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

Hubertj

Villa05 wrote: »

1 up
3 to 5 crash

Loose prediction, but based on current policy not only is a crash inevitable but continuation of those policies will make the crash much harder when it happens

So basically the higher the rise, the greater the crash

World events may speed up the timing of the crash

You really should caveat your “prediction” by saying you have been predicting a crash for years. But you were wrong.

I think prices will start to fall in the 2nd half of next year.

fliball123

Hubertj wrote: »

You really should caveat your “prediction” by saying you have been predicting a crash for years.

I think prices will start to fall in the 2nd half of next year.

In fairness I dont think there many who have got it right over the last 4/5 years.

johnnyskeleton

PropQueries wrote: »

Many of the decision makers at many of these funds generally think the same way eventually.

Whether it’s a belief that interest rates will rise faster than many think to increasing government intervention in the property markets.

Doesn’t take much to scare them.

Back in 2014, David McWilliams said:

“Most vulture funds have a rule called the three-thirty rule. This means they buy and hold for a maximum of three years and once they make 30 per cent they are out.”

I think what he may have got wrong back them was that the vulture funds bought so much property that it’s taken them a bit longer to get through what they actually bought.

They should be through the paperwork by this stage in many cases IMO

Are you bundling all types of fund into one here?

You might have one fund that buys loan books of distressed assets from banks, sells them and then moves on. Another might be a pension fund which is looking at a long term e.g. 40 year investment at a reasonable return. Yet another might have been attracted by the tax scheme and rising prices in Ireland. Others might have had too much money and no other options so bought Irish property not to make massive profits but because it was safer than holding large amounts of cash. Some will be set up specifically as a way of investing as a professional landlord too.

The current choices for each of these entities will vary differently. The "vulture" funds will buy loans, not property, at a discount, in the hope of turning a profit. They don't hold property and have no interest in doing so. They hold loans.

Pension funds who invested in property say in 2015 have seen large gains in terms of capital appreciation and strong returns. The choice for them now is whether to reduce rents (and theoretically risk reducing the theoretical value of the property) or keep rents high and risk losing out on tenants for the short term. They will have a the risk of reducing rents baked into the pie, so to speak.

Those who bought based on rising prices and the corporation tax scheme have to wait 7 years from when they bought. I would anticipate that some of these investments will start to cash out, but most likely they will try to sell their investments en bloc to institutional investors e.g. pension funds.

The ones who had too much money will only sell if money is now tight or there is a strong investment opportunity elsewhere. With most central bank rates at negative, and on the basis that they are probably getting very low interest institutional loans (or are e.g. holding money as an investment bank or insurance company), their decision will be based on money flows, and right now there is more money in the world than ever before (scarily so).

The professional landlord model seems to me to be the most likely to move first. If they can't get the historically high rents that they were getting, then they will be less inclined to invest in more properties and might try to offload a few properties.

For all of the above, the best way to get out of the market is to offload their assets onto another fund. So long as there is too much money swashing around the world, it is hard to see how someone isn't prepared to buy them. Outside of that, they might try to slowly offload a few properties quietly. The only way in which there would be a flood of properties on the market is if they panic and start undercutting each other.

I still think property prices at the moment are unsustainable and have to drop. But I don't think the impetus to drop will come from investment funds.

Villa05

Hubertj wrote:

You really should caveat your “prediction†by saying you have been predicting a crash for years. But you were wrong.

Have I?
I thought I was highlighting bad policies that increase price and make affordability issues worse. This creates high risk within a market that everyone needs to access

Would you not agree that current policy is boom/bust?

PropQueries

Timing belt wrote: »

Which Funds are you including in your latest prediction?

Pension Funds
Reits
Investment Funds
Fixed income funds (you keep talking about the Nama Debt that was bought)
Hedge Funds

And in the current market what asset class would the funds flow into following your fire sale or are you predicting a run on the funds by investors.

While it's impossible to declare in advance what exactly will start it, maybe it has already started and the small guys just haven't realised yet?

But, there has been some writing on the synchronization of global house prices over the past few years. Here's one report from the IMF in 2018 titled 'House Price Synchronization and Financial Openness':

"House prices can be synchronized due to simultaneous changes in financial factors. For instance, the global financial condition and investors expectation for its future developments would simulaneously affect house prices in many countries, thus leading to synchronization of house prices across countries.

Also, if global investors can access to housing markets in many countries at the same time, house prices in those countries would move in tandem as a result of the global investors’ portfolio choice.

