Irish Property Market chat II - *read mod note post #1 before posting*

Timing belt

https://www.boards.ie/discussion/comment/118018935#Comment_118018935

The main reason that Banks restrict lending in a downturn is because they don't have the capital to lend because the distressed debt eat's up the capital. By the banks being adequately capitalised before a downturn this should mean that they won't need to restrict lending like they did in '08.

On top of this the big banks have an Countercyclical Capital Buffer whereby the capital requirement is higher during a growth period and then reduced during a recession in order to release capital to encourage lending.

All this was implemented following the 08 crash so that mistakes in the past would not be replicated in the future.

The reality of the situation is that banks want to lend as this is where they make money and all the banks have capital and liquidity to do so but they don't have enough people to lend to that are within their risk appetite.

In a recession banks struggle to lend not because of their ability to do so but because peoples financial situations change which put them outside the risk appetite of the bank.

I know you refer to banks as a 1 trick pony and that is exactly what a retail bank should be. They are a utility company the same as a gas, water company.

Timing belt

https://www.boards.ie/discussion/comment/118019673#Comment_118019673

That is the way I see it the biggest risk is to pensions and investments. With the Central bank rule of LTV and LTI it mitigates against any downturn in the housing market. In the same way it caps house price growth it also provides a floor for house prices because less people will be in financial difficulty. It's important to remember that the average LTV in the country is around 55%.

Sierra Oscar

https://www.boards.ie/discussion/comment/118018565#Comment_118018565

Remember when there was much discussion regarding the inevitable collapse of property prices due to Covid-19? 😬

Nearly an 11% increase is pretty insane.

Amadan Dubh

https://www.boards.ie/discussion/comment/118020048#Comment_118020048

I feel the rental bubble has just subsumed the good intentions of the LTV and LTI rules. The "market" as a whole is exposed, but in reality not that many "individual buyers" are exposed to negative equity.

Timing belt

https://www.boards.ie/discussion/comment/118020781#Comment_118020781

I struggle to see how the rental market is exposing the housing market as whole to a property crash.

If the assumption is that a crisis forced investors to sell the rental properties because they needed cash it is highly unlikely to happen because the majority of funds have redemption clause in them that would not allow investors to redeem their investment in a crisis. This happened in early 2020 when the lockdown's kicked in and the majority of property funds added additional clauses and secured revolving credit facilities from the banks to ensure that they were not forced into a fire sale of property.

In reality if there was a crisis funds would first use more liquid assets such as bonds/shares to generate cash before they looked at property which on average takes at least 6 months to sell (even if discounted). You would need a crisis that was at least 6 months long and the central banks would need to sit on there hands and do noting for it to turn into a fire sale of properties.

Villa05

https://www.boards.ie/discussion/comment/118020024#Comment_118020024

If prices were falling 10%, would banks demand a higher deposit to cover the risk. Is that not a form of restricting lending

It's all fine in a bubble but when it starts to deflate the tables turn.

Villa05

https://www.boards.ie/discussion/comment/118020058#Comment_118020058

That fact should be scary for bulls as well as bears. I think we can safely say it's now out of control and the likelihood of a happy ending is over

mcsean2163

https://www.boards.ie/discussion/comment/118019656#Comment_118019656

Agree 💯. Same goes for us. There's some inappropriate projects going up near us but no increase in school places, green spaces, anything. In fact, services for kids are being shut down despite loads of kids in the area.

They're looking to build a super council social block by joining two preexisting council blocks with a third bigger than the previous two combined but an objection to what looks like a really bad idea is NIMBYism.

Timing belt

https://www.boards.ie/discussion/comment/118021277#Comment_118021277

The property would be cheaper to buy and the standard LTV would apply..

Banks don't reduce the deposit requirement in a housing market with prices increasing so why would a bank require a higher deposit if property prices were falling.

The deposit requirement is set by the central bank specifically to ensure that in an event of house prices falling people would not fall into negative equity (or in a major crash would have limited negative equity)

Timing belt

https://www.boards.ie/discussion/comment/118021295#Comment_118021295

I wouldn't say that... what I think will happen is that once supply comes online in 2022/23 prices will flatline or fall a small bit.

The rental market will be the canary in the coal mine because once you see rents dropping this will mean that Demand to buy housing will also fall and will probably happen at the same time that a large supply of housing comes online.

danfrancisco83

Daft.ie - 997 Properties to Rent in Dublin (County)

Just dipped below 1k available for rent in Dublin. 40% of those are 1 bed. Scary time to be searching for a place in Dublin.

