Is the recovery in the Irish residential rental market at an end as rents fall nearly 1% in one month?

This morning Ireland’s Central Statistics Office (CSO) has released its inflation figures for April 2012. The monthly headline Consumer Price Index (CPI) was flat compared to March 2012, and up 1.9% year-on-year (slightly down from 2%+ annualized rates that have pertained since January 2011). Housing has stopped being the biggest driver of annual inflation, mostly because mortgage costs have been declining – by 3.9% in the past year as ECB rate cuts and greater scrutiny of variable interest rates take effect. Just a few months ago, mortgage interest was rising by 20% per annum, and as mortgage interest costs account for 6% of the basket which measures inflation, the impact on inflation was substantial.

Energy costs in homes, which account for 5% of the total basket examined by the CSO, have risen by 9% in the past 12 months, the same annual increase as pertained in March. This should be a cause for concern.

 

Elsewhere private rents fell by 0.9% in the month of April 2012 – the first monthly decline in 2012 – and over the past year, such rents are up by 2.4% according to the CSO – there is some small rounding in the figures above which show 2.2%. It seems that in our financial crisis, the big correction in rent took place in 2009 with a 19% maximum decline, compared to a decline of just 1.4% for all of 2010. Since the start of 2011 there has been a 4% increase (mostly recorded in February and October 2011 and February 2012). At the start of January 2012, the Department of Social Protection reduced its rent assistance payments by up to 29% (an average of 13%) and the Department says that some 40% of the rented market in the State is affected by rent assistance payments, which at the end of 2011, was paid to 98,603 households.  The Department’s 40% is derived from information provided to it by the Private Residential Tenancies Board. The Department is projecting it will save €55m in 2012 from its €500m budget for rent assistance, the saving comprising €33m to changes to the minimum contribution and €22m in relation to the new maximum limits. The decline in April 2012, when three month notices given in January 2012 would have expired may herald the start of the long awaited impact of the reductions in rent assistance announced in January 2012.

Private rents have tended to fall in line with rent allowance even though many landlords will not accept rent allowance tenants. The betting on here is that private rents will come under pressure in the short term, though you shouldn’t read too much into the results for one month. Property commentators including those in NAMA have pointed to a buoyant rental market as one of the bright spots in an otherwise dismal property market, but that buoyancy may deflate in coming months as the artificial supports of State-aided rent assistance dissipates.

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NAMA’s cut-price country estate with negative equity protection draws attention

Following the launch of the NAMA negative equity mortgage on Tuesday, a boutique estate on castle grounds in county Meath is emerging as the star attraction of the initial offering of 115 homes under the NAMA scheme. With asking prices reportedly down 80% from the peak and “just 35 minutes from Dublin airport and Dublin city centre”, the three-bed terraced and semi-detached homes at Loughmore Square at Killeen Castle are stealing the limelight.

If it was madeleines that rekindled Marcel Proust’s memory of things forgotten, then perhaps the features list for these homes will rekindle not-altogether pleasant memories of the Celtic Tiger boom – granite worktops in the kitchen, marble fireplace, vaulted ceilings on the first floor, solid oak doors with Italian fittings, though more practically the first floor has concrete floors and the bedrooms all have balconies.

So what’s on offer? There are 18 terraced – “townhouses” – and semi-detached three-bedroom houses for €275,000. There’s a showhouse with all furniture and finishings included, offered at €320,000. NAMA’s chairman talked about the prices not being subject to haggling and that they were already “realistic” – we’ll see later this year when the House Price Database comes available if Frank was being truthful.

At the end of the day, the homes are modestly enough sized at 149 sq m (1,600 sq ft) but generously proportioned for what are three bedroom, 2.5 bathroom terraced and semi-detached homes. Is €171 psf for a well-designed terraced home on a castle estate adjacent to a so-called “Jack Nicklaus-signature” golf course value? NAMA says it will refund up to 20% of the purchase price should prices continue to fall. Bank of Ireland may advance you a mortgage at an annual 3.2% and mortgages are also available from Permanent TSB and AIB through its EBS branches. NAMA is only selling to owner occupiers, so you might have some confidence in who your neighbours will be.

Still interested? The brochure is here and the estate agents are Sherry FitzGerald. The estate was developed by Joe O’Reilly’s Castlethorn group, Joe is possibly best known for being the man behind the country’s most valuable shopping centre at Dundrum Town Centre. And remember, although we call these NAMA homes with a NAMA mortgage, it is the developer who is selling the homes under NAMA’s auspices and it is the banks themselves that will need approve any lending.

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