Ireland's smart money follows emigrant trail

Throughout the second half of this century, the Irish have had a strong interest in UK property - particularly in the London market. In the 1950s and 1960s thousands emigrated to work mainly as labourers in the construction of roads and buildings throughout Britain.

There was another wave of somewhat different emigration in the 1970s and 1980s, as more Irish, participating this time at a professional level, were involved as architects, engineers, project managers, site foremen and skilled labourers. Many of these ended up with successful businesses based in the UK and this led to Irish business people putting together their own developments.

The most recent phase of this property story relates to the return in the late 1990s of numerous Irish people to the UK as substantial property investors. Christies, one of the leading Irish agents in the UK market, has handled over £10 million worth of investments for Irish buyers since the beginning of the year.

While the evolution through each phase has been dramatic, the rate of change in the 1990s has been beyond belief. Rapidly escalating property prices in the Republic, together with the historically low cost of funds, has introduced a huge pool of financial resources to potential Irish purchasers.

In looking at the UK and Irish markets, it is probably best to focus on the London and Dublin regions. Property prices in Dublin have increased at an amazing pace throughout the 1990s. At the same time, the London market has been virtually static and prices now are not much different than they were at the peak of the property boom of the 1980s, just before the crash in 1989.

In evaluating how, where and how much to invest you should consider: location and cost of the property; income returns from the property; cost of funds; availability of reliable property management; and the short/medium-term outlook for the economy.

Both Dublin and London are well-respected property locations. Quality properties in the pricey areas of these cities will always provide the best hedge against falling values but they will also have the lowest yields.

Property is generally categorised in three ways: prime, secondary and tertiary, which generally translates into low, medium and high risk.

In general, the more risk, the higher the returns are likely to be but the problems are likely to be more frequent.

If you want little involvement in the day-today management of your investment then you should focus on prime, low-risk investments.

In London, prime areas are the City and West End, and established "towns" inside the M25 such as Chelsea, Fulham, Richmond, Kingston and substantial towns within short driving distance of the M25 such as Guildford, Woking, Maidenhead and Milton Keynes. In Dublin, these would be Dublin 4, Dublin 6 and Carrickmines, Foxrock, Killiney, Castleknock and Malahide.

In London, and its satellite towns, the current state of the market can vary considerably - so it is important that you are informed as some areas may have peaked when others are rapidly improving.

Income returns can vary from 4 per cent to 20 per cent. There is evidence of Irish properties being purchased at yields of 5 per cent and less. Top of the range residential properties in Dublin 4 will again be looking at yields of possibly less than 5 per cent. These returns have fallen in recent years as prices have increased and interest rates have fallen.

The UK situation offers quite a contrast with double-digit yields in May and little movement in property prices. Interest rates, which have fallen gradually, historically are higher than in the rest of Europe and this is the big attraction of London for Irish investors, as our economies are closely linked and should converge with regard to interest rates and investment returns.

High UK interest rates over the last decade have discouraged people from borrowing to invest in property. Historically low interest rates in Ireland have been a major factor in record property prices and higher lending in the property sector.

Owning a property is not as simple as purchasing shares or leaving money in a bank. There will always be matters to be dealt with, such as maintenance and rent collection, and these can become a problem if they are not dealt with by experienced property managers.

If the agents or developers selling you the property are involved in the management, then it is likely they'll be more careful in dealing with you on the sale of the property.

The performance of the Irish and UK economies contrasts sharply over the last decade. Ireland has achieved extraordinary growth, while the UK has sat back digesting the property and economic recession of the late 1980s and early 1990s.

However, a decade of tight financial control since the UK recession has meant that most of the factors required for a return to growth are now present in the UK. With the fundamentals in order and scope for interest rate cuts, this suggests a positive outlook for UK property for a number of years.

By contrast, the biggest question on everybody's lips in Ireland is: "How long can it last?" Much of the smart money is heading for the UK, which certainly provides an attractive alternative.

Frank Gormley is chairman of Howard Holdings plc, which is involved in property developments in the UK and Ireland.