Irish banks happy to back overseas spending spree

Impressive capital appreciation of property abroad fuels the appetite of both investors and lending institutions. Gretchen Friemann reports

Irish banks are funding a massive overseas property-buying spree with Irish investors expected to spend around €6 billion this year on international real estate.

The UK is attracting the bulk of the money with nearly €2.39 billion spent within the first six months of the year but the insatiable appetite for property is also drawing investors to central and eastern Europe where Irish transactions now account for a quarter of the total market spend.

The mass exodus is led not just by property heavyweights like Derek Quinlan and Alfie Buller, who have both bought large swathes of prime British real estate recently, but also by major lending and pension institutions which now market diversified overseas commercial property portfolios to the small investor.

Growth in the purchase of international property has outstripped even the typically bullish forecasts from estate agents.

Earlier this year Lisney predicted investors would spend €2 billion on commercial property in the UK; however, by the end of June, cash-rich Irish entrepreneurs and consortiums had ploughed more money into British property than the total spend for all of 2003.

Central to this spending spree is the willingness of Irish banks to fund overseas acquisitions.

With attractive commercial property investments still thin on the ground at home, Irish banks are increasingly relying on British and European real estate to boost tight lending margins.

Bank of Ireland, Anglo Irish and Ulster bank were the main financiers of one of the most significant acquisitions this year; the €1.13 billion purchase of the Savoy Hotel group by Derek Quinlan's syndicate, Quinlan Private.

Just five months later the investors sold the portfolio's flagship property for €300 million.

Such impressive capital appreciation is fuelling the appetite of both investors and lending institutions, according to property experts who are predicting another upswing in overseas transactions next year.

But the rapid escalation in demand for overseas property is also a result of the poor value many believe is still widespread throughout the domestic market. Mr Peter Donnelly of Quinlan Private claimed Irish money is flowing into foreign markets because the "pricing of Irish property is such that there is not much value left".

Although CB Richard Ellis Gunne recently predicted a strong recovery in domestic commercial investment next year, the lack of quality product has forced banks to boost thin transaction volumes through the financing of British and European acquisitions. According to AIB's head of property and construction, Mr Donal Halpin, transaction volumes for Irish commercial property for the first half of this year were lower than the same period last year primarily due to a dearth of "good quality investment product".