Report forecasts 67% fall in property spend to €14.9bn in 2008

The Savills report also maintains that the Irish spend on property has fallen by 73 per cent, or around €39.5 billion, from its peak of €54.4 billion in 2006

THE OVERALL Irish spend on residential and commercial property in Ireland and abroad is forecast to fall this year by 67 per cent from €45.3 billion to €14.9 billion, according to new research from agent Savills.

The collapse in spending is much greater than expected and is likely to shock an industry that will take a considerable time to recover. Market conditions began to change towards the end of 2007 and since then liquidity has got steadily worse and property values have fallen in the face of an ever-worsening economic recession.

Joan Henry, head of research at Savills Ireland, says that at the peak of the market in 2006, the Irish spend on property at home and abroad hit a phenomenal €54.4 billion. Dropping to €45.3 billion in 2007, this total remained strong but reflected the beginning of a slowdown in the new homes market which was being driven in turn by increasing interest rates.

"What has happened this year has changed all that, with the spend expected to be down an estimated 73 per cent, or €39.5 billion, in 2008 from the peak in 2006."

Savills is forecasting that the total spend on new homes will fall from an estimated €23 billion in 2007 to just €5.8 billion this year - a fall of 75 per cent.

The spend in the Irish investment market is predicted to fall from last year's €2.5 billion to €0.5 billion - a fall of 80 per cent. And in the case of land sales, the fall in transactions will be the same, dropping €2 billion to €0.5 billion in 2008.

Henry reports that the value of land has fallen by as much as 50 per cent, depending on the location, with sites in secondary areas being the worst affected. The value of properties on offer in the domestic investment market has also slipped, with considerable upward pressure on yields.

Although investment transactions remain limited, it was widely accepted that prime yields should now have shifted out from their peak by up to 200 basis points. The yield gap between secure income producing investments and those with higher risk profiles had also widened considerably.

Michael Clarke of Savills' investment division says that significant price adjustment is under way as yields move out to more sustainable levels. However, activity in the investment market would remain subdued until banking liquidity improved. While the number of properties on the market was down, the reality was that many could potentially be acquired off-market. There were a number of quality assets being discreetly marketed, he said.

Savills says that prices in the new homes and second-hand market have fallen by as much as 30 per cent this year and possibly more if looked at on an individual basis. "Successive price reductions this year, coupled with the fact that the new homes sector has come to a virtual standstill, lead us to expect that supply and demand factors have pushed prices close to the bottom and that by mid 2009 prices will have stabilised. What is needed then is a period of at least six months to a year of price stability to allow buyer confidence to be restored which will, in turn, increase activity levels."