- and have a reasonable chance of selling them on.

kaymin

SeanSouth wrote: »

Is it your belief that the banks will repossess properties in SCD and then place them on the market at fire sale prices, and once that happens supply will exceed demand to such an extent that prices will fall sharply ?

I have just checked through daft and can find no shortage of properties available at 4% and 5% yields.

No I don't think banks will sell them at fire sale prices - they'll look to achieve current market prices. I expect the trend will ultimately be down though, though perhaps the down trend won't start for another year - 18 months.

Why not post the details of a few of those 4 - 5 % yielding properties?

SeanSouth

I think you're right that Lucan and surrounding areas are much riper for repossessions than say Stillorgan but I don't think any of the banks will entertain
price falls on repossessions in any part of Dublin at a time when overall demand is increasing.

I expect that any houses not reaching the expected price target will be rented for as long as it takes. I have some experience already of dealing with rent receivers and they can be extremely blunt when it comes to negotiation.

A Receiver has an obligation to obtain the best market price for the party that has been repossessed and its extremely difficult to secure a bargain through this process.

SeanSouth

@Kaymin

No shortage of gross yields at 4% 5% and 6%

If you look at Stillorgan, average monthly rent for 3 bed house is 2400 / 2500

Average selling price for 3 bed house is 500,000

Average yield 6%.

Whats the matter with you man, lol

lima

SeanSouth wrote: »

@LIma

What do you mean that London, Bern & Stockholm are some of the "richest cities on earth"

1) Do you mean they have the highest GDP per capita ?
2) Do you mean they have the highest salaries
3) Do you mean that they have the highest levels of natural resources

What do you mean and why can they not be compared with Dublin ?

They are incomparible to this little outpost of Europe. They are extremely rich cities with no recession in years. You cannot compare Dublin with these cities. Read up on them, I'm on my iPhone so can't elaborate.

SeanSouth

I know all of these cities firsthand and that's why I'm asking you the question.

The_Conductor

You're being pedantic to be honest- it doesn't really matter what standard you are applying to them- quite simply Dublin, as a city, barely registers in comparison to Helsinki, London, Paris, Zurich, Milan etc........ We're a small city, on a small island, in the North Atlantic. We've done our best- but played fast and loose with the rules, and have been called out.

cookie1977

The_Conductor wrote: »

You're being pedantic to be honest- it doesn't really matter what standard you are applying to them- quite simply Dublin, as a city, barely registers in comparison to Helsinki, London, Paris, Zurich, Milan etc........ We're a small city, on a small island, in the North Atlantic. We've done our best- but played fast and loose with the rules, and have been called out.

It's all a matter of personal opinion but I'd beg to differ on your opinion on this. We have been consistently ranked as one of the top cities in the world to live in: http://goo.gl/sfzEsG

In 2011 we were ranked 26th in the world.
http://www.thejournal.ie/dublin-ranked-26th-best-place-to-live-in-the-world-292789-Nov2011/

I think we do ok compared to an international list of cities that anyone could come up with. But you're free to put us down if you like.

The_Conductor

Standard of living- and wealth are two different things though- and while you may be able to ascribe an inherent value to wealth- 'well being' and 'quality of living' are far harder to quantify. Mercer did a famous study a few years ago- where Dublin beat even Paris to get 26th top city in the world to live in- based on two factors alone- our crime rates which, regardless of how we perceive them to be- are spectacularly low by international norms- and a strong weighting was given to 'Culture'- which unsurprisingly, we aced.

Trinity College did a similar study on international students- and we ranked in 64th of 198 cities (most of which were European- not sure why the rest of the globe didn't feature so well).

These type things are incredibly subjective- what an ordinary resident considers normal- might be exceptional to someone else.

The only scale that economists came up with to compare living costs and standards of living- is the unfortunate 'Big Mac' scale- which is often misused to portray statistics as more or less favourable (as the person would like them to be).

Apples and Lemons are both fruit- and both have their appeal- I know I'd rather a slice of lemon in my soda, or to bite into an Apple- both have their place, but putting one on a scale against the other, really is unfair.

1

cookie1977

The_Conductor wrote: »

Standard of living- and wealth are two different things though- and while you may be able to ascribe an inherent value to wealth- 'well being' and 'quality of living' are far harder to quantify. Mercer did a famous study a few years ago- where Dublin beat even Paris to get 26th top city in the world to live in- based on two factors alone- our crime rates which, regardless of how we perceive them to be- are spectacularly low by international norms- and a strong weighting was given to 'Culture'- which unsurprisingly, we aced.

Trinity College did a similar study on international students- and we ranked in 64th of 198 cities (most of which were European- not sure why the rest of the globe didn't feature so well).

These type things are incredibly subjective- what an ordinary resident considers normal- might be exceptional to someone else.

The only scale that economists came up with to compare living costs and standards of living- is the unfortunate 'Big Mac' scale- which is often misused to portray statistics as more or less favourable (as the person would like them to be).

Apples and Lemons are both fruit- and both have their appeal- I know I'd rather a slice of lemon in my soda, or to bite into an Apple- both have their place, but putting one on a scale against the other, really is unfair.

1

I think that was my point.

SeanSouth

To be perfectly frank, none of these things have anything to do with property markets.

Property markets derive their levels, as do all markets from the interplay of supply and demand.

Demand for property is usually derived from a perceived desirability of a particular area and a factor of the amount of individuals who wish to reside there in relation to the amount of property available. Its nothing more or less than this.

Dublin's south city has always laid claim to Ireland's most expensive real estate.The demand for property has always been far greater than the supply and that continues today. The current price level is being driven by a combination of demand by high paid professionals, wealthy families and high levels of cash in the economy at a time of very low interest rates.

The low supply in that market is very typical of a property market at the bottom of its cycle. Nobody wants to sell at the bottom of the market. The perception is that prices are about to rise and for that reason sellers are not in a rush to sell. Some people are in negative equity with no wish to sell and someone else correctly referred to executor sales which are currently the main source of the supply.

One very common mistake made by buyers in a falling market is to wait until the market reaches its bottom. Almost no sales take place at the bottom of a property market. There is little or no supply typically available at the bottom of the market and plenty of frustrated buyers.

The_Conductor

What I would like to know- is what is considered 'normal' for a level of sales in the general South Dublin area. We all know its always been desireable- because of constrained supply. But if we have 1% of the stock turning over now- what percentage have we traditionally had (given the practise of leaving the house to a child etc). I firmly believe the 4% figure doesn't hold up for South Dublin- it was always a low level, come what may. That 50% of sales are executor sales- is not normal- but its also not normal in an Irish context for property to enter the market at all in those types of circumstances (with exceptions).

We really are looking at several distinct markets- but I'm not so sure that the statistics being bandied about are valid- or applicable across the board.

moxin

SeanSouth wrote: »

The residential market is completely different. The demand is increasing. The supply has dried up. As long as that is the case there will be no selling of properties below construction cost. As long as the demand is more than supply the only way to bring the market into equilibrium is by building more. To create the conditions for building more the market price must be greater than the construction cost and site cost combined.

That's twice in this thread where you've stated that demand is increasing overall in residential. Where is your evidence?

Building more is not the unique solution. You have to factor in the affordability of the demand. If the demand cannot afford the prices(mortgage lending is flat), they will have to stump up lots of cash. Most buyers will not have 6 figure sums in the bank.
When the buyers cannot afford the prices via cash, one of two things will happen. We have stagnation or the prices will have to drop.