2021 Irish Property Market chat - *mod warnings post 1*

Timing belt

Graham wrote: »

Do they say the drop in demand will be enough for supply to finally meet demand?

No they also talk about a reduction in supply brought about by covid.

fliball123

Timing belt wrote: »

No they also talk about a reduction in supply brought about by covid.

They also forget the the reduction in demand a lot of people who may have bought say this time last year would of had the sh1t scared out of them to buy just as we hit a pandemic as can be seen by the amount of transactions going through fell by a fair bit too

Villa05

Timing belt wrote:

We have not see investors in property chasing capital appreciation yet and hence why I say that there is no bubble in the Irish property prices.

Do you believe the rents underlying those returns are sustainable, yes there is wage inflation in specific sectors and people there are doing OK and will probably be able to buy.

However at the lower to middle incomes there is downward pressure on wages through privitisation, sub contracting, availability of labour while covid and online sales and high rents and rates may knock out alot of small business.

These are the sectors that rental income comes from, will the state have the capacity to meet current rental prices

Timing belt wrote:

Then their is a school of thought that the stock market and other asset valuations are correct as the world embraces lower yields thanks to higher prices for assets. If this is correct then anyone that is not in a defined benefit pension is going to get totally screwed come retirement. Although I don't think this is the case I can see the logic behind it when it comes to Blue chip companies, property etc. as their is still a basis for the valuation.

It appears to me, investment is being done with 0 thought to risk. All investments carry risk as does cash of course

It just seem illogical that someone would invest in an asset that is priced at 70 times earnings when traditionally 20 times earning would be considered expensive

Timing belt wrote:

Where there is no logic is in relation to the investors moving away from looking at yield and purely looking at capital appreciation such as in IT stocks. We saw this happen in the dot.com era and we are seeing it again. The Financial institutions are delighted to see it as they know what is happening and already have their exit strategy whilst the man on the street comes to the party looking for the 70/80% return like his friends got from investing in the stock.

I've seen alot of this lately in people I know buying stocks amazed at the appreciation their seeing so quickly,
You can tell straight away they have no clue what they are doing.

Do you think this year will be make or break year for stocks. I don't see how the wider economy including property escapes if this bubble bursts

Timing belt

Villa05 wrote: »

Do you believe the rents underlying those returns are sustainable, yes there is wage inflation in specific sectors and people there are doing OK and will probably be able to buy.

However at the lower to middle incomes there is downward pressure on wages through privitisation, sub contracting, availability of labour while covid and online sales and high rents and rates may knock out alot of small business.

These are the sectors that rental income comes from, will the state have the capacity to meet current rental prices

There will be impacts on Rent and on mortgage holders as Covid has done some serious economic damage to the following sectors:

• Construction (down 14%)
• Prof, science, technical (down 15%)
• Distribution, Transport, Hotels and Restaurants (down 18%)
• Arts & other (down 51%)

These sectors account for 26% of the economy but will employee a larger proportion.

What will be important is how many of these businesses come back to life. The support from the government has meant that the majority should be able to do so but probably not back to pre-covid levels so yes there will be job losses. Will it impact the rental sector overall yes but probably more from a bad debt perspective (Rent arrears) than a reduction in rental income

As for the government being able to afford it, they don't have much of an option in the current housing market as the other option is to let the people become homeless so yes I think they will pay up.

Villa05 wrote: »

It appears to me, investment is being done with 0 thought to risk. All investments carry risk as does cash of course

It just seem illogical that someone would invest in an asset that is priced at 70 times earnings when traditionally 20 times earning would be considered expensive

If we are in a low interest rate environment for a long time then investors will invest in different asset classes which will drive up the price and drive down the yield on these assets till it is inline with interest rates. (after taking into account premiums for risk etc)

Investors will have to accept this as they won't have alternatives. Hence why a company paying a dividend with a 5% yield today may only be paying 2% in the future and the investor will be happy with this as he won't get a higher rate in other assets.

The same will eventually happen to the property market but that takes more time as properties need to be build. Eventually there will be more properties and rent will drop and like a reduction in dividend the investor will accept this.

It is this reason why I don't think property prices will drop. (i.e. their will be investors willing to pay a premium for the higher yield until eventually rents drop)

The other thing to note is that If we do end up with a low yield market like above then it will make companies really focus on costs and headcount as they will have limited ability to increase yield. This has already happened in the banking sector.