Amadan Dubh

https://www.boards.ie/discussion/comment/118020932#Comment_118020932

The property funds suspended redemptions pre-covid. It was in fact unrelated to covid what caused them to gate the funds. In many ways covid has been a blessing for asset owners as it didn't just delay a correction, it turbocharged markets. This is why they say that commercial property was the canary in the coal mine and we started to see our residential sector grow far slower and even start to experience price declines in 2019 (back when Brexit was being blamed as it was unthinkable that the market could have peaked - simpler times!).

As to how the rental market has put the whole property market at risk; Considering the non existent supply of appropriate housing to match the explosion in immigration in recent years (with these immigrants typically coming here to work and rent), the supply/demand factors took effect in the rental market and rents exploded, solely due to demand for rentals far outstripping supply. You have properties letting for rents typically 30/40% higher than the mortgage repayments on the property. This is pushing up the value of houses due to the rental yield available.

I think there's only in the region of 30-40k mortgages drawn down each year in Ireland the past 6 years since the mortgage limits were introduced (this was the equivalent of the mortgages drawn down in 2003 and 2004 alone) so it is a drop in the ocean as far as the property market is concerned. A well insulated and protected ocean, but only a small proportion of the market where the LTI/LTV limits are actually relevant.

Timing belt

https://www.boards.ie/discussion/comment/118021641#Comment_118021641

yes it is a drop in the ocean and people that have a mortgage for more than 6 years will have a lower mortgage due to repayments at the same time as property values have increased so will not go into negative equity. This is why the average LTV in Ireland is circa. 55%.

Sheeps

What ever happened your man in this thread that was predicting the end of days by the end of the year last year?

Amadan Dubh

https://www.boards.ie/discussion/comment/118021527#Comment_118021527

For those who work and rent but need to look for a new rental should the WFH guidance end, I don't envy them at all.

It would be a bloodbath in the pithy rental market we have left for the WFH rule to end in a week with all other covid restrictions.

But then I have also claimed that the long term WFH policies have already been implemented by big companies and these workers aren't actually coming back so maybe it is just a storm in a teacup and there isn't a correlation at all with returning to the office proclamations and the steady fall in available rentals.

Amadan Dubh

Here is the first bit of an indication as to what the new rental market restrictions will look like; an inflation linked 2% rent increase cap for RPZ tenancies (approximately 3/4 of all tenancies) which could come into effect next week. In addition, tenancies of indefinite duration are also coming.

https://m.independent.ie/irish-news/obrien-pushes-for-rent-increase-cap-of-2pc-to-come-into-force-next-month-40947341.html

Villa05

https://www.boards.ie/discussion/comment/118021460#Comment_118021460

You know what they say

Banks will give you an umbrella on a dry day and take it away when it's raining.

In an environment of falling prices, banks will seek greater security in the form of higher deposit

Amadan Dubh

https://www.boards.ie/discussion/comment/118021718#Comment_118021718

He has become a stopped clock, no longer ticking (banned in other words).

PommieBast

https://www.boards.ie/discussion/comment/118021527#Comment_118021527

Not sure there's been any time in the last five years that it hasn't been scary..

Amadan Dubh

https://www.boards.ie/discussion/comment/118022044#Comment_118022044

To put that 997 figure in a bit of context, there were 1,749 available at the start of August in Dublin County. 10 weeks later the number of rentals has almost halved and the protocol is still to WFH where possible.

It is heading to the unthinkable but absolute rock bottom of the crisis where there could potentially be nothing to rent in Dublin - no more rentals means no more jobs can be created as the workers can't live anywhere (arguably that ship has sailed with the affordability of rentals). Our economic prosperity is directly at risk in this slow motion car crash.

JimmyVik

https://www.boards.ie/discussion/comment/118021339#Comment_118021339

We went to look at a house in Ratoath yesterday evening. The house was really nice. We left the house at 5:15pm.

Took us 30 minutes to get through Ratoath village. And then we passed a line of traffic that was 2km going into the village (and through i imagine) coming the opposite direction.

Looks like the commute just from the M2 to Ratoath would be as long as the commute from the M2 to the city center. We even passed the local bus stuck in the traffic going the other way. No bus lanes, so you are even stuck on the bus.

As we drove through the village we noticed there was no parking at all.

So from leaving the house they were thinking about a bid, to getting just to the N2 roundabout they said No, cant be dealing with this.

