Sales of second-hand apartments take a hit

Second-hand apartment prices in Dublin are stabilising and those selling up are now having to lower their expectations, according to estate agents.

Once the star performers in the residential property market, second-hand apartment prices are now feeling the full effects of the Bacon Report, which removed the majority of investors from the market. Investors seeking the kind of prices being obtained by second-hand houses have had to lower their sights and estate agents believe that the prices being sought have fallen back by between 15 and 20 per cent.

Meanwhile, there are signs that investors are re-entering the new apartment market, attracted by low mortgage rates and rent rises. The First Active House Price Index has shown that while the cost of these units levelled off in the middle of 1998, they rose by 13.6 per cent in the final three months of the year due to investor activity.

THE slowing down of prices in the second-hand apartment market is not hard to explain. Prior to the Bacon Report, investors could write off their rental income against interest on borrowings and apartments represented a handsome return. Some investors would have borrowed cash in order to avail of the interest relief.

Experts estimate that investors accounted for about 35 per cent of all purchases of apartments and 50 per cent of new units. Inevitably this was eradicated almost completely in the wake of the Government's attempt to cool down house prices, which removed the financial incentive for investors.

The supply of apartments coming onto the market is also limited as investors hang on to the interest relief which they secured before the axe fell. As a result of these factors, prices have reached a plateau.

An apartment in Beggars Bush, close to Baggot Street in Dublin, was recently put on the market for £185,000, but has since been reduced to £170,000. In a Dublin 6 apartment complex, a two-bedroom unit, which was originally on the market for around £170,000, finally found a buyer at less than £150,000. Meanwhile in Killiney, a two-bedroom apartment that had been priced at £260,000 pre-Bacon has now had its price reduced to around £230,000.

Estate agents stress that this does not indicate any particular fall in prices, but has revealed unrealistic expectations on the part of some apartment owners who have read of house prices rising by 27 per cent last year.

"People's expectations have continued to rise in line with property prices, but they are now finding out that second-hand apartments are not going up in price in this way and are having to settle for pre-Bacon Report prices," says Simon Ensor, of Sherry FitzGerald.

Naturally, second-hand apartments in prime locations are still in vogue. Addresses such as The Sweepstakes in Ballsbridge will continue to achieve the expensive price tags being pinned on them.

SOME older apartments are also holding their own, including Merrion Village and Ardoyne House, which overlooks Herbert Park. This was one of the city's first apartment schemes. Two-bedroom units here still fetch around £250,000, while penthouses cost between £400,000 and £500,000.

However, the prices of some more mature apartments, even in Dublin 4 and 6, are slowing and some sellers are withdrawing them from the market after failing to achieve their target price.

According to Mr Ensor, the Government must re-introduce incentives for investors to prevent rents spiralling beyond control.

"If you pay £200,000 and it is generating £800 a month in rent, then if you are handing over 46 per cent to the taxman, it is a pretty lousy return on your investment," he says.

"There are a lot of apartments which were never going to be in the range of first time-buyers anyway. But the biggest problem is that the Bacon Report has stopped investors coming in to the buy which means there is less becoming available and it is pushing up rents noticeably.

"A lot of people can't afford to buy and can't afford to rent either, which is putting huge pressure on housing lists - a situation which is totally unacceptable for the Government."

Everything seems to be going against the tenant. Rising rents are causing investors to hold on to their apartments and rents are expected to increase by a further 15 per cent this year. Older apartments are more spacious than modern units, offering around 1,000 sq ft, and are in particular demand.

"Some of the traditional apartments have three or four people in an apartment. The rents have shot up, but people are happy to pay it," says Brid O'Sullivan of Christies Property Services.

"You don't see a lot of second-hand apartments coming on the market and we have investors constantly looking for them."