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Archive for May 25th, 2010

As NAMA has indicated, in some instances it may have no option but to demolish property on which loans are secured and return the land to agricultural use. Today’s Independent provides some encouraging news for agricultural land values which although more than 50% off peak values in 2007 are beginning to stabilise. The Independent reports that agricultural land peaked at an average of €20,000/acre in 2007 but is now worth between €6-10,000/acre. There is also a claim by auctioneers that volumes are picking up.

The story curiously echoes articles four months ago, when the average price of an acre was put at €9,678 per acre and also reported that sales volumes were on the increase.

The cost of clearing a single house has recently been put at between €42-50,000 according to an article in the Independent. Presumably NAMA will have to do everything to sell these properties before incurring substantial losses in demolishing houses and selling the land for agricultural use.

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Can buy, won’t buy

This would appear to be the attitude that most first-time buyers (FTBs) are adopting in the State today. Although the results of the periodic report by EBS and DKM Consultants, reported on in today’s Independent, shows clearly that owning a property has not been this cheap for “a generation”, the number of FTBs has plummeted according to figures on mortgages released by the Irish Banking Federation last week.

According to the EBS/DKM research it takes just 12% of income for a FTB couple to repay their mortgage. There appear to be three reasons for the drop in FTBs, despite the seeming attractiveness of lower repayments:

1. Property prices continue to fall. The EBS/DKM report does not include the cost of a loss in value in a property when determining affordability eg a €200,000 purchase of a property might only cost €2,000 per month to repay but if prices are dropping by 1.6% per month (which on average they were in the quarter ending 31 March 2010 according to Permanent TSB/ESRI) then the cost to the couple rises to €5,200. DKM are predicting further falls and Annette Hughes of DKM is reported as predicting that the average price nationally would come down to less than €140,000 over the next year from €200,000 approximately today – a €5,000 per month loss in value plus a mortgage – Ouch!.

2. Rental prices are still dropping and in the State rental prices and property prices have gotten out of equilibrium whereby it is generally more financially attractive to rent. Take a look at the economist Ronan Lyon’s rent-v-buy calculator here.

3. Credit availability and terms. According to one source reported on by the Independent, FTBs are finding it very difficult to obtain credit and must supply a large deposit. It is also perceived that the short-term trend amongst lenders is to increase standard variable interest rate despite the stability of ECB rates.

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