Villa05 wrote: »

I've seen alot of this lately in people I know buying stocks amazed at the appreciation their seeing so quickly,
You can tell straight away they have no clue what they are doing.

Do you think this year will be make or break year for stocks. I don't see how the wider economy including property escapes if this bubble bursts

We will 100% see a correction at some point during the year whether this is a pause before prices go higher will depend on stuff like
- how quickly vaccinations are rolled out
- If Covid Mutates and is ineffective to the existing vaccines
- Whether Central banks do more QE than already planned.
- A lack of inflation... (or significant inflation that will result in an increase the debt servicing costs for governments)

I think markets will ignore company losses and earnings reports as they will be to busy looking at capital appreciation and will just right this off as a one-off because of covid. We have already seen this take place this year whereby a company that posts good earnings see's its share price drop and vice versa...

My expectation is that share prices will probably drop towards the end of Q1 with the market looking for more QE. If they get it prices will rise and probably go another 6 months.... if not we could see the bubble burst.

The first sign of the bubble bursting will be when retail investors flood the market (This has already happened last year). If you see bond yields on the long term bonds drop without QE then you know that the financial institutions are positioning for a crash.

I don't think this will impact the housing market significantly as it will not generate unemployment but will cost retail investors a fortune. Europe should be pretty ok as institutions look after peoples pensions but in America it will have a big impact as they have more retail investors.

As I said earlier the only way I can see it impacting house prices is if IT/pharmaceutical start cost cutting to get their share price up which will lead to Job losses.

There is also the risk that a fund or two could go bust but that is a remote risk.

Cyrus

for all the bears out there blackstone reckon the US are headed for their greatest ever period of economic growth so not everyone thinks post covid will be doom and gloom

If Blackstone’s newly published predictions for 2021 end up being proved right, you’re in for a wild ride this year.

The investment manager’s feeling optimistic, arguing that US economic growth could top 6% for the year – and kick off the country’s longest-ever period of economic expansion.

But it also believes the US stock market could drop as much as 20% in the first half of 2021 – only to be up by 20% from current levels at some point later in the year.

And that, Blackstone says, will be down to an unravelling of last year’s trends – with Big Tech doing (relatively) badly and beaten-down sectors like energy and hospitality on the rise.

Blackstone’s made forecasts for bonds, gold, and cryptocurrencies, as well as a whole host of other stock predictions too. You can check them all out in today’s Insight.

Bass Reeves

schmittel wrote: »

Sorry if I am being a bit thick but I don't get the point? What is the 40% being non mortgage transactions telling us?

Pre 2008 virtually all houses were bought by borrowings mainly due to 100%+mortgages. If 40%+are not mortgage purchasers it has many indications. I am not sure what amount of purchasing REIT's are in the market. It unlikely they are taking 40% if you he market. You can add in LA to that. Are these taking 20-25% of the overall market or 50-60% of non mortgage buying.

This data would indicate that 15-25% of buyers are not borrowings to buy houses. It a staggering figure. Add in people who have substantial savings and borrowing minimal amounts and it indicates that there is nothing like the equity issue that caused the crash of 2008.

Another interesting observation would be that compared to 2008 most ordinary investors now own multiple properties. There is evidence that many of these have gone down the mini REIT route. If they have they have sheltered rental earnings and are probably buying with cash reserves.

There is evidence as well that investors will not invest unless the return is 7-10%+. This all indicates that any property crash will not come from the investor side of the market. This has been a opinion of mine for the last while.

Any decline in price will be limited. There is indications that if anything prices are rising. Something we could all do without. However we are a distance from bubble territory. Dublin's is an issue but if WFH reduced demand a little bit it may solve that

MacronvFrugals

"Pensions adviser Mercer is recommending investors to plump for commercial property and private assets amid the potential for further market volatility from the Covid pandemic and political unrest this year"

https://www.irishexaminer.com/business/economy/arid-40204313.html

PommieBast

MacronvFrugals wrote: »

https://www.irishexaminer.com/business/economy/arid-40204313.html

I wonder if places like Grafton street tanking 20-30% recently has anything to do with this?

hometruths

Bass Reeves wrote: »

Pre 2008 virtually all houses were bought by borrowings mainly due to 100%+mortgages.