Total lack of infrastrucure there. They have built too many houses there and it is just choked up now.

L1011

https://www.boards.ie/discussion/comment/118021952#Comment_118021952

And tempting as it would have been to let him back in at the end of August to see what month he'd rolled his predictions on to; that would have been unprofessional.

Ush1

https://www.boards.ie/discussion/comment/118022279#Comment_118022279

The houses aren't really the issue, it's the lack of infrastructure it sounds like. Bus lanes, bikes and less cars make a huge difference.

AdamD

https://www.boards.ie/discussion/comment/118021807#Comment_118021807

They still aren't addressing a major issue with RPZ in that seemingly nobody is tracking the prices being charged to previous tenants and implementing the rent caps. Rents are actually increasing at a higher rate than the rent caps, has nobody pointed that out yet?!

Timing belt

https://www.boards.ie/discussion/comment/118021811#Comment_118021811

That is not necessarily true..... Last year when the banks booked massive bad debt provisions because they expected a increase in defaults and a drop in property prices they did not introduce a requirement for higher deposits. The banks make money from lending and will do so where they can (i.e. within the CBI Rules) and within their risk appetite.

Where banks restricted their lending was with regards to customers where their employment was being heavily supported by government supports because they were not confident that the customer would have a job at the end. They received a lot of criticism for talking this approach. The reason they did it was that the customers were no longer within the risk appetite of the banks.

hometruths

https://www.boards.ie/discussion/comment/118021671#Comment_118021671

That 55% is a very interesting stat, and presumably trending downwards? Also presumably it excludes BTL mortgages. Where did you see this and do you have a link with more info? thanks

DataDude

Celada, 3 Blacklion Springs, Greystones, Wicklow, A63 XY44 - O'Gorman Properties - 4498551 - MyHome.ie Residential

Had a look at this earlier in the year. Thought it was fairly priced at €1.15m....just hit the PPR at €1.475m 😲. Will be interesting to see what the next houses in the Burnaby list at after that!

Cyrus

https://www.boards.ie/discussion/comment/118023005#Comment_118023005

Wow, that is a whole different category of buyer really cant imagine that many with a 1.15m budget can stretch it 360k!

Timing belt

https://www.boards.ie/discussion/comment/118022958#Comment_118022958

I had only looked at AIB but when I look at BOI & PTSB the average LTV is around 60% for all 3 mortgage books

The following is the source:

see page 119 in the AIB financial statements for 2020

https://aib.ie/content/dam/frontdoor/investorrelations/docs/resultscentre/annualreport/aib-group-plc-2020-annual-financial-report.pdf

see page 351 in the BOI financial statements for 2020

https://investorrelations.bankofireland.com/app/uploads/BOI-Annual-Report-2020.pdf

See page 207 of PTSB financial statements for 2020

https://www.permanenttsbgroup.ie/sites/tsb/files/Documents/2020-PTSB-annual-report.pdf

DataDude

https://www.boards.ie/discussion/comment/118023024#Comment_118023024

Agreed. And I'm not really sure why that category buyer is looking at that house. I'd have thought you could get an awful lot better for €1.5m! I think Greystones prices are now on par, if not beyond, pretty much everywhere in South County Dublin except for Mount Merrion & Dalkey.

Cyrus

https://www.boards.ie/discussion/comment/118023083#Comment_118023083

Yes it appears so.

I thought the pricing on this house was very strong when it came to the market seeking 2.5m, a month later its sale agreed, so it appears i know very little

https://www.myhome.ie/residential/brochure/fortal-killiney-road-killiney-co-dublin/4513646

J_1980

https://www.boards.ie/discussion/comment/118023087#Comment_118023087

That seems fair priced tbh. It’s a fairly decent plot size unlike the greystones. Also not miles from dalkey village.

JimmyVik

https://www.boards.ie/discussion/comment/118022692#Comment_118022692

Definitely an infrastructure problem. We went from thinking that would be a lovely place to live to thinking jesus, i couldnt face that. The traffic was worse than in the city center.

No room for bus lanes on any of those roads. Not many buses anyway. And you arent be going to getting far if you are living in Ratoath and relying on the bus to get you around.

There are bike lanes on some of them, but I dont see too many people cycling from Ratoath to the city or even to Swords.

JimmyVik

https://www.boards.ie/discussion/comment/118022699#Comment_118022699

They know why this is. Its just not in their interests to state it.

