First-time buyers with lots of choice are slow to commit

ApartmentMarket:After a tough year, the apartment market needs a spark to kick-start activity in 2008, writes Fiona Tyrrell.

AFTER years of phenomenal growth the apartment market took a hammering in 2007.

First-time buyers lost confidence, investors pulled out and price drops are looming - it couldn't be gloomier for this sector going into 2008.

It's very hard to get a fix on the true state of affairs with developers and their agents reluctant to talk. Anecdotal evidence, however, suggests that the market has come to a virtual standstill in the last six months.

Very few major launches were held in the latter half of the year and many developers have been left with significant amounts of unsold stock on their hands.

As market conditions toughened some developers opted to hold off launches rather than risk a failed sales campaign. Others have decided to hold onto entire schemes and rent them out.

Any apartment buyers who are out there, and they are few and far between, are bargaining hard and getting good deals - price reductions or sweeteners such as flooring and full furniture fitouts are apparently now common.

A drive around Dublin at night will confirm the sorry state of affairs in the apartment market - there are a lot of apartment blocks with no lights on.

The effects of the slowdown in the apartment market are being felt in a range of off-shoot businesses.

Tina Kavanagh from Bargaintown furniture fit-out service reports that business is down over 50 per cent on last year. Last year Bargaintown was getting orders from investors and builders to fit-out entire blocks of apartments with around 40 units in each block. Investors were paying around €4,000 for the fit-out of a one-bedroom apartment and €5,000 for a two-bedroom unit.

Now few are buying or looking for fit-out services, she says. The fall back in business emerged in the latter half of the year, she adds.

"The lack of activity makes it very hard to tell whether we have reached the bottom of the market," says Iain Finnegan of Finnegan Menton, who has been handling the sale of apartments in Dundrum. "It's very hard to say what level we are at and what true values are."

The increased cost of money made it less attractive to investors to buy, he says.

Impressionable first-time buyers - watching investors exit the market and mindful of parental advice to wait and see, while also getting mixed messages from financial institutions and property experts - decided to put off buying for now. A blizzard of property reports offering conflicting analyses has also confused would-be buyers.

The actions of first-time buyers and investors prompted a "general withdrawal" from the market in the last six months, says Finnegan.

For years the first-time buyer had been a major player in the apartment market. They created the energy at the bottom to keep the whole property market moving.

But affordability issues and nerves about falling house prices and rising debt were the big factors at play in the slowdown.

Eight interest-rate hikes by the European Central Bank had a big impact on affordability for first-time buyers.

The most recent figures from the Bankers Federation of Ireland (BFI) indicate that, while first-time buyers retained the same share of the mortgage market as last year (19 per cent), the number of mortgages issued this year is down by 25 per cent on this time last year.

A survey of first-time buyers conducted by the BFI revealed that 16 per cent found it difficult, or very difficult, to meet their mortgage repayments, and 24 per cent said the monthly repayments were easy to reach.

Climbing rents and an expected cut in interest rates will combine to improve the situation, says Hubert Fitzpatrick, director of the Irish Home Builders Association.

These factors will encourage first-time buyers, who have "sat on their hands" in 2007, to commit.

He points to the fact that it is now cheaper to buy rather than rent in some parts of the country.

"Where I see some hope for 2008 is that we are continuing to see a good level of enquiries and inspections. They are out there and looking but not transacting," says Fitzpatrick.

With climbing rents and interest rate cuts on the cards for next year, Finnegan believes that it won't take much to kick-start the market.

"It will only take a small spark to generate a return to activity. The question is when will that spark come?"

Meanwhile, the apartment market has been "sporadic" around the country, according to Tony Forte, Douglas Newman Good's nationwide director. Things are "good in good locations" but it is "tighter" in other areas, he says.

Tony Kavanagh of Sherry FitzGerald Kavanagh in Galway says that apartments in good quality locations, such as the city centre and Salthill, fared the best in 2007.

"They sold well but didn't increase in value".

Suburban-style apartments moved significantly slower than they did in 2006. First-time buyers were active but only bought if they felt they were getting value, he says.

They were drawn to the second-hand market where there was greater price flexibility, he adds.

Ray Finlay from Property Partners Finlay in Athlone says it was a poor year generally and that prices are static overall.

In the apartment market there has been a "fair to good" demand for well-located apartments particularly those overlooking the river. "Secondary locations are slower to sell."

Like elsewhere, investors have disappeared, apart from interest in a number of tax-driven schemes.

First-time buyers are "relatively active but are very price sensitive" and developers have been offering incentives such as high spec, completed gardens and fit-outs to get them to commit, he says.

Peter Cave director at Savills Hamilton Osborne King's Cork office said that Cork has been relatively slow. Investors have "stepped back from the market" and first-time buyers, many of whom have pre-approved mortgages, are adopting a "wait-and-see approach.

"I expect an improvement in 2008. There are a lot of people out there with mortgage approval who are now sitting on the fence and renting."