What a difference a year makes. Where 2014 saw a slow start followed by a flurry of sales towards year end to avail of the Capital Gains Tax break and the imposition of stricter mortgage lending rules, 2015 started bullish as more mortgages were approved in the early months and before the tightened Central Bank lending requirements fully kicked in.
Prices were thundering ever upward until the second half of the year when sales, particularly in the capital, slowed.
The Central Bank’s crackdown requiring buyers to stump up a 20 per cent deposit and, even more critically, its three-and-a-half times income to loan requirement put brakes on the market overnight.
The move has impacted both the housing supply side as well as the demand side.
Transactions continued to rise but the number of properties available to buy has become a concern. Single-digit price growth reflects a more normalised supply.
Clearly demand has fallen off at the first-time buyer level where, overnight, a potential buyer needed to double their deposit from 10 per cent to 20 per cent (after the first €220,000) and second-time buyers need 20 per cent of the price.
Many young buyers threw their hands in the air at that point and resigned themselves to a long wait.
The limited discretionary measures given to the banks to allow some leeway on mortgages reached their quota in recent months, impacting those seeking mortgage approval in the latter part of the year.
Trader-uppers hoping to sell to first-time buyers and move on from smaller accommodation have felt the impact. The message coming back is that the mid-market has stalled because the buyers for houses priced between ¤400,000 and ¤700,000 simply aren’t there as they can’t sell their own properties.
The sellers in turn still haven’t quite come to terms with a recent mini-boom that seems to have ended before it had even begun. They may still be holding out for growth to return to previous levels.
House prices in Dublin decreased by 0.1 per cent during the third quarter of 2015 marking the first quarterly reduction in residential property prices since the first quarter of 2012.
Similarly, growth in the year to date was just 1.4 per cent, compared to 16.6 per cent in the same period in 2014.
During the 12 months to the end of September 2015, residential property values in Dublin increased by 2.6 per cent.
This has been a bitter pill for would-be vendors to swallow, and there’s a Mexican stand-off taking place in the suburbs as sellers wait for neighbours to blink first and realise the new market value of their property.
This holding scenario is most likely a temporary adjustment as the market returns to more normal trading levels.
“Ultimately we believe the Central Bank regulations are a positive. It has stabilised the market.
“All participants now know where they stand – buyers have a clear understanding of what they can borrow and vendors appreciate their expectations have had to adjust accordingly,” says David Byrne, director with Lisney.
Investors in buy-to-let properties have fallen away completely from the Dublin market owing to stringent letting regulations, punitive property tax and the absence of tax breaks on rental income.
Meanwhile, traditional landlords of multi-unit/bedsit properties have been exiting the market rather than face the cost of an upgrade to meet regulations.
Three quarters of these properties are being bought by owner occupiers converting them back to single-family use. The resultant pressures on affordable rental accommodation are obvious, in Dublin annual rental inflation is running at more than 9 per cent.
According to Marian Finnegan, chief economist with Sherry FitzGerald: "During the year to date, 33 per cent of vendors were selling investment properties, while a further 12 per cent of sales were as a consequence of bank repossessions, arguably many of which would be investment properties. In contrast, only 18 per cent of purchasers were investors, an indication of a significant depletion in available rental properties."
Finnegan estimates the trend will have resulted in a loss of more than 40,000 units from the rental market in the period 2011 to end 2015.
Various analyses of CSO figures and the Property Price Register for the first six months of 2015 show that 45-50 per cent of single property transactions were completed without a mortgage indicating that the cash buyer never really went away. And they are most prevalent at the upper end of the market in the ¤1 million-plus bracket.
John McCartney, director of research at Savills Ireland believes this cohort is set to grow: "Households currently have ¤94 billion on deposit in the Irish banks... more of this will find its way into property. Another source of funding will be intergenerational transfers – economists' speak for the Bank of Mum and Dad. This almost disappeared during the crash but is now back with a bang."
The combination of all these pressures in the Dublin market is driving residential property price increases outside Dublin. Prices increased by 1.6 per cent during the third quarter when Dublin is excluded from the national figure, and the year to date figure outside Dublin is 6.3 per cent. The level of transactions is another key indicator of the health of the market but the picture here is less positive. According to Angela Keegan, managing director of myhome.ie: "Last year we had approximately 43,000 sales, but it now seems likely that it will come in under that figure this year. We would like to see the level of transactions rise to between 70,000 and 80,000 as this would reflect a return to a normal functioning property market. Next year we envisage single digit growth again - as the economy continues to recover."
The requirement for new homes to meet demand at the entry level is apparent and there have been substantial calls throughout 2015 for same. The estimate is that Dublin will need 7,000 new homes annually until 2020, and this year less than half that number have come on stream. Despite Nama’s commitment to supply 20,000 new homes – mainly in Dublin – before it winds up in 2020, there is serious concern among those developers not working with Nama that they will be unable to compete with the State body. Nama is lending to its debtors at a rate of about 5-6 per cent, compared with a cost of borrowing closer to 14-15 per cent that’s the norm for developers outside Nama. As a consequence five leading developers this week filed a complaint to the European Commission that they could not compete on level terms with the State agency.
It's a valid argument, but the costs of building new homes also remain high in part because of the various vested interests' refusal to revise downward their expected profit margins. Surely if second-hand home sellers have to stomach substantial drops in asking price, does it not correspond that new homes players should take a similar hit? Lands with planning permission still command vastly inflated sums, so the Nama-as-builder scenario is the nearest there is to a levelling of the playing field for buyers.
Non-Nama developers obviously take a different view, so again there's a stand-off in the hope that values will rise to the point where they deem it profitable to begin building again. In the interim the consumer suffers.
At the very high end, in country estates and €1 million-plus properties there have been fewer headline multimillion euro results this year, but transactions are up. Many of the super-estates have been sold by the banks, Nama and liquidators at this point and country agents are reporting a shortage of good quality country homes in accessible locations. Demand here and at the higher end in Dublin is largely being driven by the international buyer availing of the favourable dollar and sterling exchange rates and perceived value here compared with similar properties in their own markets. There's a lucrative ex-pat community looking for lavish country holiday homes or luxury city pads with a decent rental yield until they ultimately make a move back here with families.