Really? Where does that info come from?

Timing belt

Bass Reeves wrote: »

This data would indicate that 15-25% of buyers are not borrowings to buy houses. It a staggering figure. Add in people who have substantial savings and borrowing minimal amounts and it indicates that there is nothing like the equity issue that caused the crash of 2008.

Another interesting observation would be that compared to 2008 most ordinary investors now own multiple properties. There is evidence that many of these have gone down the mini REIT route. If they have they have sheltered rental earnings and are probably buying with cash reserves.

There is evidence as well that investors will not invest unless the return is 7-10%+. This all indicates that any property crash will not come from the investor side of the market. This has been a opinion of mine for the last while.

Any decline in price will be limited. There is indications that if anything prices are rising. Something we could all do without. However we are a distance from bubble territory. Dublin's is an issue but if WFH reduced demand a little bit it may solve that

Can you share the evidence that investors will only invest for returns 7-10%+

MacronvFrugals

PommieBast wrote: »

I wonder if places like Grafton street tanking 20-30% recently has anything to do with this?

In the UK Boris ordered people back into offices at the behest of commercial landlords

How likely is the likes of Grafton Street to rebound to pre-covid levels if ever?

Timing belt

PommieBast wrote: »

I wonder if places like Grafton street tanking 20-30% recently has anything to do with this?

When they talk about commercial property they will be talking about a property that has potential for growth which will is unlikely to include the likes of Grafton street as peoples shopping habits have changed. I suspect they are talking about warehousing and other commercial property use for online.

The funds industry have also said that there will be opportunities in commercial property this year.... Just think of bushiness that are struggling that may own commercial property they may be forced to sell the property and lease it back.

Villa05

Timing belt wrote:

The funds industry have also said that there will be opportunities in commercial property this year.... Just think of bushiness that are struggling that may own commercial property they may be forced to sell the property and lease it back.

I think a business that owns its own premises and is struggling would be unviable if they had to lease it in current environment

Hubertj

Timing belt wrote: »

When they talk about commercial property they will be talking about a property that has potential for growth which will is unlikely to include the likes of Grafton street as peoples shopping habits have changed. I suspect they are talking about warehousing and other commercial property use for online.

The funds industry have also said that there will be opportunities in commercial property this year.... Just think of bushiness that are struggling that may own commercial property they may be forced to sell the property and lease it back.

I think there are opportunities in hospitality medium term. Commercial rents will/are falling. Sadly, I think a lot of bars/restaurants/hotels etc will not reopen or will go it of business. Opportunity for someone else to take on a lease at lower rent with lower overheads etc...

Villa05

Timing belt wrote:

When they talk about commercial property they will be talking about a property that has potential for growth which will is unlikely to include the likes of Grafton street as peoples shopping habits have changed. I suspect they are talking about warehousing and other commercial property use for online.

Most of the successful online retailers are cash rich. In a low interest rate environment, they will be looking after their own property requirements and basing in low cost areas with low property prices and plenty cheap labour
Ie low cost cities/countries

Timing belt

Villa05 wrote: »

I think a business that owns its own premises and is struggling would be unviable if they had to lease it in current environment

It all depends on why it is struggling... If it is because of Debt and not Turnover/costs then a sale and lease back would be beneficial and prevent the company from going under.... Yes its is at a big cost but is better than closing down.

PommieBast

Timing belt wrote: »

When they talk about commercial property they will be talking about a property that has potential for growth which will is unlikely to include the likes of Grafton street as peoples shopping habits have changed. I suspect they are talking about warehousing and other commercial property use for online.

I'd like to know where such commercial property is because it doesn't looks like it gonna be central Dublin. All the Spender Dock stuff that was for the Brexit bonanza that never came springs to mind.

Timing belt

Villa05 wrote: »

Most of the successful online retailers are cash rich. In a low interest rate environment, they will be looking after their own property requirements and basing in low cost areas with low property prices and plenty cheap labour
Ie low cost cities/countries

Not necessarily as it is more important to get the product to the customer quickly than have cheap costs.

Timing belt

PommieBast wrote: »

I'd like to know where such commercial property is because it doesn't looks like it gonna be central Dublin. All the Spender Dock stuff that was for the Brexit bonanza that never came springs to mind.

