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Archive for May 12th, 2011

Tomorrow sees the launch of a much needed house price index by the Central Statistics Office (CSO). It is particularly welcome since the other leading actual price indicator, the Permanent TSB/ESRI quarterly index has not been published since 18th January, 2011 and its delay in publishing the quarter one index is particularly curious – the index has come in for some criticism on here because PTSB now has a very small share of the Irish mortgage market and the index excludes cash transactions. The index launched by the CSO tomorrow will also exclude cash transactions but at least it will be based on the eight main mortgage lenders in the State (Allied Irish Banks, Bank of Ireland, ICS Building Society – part of the Bank of Ireland group, the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society). The CSO says that it will also provide an indication of the total value of all property transactions (cash plus mortgage), presumably sourced from the Revenue (the tax authorities that collect stamp duty on property transactions and who keep records also of exempt property transactions). There will be an update here tomorrow when the actual index is unveiled. The index was announced on 28th April, 2011 and there is some background information here.

Going forward, the index may become the most cited index because it will be monthly, will be issued shortly after the reporting period, will cover most mortgage transactions and by providing information on the full market (cash + mortgage transactions) we should get a better sense of how prices are changing. Given that we have had an almighty boom and bust, price discovery is needed now more than ever.

What the index will not provide will be prices – we WON’T find out what the average price of a house or apartment is; we’ll just see how prices have changed since 2005 so the index might start at 100.0 in 2005 and might be 70.0 today. The index will help us understand how prices have moved.

Whilst tomorrow’s new index is to be welcomed, it is no substitute for the House Price Register – the latest on which is that the Property Services (Regulation) Bill which will give legislative effect to the Register was restored by the Oireachtas on 25th March 2011 but appears not to have been debated or worked on since.

UPDATE: 13th May, 2011. The new index has been launched by the CSO. The press release is here and the index itself is here. You can create your own reporting using the CSO’s Database Direct facility here.

So, the key results:

What was unexpected? The decline of 39.5% from peak and the very high proportion of mortgage transactions in the market overall – 94% in 2009 meaning only 6% were for cash only – though it should be stressed the latest figures are 17 months old.

What does this mean for NAMA? NAMA has said that its experience of valuing the loans it had acquired was that residential prices had dropped by an average of 50% in November, 2009. The significance of November, 2009 is that this is the date by reference to which NAMA valued the property underpinning the loans it acquired. So even if it was acquiring a loan in August 2010 for example, it was still valuing the loan by reference to November 2009. It is not clear how statistically sound NAMA’s statement is, and it should also be remembered that it is in NAMA’s interest for declines to have bottomed out. This morning’s indices from the CSO indicate that prices nationally have fallen 15.9% from November, 2009. The estimate on here is that 67% of NAMA’s property is in Ireland and that 20% of this property is residential so when combined with the falls in commercial property in Ireland and property in the UK, this morning’s index would seem to indicate that NAMA needs to see a 12.9% blended average rebound in prices just to break even by reference to the prices paid for the loans.

How does the CSO’s index compare with other sources (figures shown in brackets are the latest available decline from peak, DAFT.ie and Myhome.ie peak and current figures are asking, the others are actual, the NAMA figure is apparently at 30th November 2009 and the Allsop/Space figure is my personal assessment and my apologies for including the Department of the Environment Heritage and Local Government because its statistics are unsound):

(1) PTSB/ESRI – National (38.9%),Dublin (44.9%), Non-Dublin (34.9%)

(2) DoEHLG – New (30.5%), Secondhand (28%)

(3) DAFT.ie  – National (43.3%)

(4) Myhome.ie – National (37.3%)Dublin (43.5%)

(5) Sherry Fitzgerald –Dublin (55.8%), Non-Dublin (51.1%)

(6) NAMA – National (50%)

(7) Allsop/Space auction – National (60%)

(8) Standard and Poor’s – National (33%)

What about the future? Who knows? The economy is apparently growing though at a very modest rate, we have done a lot of work with stabilising the banks and getting our deficit in order, our exports have performed very well in the past year, we’re more competitive and much of the world is growing again. Against that, the market seems to think there is more to be done with the banks and our national debt outlook is challenging. On the property front, there is a lack of credit, oversupply with evidence that supply is now being released to the market, dwindling population, increasing interest rates, a potential repossession crisis. To stick the colours to the mast on here, the view is that there will be a 70% drop from peak (actual prices), that we are down 60% from peak, that prices will decline 17% from prices today so that the total decline is 70% and that we will reach a bottom in 2013. And with a valuer’s hat on, let me tell you that this should be taken with a giant pinch of salt because there are so many factors to consider and there are also the “unknown unknowns” and there is also human nature, a good example of which was the market for property priced at 10 times annual income. Here’s what other sources have said (you should read the comments in the attached spreadsheet to see the source and caveats)

Lastly the next release will be “early June” 2011.

