Odds of Dublin property market crash low, according to IMF tool

Dublin property prices rose most across 32 locations between 2013 and 2018

Property price growth has started to slow – at least in Dublin – while asking prices in the €1 million-plus category have begun to fall.  Photograph: Nick Bradshaw

Property price growth has started to slow – at least in Dublin – while asking prices in the €1 million-plus category have begun to fall. Photograph: Nick Bradshaw


Dublin experienced the strongest growth in property prices among 32 countries and cities between 2013 and 2018, new figures from the International Monetary Fund (IMF) show. Despite such rapid growth, the risk of a repeat of Ireland’s boom-bust scenario is seen as unlikely based on the IMF’s tool for predicting the odds of a property crash.

With annual growth of about 10 per cent each year since 2013 through to the second quarter of 2018, Dublin was the out-performer among 32 advanced and emerging market economies and their major cities. This compares with growth of 9 per cent in Auckland, New Zealand; 8.5 per cent in Sydney, Australia; and 8 per cent in Toronto, Canada. Among cities in emerging market economies, Shanghai takes the prize, with an annual increase of almost 9 per cent. The worst performer during the period was Rome in Italy, among the advanced economies, where prices fell by about 2 per cent a year.

Among the emerging countries, prices in Russia fell by the most, down by 6 per cent a year, while prices in Moscow were down by more than 3 per cent a year.

With such a strong pace of growth in the majority of countries, and with prices largely moving in tandem, the IMF raised the question as to whether or not this should raise concern about the potential for “large, co-ordinated declines.”

Risks of crash?

In Ireland, property price growth has finally started to slow – at least in the capital – while asking prices of homes in the €1 million-plus category have even begun to fall.

The IMF identifies five factors associated with greater risk of a housing bust: 1. rapid economic growth (in advanced economies); 2. overvaluation of home prices; 3. credit booms; and 4. tighter financial conditions, which may include 5. higher interest rates.

Considering these, Austin Hughes, chief economist with KBC Bank, downplays the risks to the Irish property market.

First, he notes the larger swings in Irish property prices reflect larger swings in economic activity in Ireland than elsewhere, with muted growth forecast for the years ahead.

“Such circumstances would make it more likely that the rate of property price inflation would ease notably from the experience of recent years,” he says.

Not overvalued

But are Irish house prices overvalued? Mr Hughes points to calculations prepared by the European Central Bank which would suggest not. When considered in contrast to the euro area as a whole, Irish property prices do not seem to be overvalued relative to broader developments in the Irish economy “and may still be marginally undervalued relative to broader developments in the Irish economy”.

On the issue of credit booms, we now have the Central Bank’s macro-prudential mortgage lending limits, which any putative borrower would tell you has significantly capped the amounts banks will lend.

Mr Hughes notes the rules mean “the pace of increase in mortgage drawdowns for house purchase has been on a moderating trend for the past couple of years”.

Finally, on the issue of financial conditions, the generally held view is that European interest rates are not going to rise any time soon. “We would see little early threat from any marked tightening in borrowing costs with markets now questioning whether the next move by the ECB could be a further easing of policy,” Mr Hughes says.