Shares in Ireland’s largest landlord down on new rent controls

Shares in Ireland’s largest landlord Ires Reit fell in trading in Dublin on Tuesday following publication of plans for controls on rents in the private sector.

The new measures, which are considerably more stringent than expected, were outlined in a new strategy from Minister for Housing Simon Coveney.

Among the main proposals included in the plan are moves to designate Dublin and Cork city as “rent pressure zones,” areas in which rent increases would be limited to 4 per cent a year for three years.

Although Cabinet approval for the strategy has been given, the main opposition party Fianna Fail is not expected to support the proposals.

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Goodbody said the measures would limit the ability for a landlord to attain open market rents, essentially locking in under-renting for up to three years.

The stockbroking firm, earlier in the day had said it believed the measures could be “damaging to professional landlords operating in the Irish market, and will provide reduced incentives to growing lettable stock.”

“Of further concern is that the limit appears to also apply to new tenancies, so even if a landlord rents a property to a new tenant the limit will carry over from the previous tenant’s lease. However, the definition of ‘new tenancy’ is unclear in the policy document as to whether it is a new tenancy with the same tenant or to a new tenant,” Goodbody said.

It said landlords would not be able to achieve market rents on their properties until at least 2020. Using Ires Reit as an example, it estimated that under the new proposals, the group would get less than a third of their expected growth for 2017.

Ires Reit, which has a portfolio of some 2,377 apartments in Ireland, making it the largest landlord in the country, was down 2.5 per cent to €1.16 in Dublin after publication of the strategy.

“We reiterate our view that this new policy is negative for residential investors...this is also unlikely to encourage fresh investors into the market. However, the exception for new builds and (substantially) renovated properties is one positive, but is likely to create a two-tier market,” Goodbody said.

Earlier, Philip O'Sullivan, chief economist at Investec, said that as its forecasts for rental inflation at Ires Reit already assume rental inflation below the limits indicated, it saw "no direct negative consequences" for the company arising from this news.

The Ibec-affiliated Property Industry Ireland (PII) which represents some 90 businesses operating across the sector, said the introduction of further rent regulation would create uncertainty for both tenants and landlords, and undermine confidence in the market.

“This will ultimately deter investment in the rental sector, decreasing much needed supply,” said the organisation’s director, Dr David Duffy.

“The lack of support for encouraging new builds in the private rented sector is disappointing. Increasing the supply of new homes is the only sustainable solution to tackling the housing crisis,” he added.