If financial factors play an important role for synchronization of house prices, financial openness for each country would independently influence the degree of house price synchoronization, separately from the synchronization induced by real economic connectivity through trade linkages."

"Those empirical results in this paper have some policy implications. First, given the increasing synchronization of house prices across countries, house prices need to be monitored from more global perspectives. That is, when policymakers monitor their own country’s house prices as a part of economic assessment, they should pay attention not only to the economic factors influencing their own country’s house prices but also the global cycles of house prices and their underlying factors."

"Hence, while the world with greater financial openness has an advantage for providing, for instance, diversified investment opportunities, the spillover of shocks through house price synchronization will possibly pose a more significant risk to financial stability in the future."

"Finally, a panel and cross-sectional regression analysis show that the heterogeneity of house price synchronization across countries is partly accounted for by both financial and trade openness, implying that financial factors influence the synchronization even after controlling for the real economic connectivity captured by trade linkages."

A lot of the above appears very similar to developments in the Irish housing market over the past few years and what drove property prices on the way up, can just as easily drive them in the other direction as they exit IMO

Link to report here: https://www.imf.org/en/Publications/WP/Issues/2018/09/28/House-Price-Synchronization-and-Financial-Openness-A-Dynamic-Factor-Model-Approach-46220?fbclid=IwAR1_ueffnK9Zl8V5wsqQML_ipIiI3ktcRC8trZfvb-sgIRVC-wu95eOQNps

fliball123

Villa05 wrote: »

Have I?
I thought I was highlighting bad policies that increase price and make affordability issues worse. This creates high risk within a market that everyone needs to access

Would you not agree that current policy is boom/bust?

If you follow how prices have gone over the last 5 years then NO. As prices have unexcited gone up and back down and this trend repeated. Now we could be at the start of one now judging by some of the posts I am looking at on other threads about how prices are going through the roof but we will only know if its boom and bust after the fact.

PropQueries

johnnyskeleton wrote: »

Those who bought based on rising prices and the corporation tax scheme have to wait 7 years from when they bought. I would anticipate that some of these investments will start to cash out, but most likely they will try to sell their investments en bloc to institutional investors e.g. pension funds

The Government actually spotted that rule's impact on the supply of property entering the market a few years ago and changed the rules. The Finance Act 2017 introduced a change to the 7 year rule for investors who purchased between 2012 and 2014 and now allows for an exit after 4 years i.e. they have all being able to sell and avail of this relief for the past couple of years.

Kind of explains (at least partly) why property prices started falling in Dublin from 2018 onwards?

Villa05

fliball123 wrote:

Now we could be at the start of one now judging by some of the posts I am looking at on other threads about how prices are going through the roof but we will only know if its boom and bust after the fact.

The number of FTB's in 2019 was just over 6k. The number of people that sit the leaving cert each year is just over 60k,
let's assume this 60k is demand each year.
Let's assume that this 60k couple up to become a FTB

This means that only the top 20% can afford to provide their own housing needs each year and that's with up to a 10% grant from the taxpayer

Now let's assume that we have net inward migration of 15k each year (most recent figures show 30k), that brings down that 20% figure that can afford their own home substantially.

Rents can be anything up to double the cost of a mortgage. Over 30 % and rising substantially of private rents are subsidised by the state. Add in corporation lets and the crazy prices government are paying for new property from the private sector.
The state has the most debt per head of population in the EU (which includes Greece and Italy).

Basic maths tells us all this is unsustainable together with all the other challenges that face the state such as pensions, healthcare, education

We are very much in an unsustainable asset price bubble. We can implement policy that cools it or blows it up further. Given that almost all interventions in the housing market have been on the demand side, clearly Government have chosen tho continue blowing it up.

This will come at great cost for people whose only wish is to have a house as their home

fliball123

Villa05 wrote: »

The number of FTB's in 2019 was just over 6k. The number of people that sit the leaving cert each year is just over 60k,
let's assume this 60k is demand each year.
Let's assume that this 60k couple up to become a FTB

This means that only the top 20% can afford to provide their own housing needs each year and that's with up to a 10% grant from the taxpayer

Now let's assume that we have net inward migration of 15k each year (most recent figures show 30k), that brings down that 20% figure that can afford their own home substantially.

Rents can be anything up to double the cost of a mortgage. Over 30 % and rising substantially of private rents are subsidised by the state. Add in corporation lets and the crazy prices government are paying for new property from the private sector.
The state has the most debt per head of population in the EU (which includes Greece and Italy).

