Will institutional investors cause the next Irish property crash?

Cantillon: Nearly 1,000 residential properties bought by institutional investors in six weeks

Hanover Quay in construction: are many purchases short-term plays with investors waiting until the market returns to 2007 levels before off-loading their vast portfolios?     Photograph: Cyril Byrne

Hanover Quay in construction: are many purchases short-term plays with investors waiting until the market returns to 2007 levels before off-loading their vast portfolios? Photograph: Cyril Byrne

 

In just the last six weeks, 977 residential properties have been acquired by institutional investors, both Irish and foreign. With the sale this week of Hanover Quay to Carysfort Capital for an average price of €800,000 per unit, it’s clear that Irish property remains an attractive opportunity for investors.

But with signals forecasting continual increases in prices on the sales front, are these investors setting up shop for a few years before removing themselves from the market?

The yield for Hanover Quay for the owner is undoubtedly low, at 4 per cent. But it’s not dissimilar to the other sales in the past two months. Irish Life recently bought 262 apartments for a yield of about 4.5 per cent, while Kennedy Wilson’s yield on a Stillorgan purchase fell below 4 per cent.

These aren’t particularly high returns compared to previous Irish yields. And while still attractive compared to London, one has to wonder whether these are all short-term plays with investors waiting until the market returns to 2007 levels before off-loading their vast portfolios.

Institutional capital

If that is the case, it could pose problems in the property market. If we eventually manage to build the number of homes we need to each year and adequately supply the market, indications are that prices will level off.

However, when that happens, if the institutional capital in the market – of which there is a considerable amount – decides to get out, we could see huge estates return to the supply side. The volume of purchases in the last six weeks alone demonstrates why that could be problematic. Oversupply could cause serious damage to prices.

For people in the process of buying a home in the hope that property prices will eventually slow to rise only with inflation, the prospect of oversupply should be daunting.

The institutions have, to date, given no indication that they are here only for the short term. It’s a potentially worrying trend that significant apartment blocks aren’t being offered to the general public. And, if the institutional firms are here for the long term, that likely points to a belief that rents will continue their meteoric rise.

Either way, Ireland’s relationship with property remains uneasy and that doesn’t appear likely to change in the near term.

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