The reason average rents are going up is because all of the ones locked at lower rents are leaving the market.

Therefore the average rent is going up.

Cyrus

https://www.boards.ie/discussion/comment/118023237#Comment_118023237

yes i agree but you could spend what you like modernising it and landscaping etc, the location is great but its strong money for what it is.

C14N

https://www.boards.ie/discussion/comment/118023354#Comment_118023354

I got a decent commuter bike a few months back on the bike to work scheme and have tried to use it to get around Dublin to shops or friends' houses as much as I can. One thing you start to notice is that bike lanes are complete crapshoot in this country. You get some stretches that are fantastic and have nice new lanes, separated from traffic, and then suddenly they'll just disappear. We have lots of bits of bike lanes but no real bike lane network. If you want to get from A to B, you will absolutely have to spend some of that time on normal roads sharing with cars, which is too scary for most people to do, and cycling ends up just being for the enthusiasts. Sometimes it feels like the council was just told they have to put down X meters of bike lanes, so they did it at random in various spots with no concern for the idea that people might actually want to use them to get places.

I think overall, infrastructure is our biggest issue. The government has relied on people driving themselves around in cars instead of really building it up. The city is already developed more or less everywhere, the only way to increase the supply is to build denser, but that won't work if so many people are dependant on driving around a car with them every day to get to work, but it won't be at all popular to tell people they need to give up their cars and get on trains, especially if it takes years to develop the infrastructure, which is why no party will really make a major effor to persue it.

PommieBast

https://www.boards.ie/discussion/comment/118022234#Comment_118022234

Not sure how Daft.ie culls stale listings but from my own experience I would guess that many of those 1749-997=752 were long gone even back then. These sorts of numbers are already within statistical noise of zero for a region with a circa 1M population and I gave up any pretence of hope in the Dublin A&P market a long time ago.

mcsean2163

I wonder if Clancy quay is full now?

https://www.daft.ie/for-rent/clancy-quay-by-kennedy-wilson-south-circular-road-dublin-8/2511232

only one listing in daft. Probably 40 units or more for rent there....

A shame vacant property tax didn't happen.

MacronvFrugals

https://www.boards.ie/discussion/comment/118027259#Comment_118027259

Not sure about Clancy Quay but walked down the docks Wednesday evening and the small few lights on from Capital Dock and Hannover Quay(I think) is a sight to behold

Timing belt

Was just looking at the RTB Stats that they publish and it's interesting to see that supply of rental properties registered is decreasing

TSQ

Interesting paper published by the Bank of England, which given the similarities in our societies and housing markets, must equally apply to the Irish housing market. “Real house prices in the UK have almost quadrupled over the past 40 years, substantially outpacing real income growth. Meanwhile, rental yields have been trending downwards — particularly since the mid‑90s. This paper reconciles these observations by analysing the contributions of the drivers of house prices. It shows that the rise in house prices relative to incomes between 1985 and 2018 can be more than accounted for by the substantial decline in the real risk‑free interest rate observed over the period. This is slightly offset by net increases in home‑ownership costs from higher rates of tax. Changes in the risk‑free real rate are a crucial driver of changes in house prices — the model predicts that a 1% sustained increase in index‑linked gilt yields could ultimately (ie in the long run) result in a fall in real house prices of just under 20%.”

If you have the time and the head space, here is a link to the published paper : https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/uk-house-prices-and-three-decades-of-decline-in-the-risk-free-real-interest-rate.pdf?la=en&hash=7C12A901353CB615C3FC1A58557918D50775E470

essentially, it is low interest rates, i.e. the low return on “risk free” govt gilts that determines the price of property. Landlords are accepting a lower return on property investments - rental return versus the cost of financing property - than at any time previously; and the paper’s authors have concluded that supply has very little impact on the price of housing. However, in Ireland the failure to properly tax REITS makes a return on investment of 2% - 3% even more attractive compared to yields of .02% and under on A rated gilts. It also makes it still a viable investment if many of the units are left vacant in order to avoid reducing rents, as even a yield of 1% far outstrips any other “safe as houses” investment out there.

Timing belt

https://www.boards.ie/discussion/comment/118030391#Comment_118030391

So I’m summary as yields on government debt falls it pushes up the price of houses as investors chase yield.

if yields rise then crashes the house market, the stock market and bond prices as all these assets have had their risk repriced when yields fell.

