For the first time in years many of the apartments and houses on the market are self-financing for investors, writes JACK FAGAN
LONG TERM investors in the residential sector often see a slowdown as a time to expand their portfolios. It’s all about timing, knowing when the market has bottomed out, and then moving swiftly to buy the heavily discounted apartments and redbricks in the right locations.
There is little evidence so far that the collapse in prices has been halted and that buyers are returning to the fold in significant numbers. This is unlikely to happen as long as the odd price index is suggesting that values could fall even further.
Such predictions might well turn out to be accurate but, with a surprisingly high number of apartments and houses now selling at up to 50 per cent below the original asking price, one can only wonder if there is much scope for further falls. The huge readjustment in values already seen means that for the first time in years many of the apartments and houses on the market can prove self-financing for investors.
With interest rates virtually on the floor and likely to fall again in March, rents are already outstripping mortgage payments, particularly at the lower end of the market. For couples anxious to get their first home, it is already cheaper to buy rather than rent, particularly if they avail of AIB’s newly announced 2.49 per cent mortgage rate. That is probably the lowest rate ever made available in this country.
In spite of all the uncertainty about the residential market, the main Dublin agents are quietly shifting starter units to young couples and more expensive homes to families who have been waiting for years to trade up. A closer look at the trade suggests that some of the buyers are getting particularly good value.
Douglas Newman Good, who sold a one-bed apartment in City West just before Christmas for €210,000, got €165,000 last week for an identical unit in the same scheme. Sentiment had clearly worsened early in the new year.
Keith Lowe of the agency admits that the latest purchasers got “incredible value” and would be able to borrow 92 per cent of the purchase price on a 30-year mortgage. Their repayments would work out at €550 per month with mortgage interest relief. Had they opted to rent instead, the cost would have been €900 per month – or an extra €4,200 in a full year.
The same agency is currently seeking €255,000 for a two-bed apartment in Dublin’s Georges Quay where it would attract a monthly rental of around €1,200. With the mortgage rates so low, the investment is quite capable of washing its own face. An investor borrowing 80 per cent of the value over 25 years at a variable rate of 4.45 per cent could expect to repay €1,126 per month.
The same apartment could prove even more appealing to a young couple availing of first-time mortgage interest relief.
And there are other examples, like a three-bed house at Mount Symon Avenue in Clonsilla which has just been sold by Sherry FitzGerald for €355,000. With the now customary 80 per cent loan, repayments to cover interest and capital over 25 years work out at €1,499 per month. The house has been let at €1,500 a month.
During the height of the boom, a great many investors buying rental properties had to meet a shortfall in the rent to cover the mortgages and service charges. They were often happy to do so as long as capital values were growing so fast. That has all changed and it is doubtful if we will see capital growth for at least a decade.
But, with interest rates at their lowest ever and city centre rental properties still in good demand (and likely to remain so in line with the uncertainties in the employment market), buy-to-let investors will inevitably be back as long as prices keep falling and their bank continues to play ball.
