Buy now - you'll be better off in the long run

TalkingProperty Current market problems are a temporary setback and this makes it an opportune time to buy, says Mark FitzGerald

The Dublin house market has changed. That cannot be denied. The reason for this is that in early 2006 Dublin house prices, as distinct from national house prices, rose so quickly it was breathtaking.

This price movement was due to a second-hand house shortage in the Dublin market as a significant number of individuals, quarter after quarter, held on to their existing house after they bought.

In April/May 2006 with rising interest rates this trend came to a stop. This group of people - coupled with the more traditional investor - decided that it was time to realise very substantial gains.

Over the summer months of 2006, this did have a dramatic impact on second-hand house stock levels in Dublin. At the end of October last, 11 Sherry FitzGerald branches in Dublin had 670 second-hand houses for sale. On the same day in the previous year the same branches had a stock of 273 houses. Result: more choice; less decisions from purchasers, and more queries in school yards than at viewings!

For the first time in a decade buyers now have a choice in Dublin. However, this may not last long, particularly for the family housing market.

The reason for this is that there is an underlying land shortage in Dublin, unless we build on the likes of the Phoenix Park, which is not something I would advocate.

Demographic projections suggest that, by 2021, there is likely to be an additional 250,000 people living in the greater Dublin area and this population will be older and this should mean more demand for housing.

Moreover, for more mature housing, there is the "Jack Yeats factor" as fine art dealer John De Vere White once described the Victorian Dublin housing market to me. In a nutshell, John's point was that Yeats died in 1957 and won't be painting any more paintings - likewise nearly all the pre-war Dublin house-builders have also passed away. His perspective was that these men all share one thing in common: they left behind a limited amount of what they produced. The likelihood, therefore, in John's view (which I concur with) is that demand in the long term will always outstrip supply in such markets.

Obviously, there are some "property pundits" in the media who might not agree. We do need to remind ourselves however, that punditry is about predicting the future which nobody has a divine insight into.

I remember in September 2004 being wryly amused at an article in Private Eye where they were poking fun at media pundits who prophesise on the property market, as if they had divine insight.

The article led off with the following introduction: "There was an instant crisis today in the UK housing market after warnings that house prices may go up, go down or stay the same in the next three months . . . with a negative, a positive or no effect on the housing market."

Indeed, property punditry is nothing new and in May 1996 An Irishman's Diary predicted that "finally, 10 years after London had its catastrophic housing boom Dublin looks like going the same way. It is appalling news, appalling and will inevitably end in tears."

I am sure there are many Dublin property buyers of the last decade that are glad that they didn't follow that particular piece of punditry.

My own view, and one could possibly describe it as punditry, is that in the Dublin region, inherited money coupled with repatriated money from property investments abroad over five, 10, 15 years will in significant measure end up back in the housing market because of the fundamentals of supply (limited) and demand (plus 250,000 extra people).

As to what impact this might have on prices, I would say it is definitely more likely to be positive than negative. As to the present market, most consumers are probably coming to terms with the fact that the global binge of cheap money may be over.

However, they haven't yet made the connection that rising rents and falling prices have made house purchase more attractive, not less attractive, as an investment.

It won't be long however, in my view, before people will make this connection and activity in line with the strength of our economy will return to the market. I would see current market problems as simply a temporary setback and I would actually think it is an opportune time to buy, simply because I cannot see that Dublin house prices in the medium to long term are going to drop. I believe this to be as true today in 2007, as it was when I wrote this description of the Dublin market in the July 1989 edition of Accountancy Ireland!

Mark FitzGerald is chief executive officer of the Sherry FitzGerald Group