Basic maths tells us all this is unsustainable together with all the other challenges that face the state such as pensions, healthcare, education

We are very much in an unsustainable asset price bubble. We can implement policy that cools it or blows it up further. Given that almost all interventions in the housing market have been on the demand side, clearly Government have chosen tho continue blowing it up.

This will come at great cost for people whose only wish is to have a house as their home

Well it will all depend on how supply goes as well as WFH if both of these go up in significant numbers then a cuople on the median wage will well be able to afford the average house in Ireland. Its all ifs and buts.

What if props prediction comes through and all the rooms over the shops and all of the empty places come on stream. There are way to many unknowns currently to predict anything. At present the current prices IMO will continue to rise until this years budget that will be where we see where the governments mindset is.

But we were not in a boom and bust cycle up until last year as the historical prices since 2017 reflect this in how they trended.

Hubertj

Villa05 wrote: »

The number of FTB's in 2019 was just over 6k. The number of people that sit the leaving cert each year is just over 60k,
let's assume this 60k is demand each year.
Let's assume that this 60k couple up to become a FTB

This means that only the top 20% can afford to provide their own housing needs each year and that's with up to a 10% grant from the taxpayer

Now let's assume that we have net inward migration of 15k each year (most recent figures show 30k), that brings down that 20% figure that can afford their own home substantially.

Rents can be anything up to double the cost of a mortgage. Over 30 % and rising substantially of private rents are subsidised by the state. Add in corporation lets and the crazy prices government are paying for new property from the private sector.
The state has the most debt per head of population in the EU (which includes Greece and Italy).

Basic maths tells us all this is unsustainable together with all the other challenges that face the state such as pensions, healthcare, education

We are very much in an unsustainable asset price bubble. We can implement policy that cools it or blows it up further. Given that almost all interventions in the housing market have been on the demand side, clearly Government have chosen tho continue blowing it up.

This will come at great cost for people whose only wish is to have a house as their home

What other costs involved in construction besides land prices need to be addressed in order to help with affordability?

JimmyVik

Hubertj wrote: »

What other costs involved in construction besides land prices need to be addressed in order to help with affordability?

The list is endless

johnnyskeleton

PropQueries wrote: »

The Government actually spotted that rule's impact on the supply of property entering the market a few years ago and changed the rules. The Finance Act 2017 introduced a change to the 7 year rule for investors who purchased between 2012 and 2014 and now allows for an exit after 4 years i.e. they have all being able to sell and avail of this relief for the past couple of years.

My point more generally is that there are a variety of different reasons for funds to decide whether to sell or hold on to Irish property. But more specifically, on those funds, the point is that the business model was to buy and hold for 7 years, and then decide whether to sell or not. While some probably decided to sell, others decided to hold on. But their dynamic is very different to the pension fund who are looking at a 20, 30 or 40 year etc investment and are less prone to making decisions based on the immediate market forces.

Kind of explains (at least partly) why property prices started falling in Dublin from 2018 onwards?

Well Dublin peak seems to be October, 2018, and the scheme was introduced in December, 2011, so yeah, a lot of those funds who had a 7 year cycle in mind would have sold during this period.

I'm not sure that this was the reason why prices starting falling. Prices seemed to have hit a ceiling and didn't drop dramatically. The drops since then have been modest, with an equally modest increase at the end of last year. All points to property being overvalued and stagnating or dropping, rather than a catastrophic crash which would be caused by funds dumping their property. Other funds have been buying more property during that period, so it isn't a case of a dramatic net reduction in investment properties.

Also, doesn't the quoted stated that you think they have been disposing of them quietly since 2018 undermine your main point that you think a big crash is on the way due to them suddenly all exiting at once? How can they all suddenly exit if they are already exiting?

Cyrus

johnnyskeleton wrote: »

I'm not sure that this was the reason why prices starting falling. Prices seemed to have hit a ceiling and didn't drop dramatically. The drops since then have been modest, with an equally modest increase at the end of last year. All points to property being overvalued and stagnating or dropping, rather than a catastrophic crash which would be caused by funds dumping their property. Other funds have been buying more property during that period, so it isn't a case of a dramatic net reduction in investment properties.

i think we bounced off the affordability limits that the CB rules created to be honest.

Villa05

fliball123 wrote:

Well it will all depend on how supply goes as well as WFH if both of these go up in significant numbers then a cuople on the median wage will well be able to afford the average house in Ireland. Its all ifs and buts.