Here is a link to a post from Jan 2021 where I highlighted this.

https://www.boards.ie/discussion/comment/115887268/#Comment_115887268

As I have said before rates have been falling for 40 years.

Inflation is the only thing that will change the situation. But inflation won’t last unless their is wage inflation that enables consumers to pay for higher prices.

old_house

Interesting data. What I take from this is that a large chunk of the capital currently tied up in the property market (which serves as a "money sink" for investors chasing yield) could move on to another asset class as soon as it is perceived as lower risk/higher yield than housing. That gives me hope that investors might find a new playground eventually and house prices correct back to where they should be in relation to incomes. I don't know which asset class that might be, though. Bonds seem to be an unlikely candidate in the foreseeable future...

hometruths

https://www.boards.ie/discussion/comment/118031530#Comment_118031530

Most things revert to the mean over time. Sooner or later interest rates will too. As will other aspects of Irish property that are out of whack with long term trends.

Wanderer78

im not convinced property prices will 'correct' at all, as theres actually no such thing as market equilibrium, thats just a concept humans created to try simplify our (mis)understanding of how the world actually works. theres astonishing complexities occurring, that are causing these divisions, particularly in relation to property prices and income levels, it wont be easy to resolve this, many employers simply cannot afford to increase pay, and lowering property prices would probably destabilise markets here and globally, and not just property markets, our whole global financial systems are ultimately based on rising property and land values

Timing belt

https://www.boards.ie/discussion/comment/118031530#Comment_118031530

Unfortunately it’s not a ‘money sink’ because property is not that liquid an asset as even with a discount it can take 6 months to sell and longer in a falling market.

AAA rated bonds (government bonds) are the most liquid and safest asset. It is for this reason that in a falling market investors pile into Bonds which in turn pushes the yield lower as the price of the bond rises.

Additionally the main reason that rates would rise is due to inflation. Investors traditionally will go into property and gold when there is inflation.

The way I see it there will be either a massive crash of all asset classes bigger than 08 or we are in for a very long period of stagflation. The only country that has had a similar scenario in the past is Japan and the result has been years and years of stagflation.

Timing belt

https://www.boards.ie/discussion/comment/118031564#Comment_118031564

Look at the mean for interest rates... They have been falling for 40 years which is a long term trend.

Timing belt

https://www.boards.ie/discussion/comment/118031633#Comment_118031633

The global financial system is not just based on property and land values. But it is based on assumption that an asset will appreciate in value and the main driver of assets appreciating in value has been an increase in debt. As rates fall as they have been doing for 40 years debt becomes cheaper to service and as a result the volume of debt increases which results in higher assets values.

If you look at the Dow Jones for a prolonged period where interest rates were rising such as 1966-1984 you can see there was practically no asset appreciation, if you invested 1000USD in 1966 it would have been worth around the same in 1984 in nominal terms but the investor would have lost money in real terms due to inflation.

Without Wage inflation there will be no sustained inflation in the economy as prices will be rejected because people can't afford them. So I don't see a situation of prolonged inflation that would create a rising rate environment for a prolonged period. Instead we will probably see rates rise a small bit, economy will slow, rates lowered again.... (Basically the same cycle we have been in for 40 years)

Wanderer78

https://www.boards.ie/discussion/comment/118031757#Comment_118031757

most developed economies are falling into the trap of primarily fire sector lead and run, china is currently experiencing the major faults of such an approach and design, yes you are correct that global markets are not just solely based on this, but it plays a vital role in being, but again, its important to realise, central bank rates are only playing a limited role in this, the main controlling factor has been the actual access to credit to global markets, particularly for the purchase of property and land. we re still stuck in this approach, hence the continual rise of private debts globally, largely coming from global financial markets, its running out of steam, we have to radically change this approach or else.....

i will agree with you in regards rates though, i suspect central banks will be forced to maintain low rates, as increasing them, will more than likely cause economic slow down, possible recession inducing in some nations, forcing them to reduce once again, its a very difficult situation, and im not sure anyone truly knows what to do about it, i can understand the calling of debt jubilees, but that would also be fraught with serious problems, worrying stuff

Timing belt

https://www.boards.ie/discussion/comment/118031804#Comment_118031804

i agree I think we will be stuck with low rates for a long time and unless there is an implosion in asset values due to massive default of debts house prices will remain at current levels.

The only time i see house prices leveling off or dropping in value is when rents start to fall due to an increase in supply or a drop in demand for rental properties due to social/affordable housing. Rent will be the canary in the coal mine for housing prices.