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Two days ago, the property website DAFT.ie produced its quarterly report on asking residential rents and concluded that prices had increased by 0.5% in the first quarter of 2011. This morning, the CSO produced its index on private rents which is based on actual rents. The CSO’s index supports the findings in the DAFT.ie report and shows that private rent increased by 0.6% in April 2011 alone, and is up 1.6%  since the end of last year. To access the CSO’s index you need choose “private rents” from the “detailed sub indices” column at this linked CSO webpage. The CSO uses a panel of property letting and estate agents throughout the country and measures the actual average rents achieved for a range of properties. The CSO index is now updated each month; prior to last November 2010 it had been updated.

Rents are now some 25% off peak (the first quarter of 2008) but the rate of decline has been moderating for over a year now – in 2008 rents fell by 10% and in 2009 by 15% and have been more or less stable since the end of 2009. We are still today at the same rent levels as in 2000, a decade ago.

What is the outlook? Difficult to say. It is arguable that rent assistance provided by the State is acting as a floor to rental prices. Although it is the case that many properties that are advertised for rent will not accept rent-assistance claimants, it is arguable that landlords for these properties still reference their prices to rent assistance provided by the State, which by the standards of other countries, is seen as generous (the latest allowances are available here) Will rent assistance survive the budget cutting as we to deal with our deficit? We currently spend €500m annually on rent assistance. The economy is expected to grow slightly this year (by reference to GDP, the ESRI thinks we’ll have an increase of 2%, the IMF thinks 0.5%, the Central Bank 0.9% and the Department of Finance 0.75%; by reference to GNP the ESRI is most upbeat with a 0.5% projection, others tend to see it being flat) and next year growth is expected to be more robust. We also have landlords facing high costs in interest repayments. Against that we have a population that is not really growing due to emigration, an oversupply of housing with evidence of it being increasing brought to market, a very large number of small-scale landlords, distressed property sales indicating 9% yields and pressure on wages. I would have said the outlook for rental prices over the next 12-24 months was challenging.

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News this morning of another distressed auction, this time being organised entirely by local property companies, Gmac Property Limited of Castletownbere and Mac Estate Agents Bantry Limited (their auction website is here). The auction is scheduled to take place on 24th June, 2011 at 12 midday at The Radisson Hotel, Little Island in Cork. There seems to be 43 properties in the auction and the Irish Independent this morning claims that there will be “nearly €20m” of property on offer. There are no reserve prices available on their website, but there are prices quoted in the format “Price: In the Region of …” All of the properties are apparently in Munster and the auctioneers seem to be touting for additional property to be sold. Discounts of “up to 60%” are said to be on offer though it is not quite clear what the discount is based upon – NAMA, Sherry Fitzgerald and recent auction results suggest prices have dropped by over 50% from peak, DAFT,ie, Myhome.ie, Permanent TSB/ESRI and the Department of the Environment Heritage and Local Government think we’re about 40% off peak and Standard and Poor’s think we’re 33% off peak.

Apparently the auctioneers were impressed by the interest in the Allsop/Space auction in the Shelbourne Hotel in April when 80-odd properties fetched just over €14m in one day. There is a second Allsop/Space auction planned for 7th July, 2011 with 200 lots available though the catalogue will only be available from the start of June.

Last year, we were referring to an auction with 20 lots as “mega”. But with an estimated 33,000 new properties in ghost estates and an overhang of vacant property overall, estimated to be well over 100,000 and with NAMA starting to sell into the Irish market (no specific properties to report yet though a prominent NAMA developer, the Fleming Group, placed over 100 properties for sale on the DAFT.ie property website yesterday), the prediction on here is that these auctions will be regarded as unexceptional in a few months.

Finally, although the Independent calls this auction “distressed”, the properties on offer don’t visually appear to fall into this category in the sense that they appear well-kept and in good condition. Perhaps we need a better term for these large-scale auctions in Ireland’s post-bubble era.

UPDATE: 25th June, 2011. There is a separate entry here which details the fiasco of the auction in Cork which just saw two (possibly just one as there is speculation that one buyer pulled out after the auction) of the 60+ lots sold.

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