Agency predicts price rise of over 7%
AFTER a year of spectacular growth in the Dublin property market, we are expecting further increases in values in 1997. This growth should be between 7 per cent and 9 per cent - a very healthy figure when one considers a likely inflation rate during the same period of less than 3 per cent.
1996 was an extraordinary year in the market - nowhere else more so than in Dublin. Property market activity is always heightened when the economy is experiencing a buoyant period. The strong growth levels in 1995 fuelled a 12.6 per cent increase in the average second-hand house price during the first six months of 1996 alone. The demand for property slowed slightly during the second half of the year. However, the total growth in prices for the year was 18.6 per cent. The percentage increase in second-hand house prices during the fourth quarter of 1996 was in line with forecasts standing at 3.2 per cent (Sherry FitzGerald Residential Index of secondhand house prices).
The increased interest in the housing market reflects the economic strength of Ireland during the last two years. This strength has filtered through the economy in the form of an increase in income levels and consumer spending, both evident in the strong performance of retail sales. Recent data shows retail sales values are up 9 per cent in the first half of 1996, compared with the same period in 1995. New private car sales were 30 per cent higher in the first eight months of 1996, over the same period in 1995.
The strength in the property market is, therefore, reflective of the general vitality of the economy.
The prices achieved at the upper end of the residential market have caught the headlines regularly during the past 15 months. However, prices have been increasing for all property types. Three-bedroom houses have increased in value by an average 22 per cent, four-bedroom houses are up 23 per cent, while five-bedroom houses have increased by 18 per cent over that period.
Some of the most remarkable price increases have been in apartments. One-bedroom units are up 17 per cent, while two-bedroom apartments have increased in value by 25 per cent in some areas.
The apartment sector is a relatively new market which has grown dramatically in the last two years. Its strength first became apparent early in 1996. At that time, Home Bond statistics showed approximately 1,607 new apartments registered in Dublin in the first four months of the year compared with 1,395 houses - the first time the number of apartments registered was greater than the number of houses.
Older style second-hand apartments are attracting huge interest. Apartments in the designated areas of the inner city are now coming for sale in the second-hand market and appear to be selling well with a profit.
It has taken the Dublin market some time to adjust to the idea of apartment living, something which was accepted long ago in other major cities. However, the recent increase in prices and the number of refurbishments being carried out in older apartments suggests that this is no longer the case.
Time travelling to and from the workplace has continued to influence home buyers - which is why Clontarf, Glasnevin and Drumcondra on the northside and Sandymount, Ranelagh and the South Circular Road area on the southside have performed so well.
The DART line continues to add value to homes and there is already evidence that values are beginning to increase at an above-the-norm rate along the proposed LUAS Line.
It was clear from the outset 1996 was going to be a very busy year in the auction market. In the first quarter of the year, there were 11 per cent more auctions than in the same period in 1995. This pattern was to continue and become even more distinctive as the year progressed.
Sherry FitzGerald estimates the number of Dublin auctions held in 1996 to be up 30 per cent on 1995. In fact, there has been approximately three times as many auctions in 1996 as in 1993 - illustrating how far the market has developed since its slump during the currency crisis.
In contrast, the new homes market suffered a noticeable reduction in supply this year. There were only 73 launches this year to date - in the first quarter alone of 1995 there were 67 launches. This reduction in supply, coupled with a strong demand, has placed pressure on the new homes market.
The result was prices increased dramatically during the year. The Department of the Environment estimates the price of a new house in Dublin increased by approximately 11 per cent during the first six months of this year.
Looking to 1997, the outlook is more promising for all would-be new home buyers. The number of scheduled launches suggests supply is about to increase, therefore, reducing the problem of pent-up demand, which was evident last year.
One of the most discernible features of 1996 was the number of first-time buyers in the market. The competitively low mortgage interest rates, so much in evidence throughout the year, encouraged many young people to buy their first home.
The Department of the Environment statistics for the number of new home first-time buyers' grants approved showed an approximate 10 per cent increase in the first six months of 1996, compared with the same period in 1995.
Such buyers have fuelled demand at both the smaller end of the second-hand market (apartments and two or three-bedroom houses), as well as the new homes market.
The question now is can 1997 be as good as 1996? Will this year be another memorable one for the Irish residential property market? To answer this, one must look to the factors which fuelled last year's strength.
First, the economy. The strength of the economy, which was evident in the last two years, is likely to be sustained in 19 Current predictions suggest Gross National Product should increase by in excess of per cent next year.
A second precondition to the continued strength of the market lies in the competitiveness of mortgage-interest rates. Interest rates are likely to undergo an unstable period in the lead up to Economic and Monetary Union (EMU). However, the long-term perspective, as recently outlined by the ESRI, is that EMU membership will be favourable for Ireland. Interest rates are forecast to be lower if Ireland joins EMU than if it remains outside. Therefore, while interest rates can be expected to show some increase in the months ahead, they should remain low by historic standards.
One of the most interesting features of last year was a very obvious increase in the popularity of some suburban locations. Such areas have developed considerably in recent years, as a direct result of the problem of accessibility to the city, and in the process have become almost self-sufficient. The interest in these areas also has been enhanced by the spiralling prices in locations closer to the city. This trend is set to continue as the infrastructure improves in these developing suburbs.
The areas to watch out for in the next few years will be those outlying suburbs of the city. The lack of residential building land close to the city centre is further encouraging the movement into what would previously have been considered peripheral locations such as Bray, Lucan and Blanchardstown.
The extension of the DART line to Greystones, which Iarnrod Eireann anticipates will happen in 1999, will have a positive impact on property values in that area. Bray has developed considerably in recent years and now has a population in excess of 25,000 people - approximately twice as many as in 1971.
In the western suburbs, the Quarryvale and Blanchardstown shopping centres are an obvious direct response to the growing demand for houses in these areas.
The opening of the Northern Cross route is likely to affect property prices in the areas it serves. This motorway will link up national radial routes via the M50 motorway, and make the city a lot more accessible, in particular from a north-westerly direction. This should result in residential areas such as Swords and Santry enjoying a more prosperous period in the future.
The areas north and south along the DART line should continue to out-perform the average in terms of residential property values, while Ranelagh, Rathmines and Rathgar, by virtue of their relative ease of access to the city centre, are bound to keep their place among the areas of highest price increases.