On the Move
Although property sales look stable, housing stock and credit are a concern
Six months into 2013, the property market is showing signs of stabilisation in Dublin but clearly, property values around the rest of the country are continuing to decline, albeit at a slower rate.
The year got off to a reasonably good start despite fears that culling mortgage interest relief in the budget would put people off buying property in early 2013.
The Residential Property Price Register shows there were 1,499 property sales in January 2013, about 30 per cent of which were in Dublin. This compares to 1,225 sales in January 2012.
According to the ESRI, consumer sentiment remained broadly unchanged between February and May, mirroring a generally stable level of property sales in that period.
The traditional “seasons” in the property market from April to June have dissipated somewhat but May was busy, with more than 2,051 sales.
Clear evidence of a two-tier market can be seen in recent house price surveys. According to MyHome.ie the difference between national prices and Dublin prices now stands at 23 per cent. While this is significantly below the 35 per cent recorded at the peak of the market it is substantially ahead of the lowest difference of 11 per cent recorded in the first quarter of 2012.
The gap in prices and sales activity between Dublin and the rest of the country is a concern and needs to be monitored.
Dublin is seeing a stabilisation in prices and increases in certain locations, particularly established areas on the south side, where supply is limited
As well as supply issues, price stabilisation in Dublin also relates to the availability of employment centres such as the IFSC and “silicon dock” which are home to some of the largest financial and technological companies in the world. It is similar in Cork and to a lesser extent in Galway.
Returning emigrants and overseas investors have also been active in the market, particularly at the upper end. Much of this activity has centred on Dublin where overseas purchasers see value for money and anticipate capital growth.
The largest cohort of purchasers is first-time buyers seeking family homes. We are in the midst of a baby-boom and most new parents want to buy rather than rent houses.
A key issue is the lack of supply of family-type homes, particularly in the cities. Many properties are either executor sales or distressed property sales which often require upgrading. This puts additional financial pressure on first-time buyers.
It is difficult to see from where a meaningful supply of the right type of housing stock will materialise. Unfortunately, a consequence of the boom and high-density planning was that apartments were built ahead of family homes.
While more distressed buy- to-let properties are likely come to the market, a surge in the availability of family homes is unlikely.
Repossessions are both emotive and politically sensitive. We need, however, to move towards international best practice in separating the “can’t pay” from the “won’t pay” and dealing in a timely and fair way with arrears and, where appropriate, repossessions. The market would benefit to some extent from the release of this housing stock.
Availability of mortgage finance is essential. According to the latest figures from the Irish Banking Federation (IBF), only 2,068 mortgages were issued during the first quarter of 2013 compared with 2,630 for the same quarter in 2012.
While the new adherence to correct procedure in assessing buyers’ ability to repay is laudable, there could be merit in Government introducing a mortgage credit review body to ensure fairness and transparency. A similar scheme is already in place for SMEs.
A standardised mortgage application form, agreed by all of the lenders, would make the process simpler from a borrower’s perspective.
A fully functioning market requires normal levels of lending and many first time buyers are struggling to get a mortgage. This, coupled with the lack of supply, is putting significant pressure on the sustainability of the market in the medium to longer term.
The British government has introduced a home help scheme to help first-time buyers finance a property. There would be merit in a similar scheme being introduced in Ireland.
Of course, there cannot be adequate supply of houses without enough sites and development finance. The Government needs to examine Nama’s handling of the majority of the available development land stock and to encourage banks to finance small to medium housing developments, particularly in Dublin.
While it is too early to make accurate predictions on the second half of the year, the Government would do well to ensure that housing supply and credit availability issues are considered ahead of the 2014 budget to put the property market on a sustainable, and measured, footing for the future.
Simon Stokes is chairman of the residential professional group of the Society of Chartered Surveyors Ireland. scsi.ie