You may well have noticed that prices are rising much quicker outside the main cities. This was a trend seen in the 00's also. Spreading the problem does nothing to resolve it. Rents are also way above their peak and one would have to ask how sustainable this is considering who the largest rent payer is

fliball123 wrote:

But we were not in a boom and bust cycle up until last year as the historical prices since 2017 reflect this in how they trended.

One would expect Brexit uncertainty and a global pandemic to put the brakes on any bubble. The fact that they have not corrected somewhat during these events would give clues to the level of interference in the market

MacronvFrugals

Was reading this piece on apartments in Australia and noted the lets not do it like those guys section...


Build-to-rent surge will change apartment living for Australians, but for better or worse?

"In Ireland, permissive planning concessions enable build-to-rent developers to circumvent design standards. This has raised concerns that build-to-rent may deliver smaller, less diverse and lower-amenity housing (less storage, for example) than standard build-to-sell development."

https://theconversation.com/build-to-rent-surge-will-change-apartment-living-for-australians-but-for-better-or-worse-154839

PropQueries

johnnyskeleton wrote: »

My point more generally is that there are a variety of different reasons for funds to decide whether to sell or hold on to Irish property. But more specifically, on those funds, the point is that the business model was to buy and hold for 7 years, and then decide whether to sell or not. While some probably decided to sell, others decided to hold on. But their dynamic is very different to the pension fund who are looking at a 20, 30 or 40 year etc investment and are less prone to making decisions based on the immediate market forces.



Well Dublin peak seems to be October, 2018, and the scheme was introduced in December, 2011, so yeah, a lot of those funds who had a 7 year cycle in mind would have sold during this period.

I'm not sure that this was the reason why prices starting falling. Prices seemed to have hit a ceiling and didn't drop dramatically. The drops since then have been modest, with an equally modest increase at the end of last year. All points to property being overvalued and stagnating or dropping, rather than a catastrophic crash which would be caused by funds dumping their property. Other funds have been buying more property during that period, so it isn't a case of a dramatic net reduction in investment properties.

Also, doesn't the quoted stated that you think they have been disposing of them quietly since 2018 undermine your main point that you think a big crash is on the way due to them suddenly all exiting at once? How can they all suddenly exit if they are already exiting?

To me the 7 year rule (now 4 year rule since 2018) isn't the biggest problem that will impact prices from funds and other large investors selling.

Many small cash-rich Irish investors also bought one or two investment properties during that 2012 - 2014 period. Many bought them because of the e.g. bedsit ban (2013) etc. and required time to refurbish them etc.

Many of these properties would have started entering the market from 2018 onwards either for sale or in the rental market (after refurbishment).

This partly explains to me the lack of media coverage of people queuing for either rental of buying over the past 3 years.

The rule change also caught many investors (big and small) off guard and they may start bringing forward their selling timeline now IMO

I think that was the point of changing the 7 years to 4 years and I think I mentioned before that I think the state is currently fighting the housing issues from 3 years ago and it may already be resolved.

johnnyskeleton

Cyrus wrote: »

i think we bounced off the affordability limits that the CB rules created to be honest.

Yes. I suppose the only difference is whether you think CB rules keep prices at the right levels, or whether they are artificially holding them back.

Personally I think they are (or at least ought to be) an upper ceiling, hence I think when prices start to exceed what people can afford (under the central bank rules) then properties are overvalued.

cnocbui

MacronvFrugals wrote: »

Was reading this piece on apartments in Australia and noted the lets not do it like those guys section...

Build-to-rent surge will change apartment living for Australians, but for better or worse?

https://theconversation.com/build-to-rent-surge-will-change-apartment-living-for-australians-but-for-better-or-worse-154839

Apartments are really on the nose in Australia. There are a couple major sagas involving buildings with significant structural flaws that look to cost apartment owners dearly. then there's the Grenfell cladding problem on numerous buildings which seem nigh insoluble due to cost.

I wouldn't touch an apartment with a barge pole, personally - in any country.

yagan

cnocbui wrote: »

Apartments are really on the nose in Australia. There are a couple major sagas involving buildings with significant structural flaws that look to cost apartment owners dearly. then there's the Grenfell cladding problem on numerous buildings which seem nigh insoluble due to cost.

I wouldn't touch an apartment with a barge pole, personally - in any country.

Projecting forward the apartment model is obsolete when businesses can relocate so much of their backoffice to WFH and away from high office rent clusters and having to offer city expenses packages.