Think about all the residential property that is being snapped up by investors... This will be classified as commercial property.

At the same time look at the delays in delivering online or because of Brexit... there is a demand for more warehousing to hold stock... This is also commercial property.

Villa05

Timing belt wrote:

It all depends on why it is struggling... If it is because of Debt and not Turnover/costs then a sale and lease back would be beneficial and prevent the company from going under.... Yes its is at a big cost but is better than closing down.

Maybe, but still a weak argument for opportunities, growth in the commercial sector

Timing belt

Villa05 wrote: »

Maybe, but still a weak argument for opportunities, growth in the commercial sector

Its about opportunities in commercial property which you would expect to see after a recession.

I don't see how it is a weak argument after 2008 their were big opportunities in commercial property and as a result saw significant growth at the time.

And just to be clear I am talking about commercial property and not the commercial sector.

PommieBast

Timing belt wrote: »

At the same time look at the delays in delivering online or because of Brexit... there is a demand for more warehousing to hold stock... This is also commercial property.

That sounds like stuff that would be on the outskirts, if not out in the sticks.

Timing belt

PommieBast wrote: »

That sounds like stuff that would be on the outskirts, if not out in the sticks.

Agreed... What is the point?

Reversal

So what do people think will happen as normality returns later in the year. Will we end up with two years worth of second hand supply rushing onto the market at once?

fliball123

Reversal wrote: »

So what do people think will happen as normality returns later in the year. Will we end up with two years worth of second hand supply rushing onto the market at once?

Or will we end up with 2 years worth of demand rushing onto the market?

Villa05

Timing belt wrote:

I don't see how it is a weak argument after 2008 their were big opportunities in commercial property and as a result saw significant growth at the time.

Has commercial property fallen in price. I have not been following it to be honest.

Timing belt

Timing belt wrote: »

Then their is a school of thought that the stock market and other asset valuations are correct as the world embraces lower yields thanks to higher prices for assets.

I have been doing a bit of analysis today and decided to look at the logic of the above statement and see how it correlates to listed asset prices.

The Logic is that if we are in a low interest environment for a long time then returns on an asset will not only be confined to Bonds or Assets that Central banks are purchasing via QE but will extend to all asset classes as investors chases yield.

It is a simple calculation to illustrate a point and not to identify areas to invest. All the calculation is doing is assuming that the increase in Bond Price that reduced the yield (Which is the interest rate) was replicated in the stock market by increasing the share price accordingly.

The results was as follows:



There is evidence that the market is repricing to a new low rate interest rate environment and is accepting the lower yield on other Assets.

How this will filter through into property prices will be interesting.

Commercial property will see institutional investors accepting lower yield on their investment and hence why Blackstone today recommended investing in Commercial property as there is room for price increases based on this lower yield.

For Residential property we will probably see an increase in institutional investors who will have room to build new properties at prices that previously the would not have had appetite for because the yield would have been to low.

Likewise institutional investors will now have the ability to outbid anyone on the open market.

This tells me that house prices will see a significant increase even if parts of the economy are in trouble.

Reversal

fliball123 wrote: »

Or will we end up with 2 years worth of demand rushing onto the market?

But the narrative is that the demand has been there all along, only supply has been constrained.

Timing belt

Reversal wrote: »

But the narrative is that the demand has been there all along, only supply has been constrained.

Unless the seller of 2nd home leaves the country there will be supply and demand when he sells his property as he has to live somewhere.

HotDudeLife

Christ, this thread has gone a bit wayward. Any moderate bear prediction is immediately shot down, albeit not with facts, just statements or fluffy reports from institutions with vested interests predicting a "wild year of growth" , surprised bears haven't been cancelled at this stage.

Signing off boards until October this year, i predict second-hand property prices will start dropping by around 10-15% around that time on the condition that the economy reopens around June/July. I also don't think we will see general inflation across the board, there is a reason why we have record low interest rates and in some cases negative rates, it's priced in that there won't be a rate raise anytime soon as the slightest indication of a rate rise would send the markets into turmoil.

Whatever happens, this property market is currently a disaster whichever way you look at it.

Hope you have great health/wealth in 2021 and hold yourself accountable to your habits.