Housebuilders, homeowners and estate agents are facing a difficult autumn as conditions in the property market get tough. Orna Mulcahy, Property Editor, reports.
Remember the time when all anyone could talk about was the price of property? When people could boast that their home earned more than they did in a year? When it seemed that every taxi driver in town owned a couple of villas in Spain and an apartment in Budapest? When housebuilders jacked up their prices overnight, depending on the length of the queues forming outside their sales office? When banks urged parents to mortgage their homes again to help their children get on the property ladder?
It all seems a long time ago. After a decade of phenomenal growth - which saw house prices rise by more than 250 per cent and Irish investors become major players in the global property market - Ireland's property boom is well and truly over. Rising interest rates and a corresponding cooling in house prices mean that property owners are being hit by a double whammy: their home is costing them more, and its value is dropping.
With a glut of unsold property on the market, it's clear that househunters have stopped hunting, convinced that further price cuts are on the way. Even those who are planning to buy can't be sure that their existing home will sell, while banks have virtually abolished bridging finance. Crucially, first-time buyers are holding back from the market, spooked by headlines about falling house prices and rising debt, and confused by mixed messages from banks and property pundits. Estate agents stress that it's a great time to buy, but they would, wouldn't they, while parents, who are likely to be helping with the purchase, and who have seen a downturn or two in their day, are saying "Wait".
Housebuilders, who for over a decade were building at a furious pace to keep up with demand, now find themselves with empty showhomes, and a trickle of sales at weekends. Several have opted to finish the phase they are building and close the site until the market picks up. Meanwhile, to avoid cutting prices, they are offering expensive extras such as upgraded kitchens and full furniture fit-outs to young buyers, while investors prepared to bulk-buy apartments are being offered considerable discounts and rental packages. "Everyone is doing deals at the moment," says one new homes agent. "Buyers can make demands and builders will try to meet them."
Yesterday, one Dublin mortgage broker urged buyers to offer "30 per cent below the asking price and see what happens". Richard Eberle of REA Mortgage Choice says: "Buyers are sick and tired of playing the game by the sellers' rules, and should now take matters into their own hands." With first-time buyers stalling, sellers farther up the chain are stuck in a holding pattern. The average sale time for a property on myhome.ie is currently more than 180 days, almost double the time it took to complete a sale at the height of the cycle in spring 2006.
MEANWHILE, BANKS ARE tightening up on lending, against a backdrop of growing fears in the international lending market. The woes of the US sub-prime mortgage market haven't quite reached our door - in fact in the short term it's helped, by delaying the expected rise in interest rates - but it's clear the era of cheap money and loose credit terms is at an end. Until recently there has been a seemingly unlimited supply of cheap money pouring into the property market. The historically low interest rates of recent years made it easy to buy rather than save. Why put your money in the bank where it would earn virtually zero interest when you could invest in bricks and mortar and watch it grow like Topsy? The property market obliged with double-digit growth every year from 1995. The whole nation seemed intent on buying property, whether it was Section 23 incentive housing schemes that delivered both attractive tax breaks and hefty capital appreciation, or simply trading up and holding on to one's starter home as an investment.
Heavy losses on the stock market and in pension funds in 2002 added yet more fuel to the property market. Suddenly, people wanted property to be their pension, as well as security for their children.
With equity in property growing at a rapid rate, the average home became a wealth centre capable of funding an investment property or a home abroad as well as home improvements. Empty-nesters selling the family home could bank on a tax-free sum, often enough to fund their retirement and help their children to buy property of their own.
The bonanza in sales is still there for homeowners prepared to take what auctioneers call "a realistic view". That means dropping prices. According to a recent Permanent TSB/ESRI survey, average house prices have declined by 3 per cent since the beginning of the year. However, in parts of Dublin the decline is much steeper, with homeowners cutting their asking price by as much as 20 per cent in order to achieve a deal.
"Vendors find it hard to accept that the value of their house has dropped by 20 per cent, but a few years ago they didn't have any problem with the fact that their houses were going by up 10 per cent a year," says one estate agent in the Clontarf area. "People had got very greedy. They think they can get last year's price for their house but they can't. Prices are back to 2005 levels."
With every man in the street a property player, and every second one a developer, the property game had to come to an end. The market changed last autumn with Michael McDowell's untimely intervention on stamp duty. From then on it was downhill for the market, though the stamp duty issue was merely masking the far more serious affordability problem as interest rates moved up.
No one can tell for how long or by how much property prices will fall. What is certain is that homeowners and investors who have over-borrowed could be facing a difficult year. Meanwhile, seasoned investors are trawling the market and making offers way below asking prices, in the hope of snapping up a bargain where the owner is desperate to sell. Sellers who are under pressure - for example, those with two properties on their hands, having bought first and failed to sell - will have to cave in on price.
Despite the gloom, there are good reasons to buy in Ireland. The economy is still growing and unemployment is low. Construction has slowed down dramatically and once the oversupply in the new homes sector has worked itself out, agents say there could be a shortage, leading to a lift in prices. Rents are at a record high, so investors will see a better return.
IT MAY BE a bad time for sellers, but it's good for buyers seeking a long-term investment in the Dublin market, particularly in the redbrick streets close to the city centre. Traditionally, property was a long-term investment, not a get-rich-quick game, with buyers aiming to build up substantial equity over a lifetime.
Those buyers are still there. A Behaviour and Attitudes survey carried out in August found that 10 per cent of adults will be active in the property market over the next two years. The banks are signalling that they don't expect any dramatic rises in interest rates - AIB is currently offering a three-year, fixed-rate mortgage at 4.9 per cent. And there is still the hope of a cut in the punitive 9 per cent stamp duty which is now a major disincentive for investors. Brian Cowen will be under pressure yet again to do something in the budget to get the market moving.