We may well up with something similar to Bangkok where even today there's still over 20 empty skyscrapers 20 years after their vertical bubble.
https://edition.cnn.com/style/article/bangkok-abandoned-ghost-towers/index.html

Hubertj

yagan wrote: »

Projecting forward the apartment model is obsolete when businesses can relocate so much of their backoffice to WFH and away from high office rent clusters and having to offer city expenses packages.

We may well up with something similar to Bangkok where even today there's still over 20 empty skyscrapers 20 years after their vertical bubble.
https://edition.cnn.com/style/article/bangkok-abandoned-ghost-towers/index.html

Thank you for sharing. Have seen some of them when visiting Bangkok over the last few years. Good to get the background.

MacronvFrugals

yagan wrote: »

Projecting forward the apartment model is obsolete when businesses can relocate so much of their backoffice to WFH and away from high office rent clusters and having to offer city expenses packages.

We may well up with something similar to Bangkok where even today there's still over 20 empty skyscrapers 20 years after their vertical bubble.
https://edition.cnn.com/style/article/bangkok-abandoned-ghost-towers/index.html

That's insane, nice one for sharing!

yagan

Hubertj wrote: »

Thank you for sharing. Have seen some of them when visiting Bangkok over the last few years. Good to get the background.

I was staying for a few months in Bangkok a few years after their financial crisis when there was over fifty skyscrapers littering the skyline.

When I returned to it was impossible not to see the bubble while a lot of politicians, vested interests, family and friends told me not to talk down the economybubble!

Seeing is believing I guess, and I can see something similar brewing in the Dublin institutional investor driven apartment splurge in Dublin.

Marius34

Joeyjoejoe43 wrote: »

What is the general consensus on where the Irish property market goes in the next 1/3/5 years?

There is no general consensus.
But here is what likely to happen.
Prices up this year. High demands and low supplies for next few years.
Wouldn't know price direction after 3 years, but there will be ups and downs, but very likely we will never see prices of lows of 2020.

thefridge2006

Marius34 wrote: »

There is no general consensus.
But here is what likely to happen.
Prices up this year. High demands and low supplies for next few years.
Wouldn't know price direction after 3 years, but there will be ups and downs, but very likely we will never see prices of lows of 2020.

LOL

MacronvFrugals

Marius34 wrote: »

, but there will be ups and downs, but very likely we will never see prices of lows of 2020.

Even you know that's complete fantasy

combat14

Marius34 wrote: »

There is no general consensus.
But here is what likely to happen.
Prices up this year. High demands and low supplies for next few years.
Wouldn't know price direction after 3 years, but there will be ups and downs, but very likely we will never see prices of lows of 2020.

price lows of 2020 .. the sky is the limit so

Marius34

MacronvFrugals wrote: »

Even you know that's complete fantasy

If you ever follow my comments you would understand that I'm serious.
It's not possible to predict well the future, but if you follow you will find out that my past prediction are much better than opposing ones.

Marius34

combat14 wrote: »

price lows of 2020 .. the sky is the limit so

sky is not the limit, but neither inflation is dead.

PropQueries

Some interesting comments on Bloomberg about today's ECB meeting and the possible impact of interest rate movements on house prices this year.

While I think since interest rates are at rock bottom and current property prices fully reflect this, some may think that ever lower interest rates may indeed boost property prices or at least keep them stable going forward.

According to Bloomberg:

"Most European Central Bank policy makers have no intention of expanding their 1.85 trillion-euro ($2.2 trillion) emergency stimulus program despite their pledge on Thursday to step up the pace of bond buying to keep yields in check, according to officials familiar with the matter."

They said "Policy makers will spend more now but plan to pull back later"

But, more importantly (IMO):

"Policy makers agreed that there had been some tightening of financial conditions as a consequence of higher yields in recent weeks, though a majority of those who expressed their views also said they weren’t too concerned, according to the officials."

In my opinion, and I fully realise many disagree, there are far more countries in the eurozone who don't have a debt problem compared to the few countries who do (relatively speaking) and they appear to be increasingly making their voices heard at the table IMO

Link to Bloomberg article here: https://www.bloomberg.com/news/articles/2021-03-11/ecb-doesn-t-intend-faster-bond-buying-to-lead-to-more-stimulus?srnd=premium-europe

The_Conductor

We have a bond sale tomorrow- lets see what is happening in an Irish context.
I think its inevitable that the price we pay- is going to have to rise, which in turn, over time, will prove a drag on equities and other asset prices.

We are in the beginning of pulling the brakes..........