As 2012 draws to a close, this is a review of 2012 Irish property pricing, both residential and commercial, selling prices and rents. There will be a separate blogpost with some gazing into the crystal ball to the year ahead.
First up, this is a summary of the predictions on here a year ago, mid-year and the final outturn. Remember, the annual figures examine the latest property indices, for residential these are Nov 2011-Nov 2012 but commercial indices are published quarterly so these are Sep 2011-Sep 2012, this isn’t cheating, this is basis of the predictions clearly set out in the two previous blogposts.
Residential selling prices
Well, well, well, the 1.1% national rise in residential property prices in November 2011 was unexpected on here, and the publication of the last CSO index for 2012 last Friday has certainly given a fillip to the market. The Independent has declared that “the world’s joint worst ever property crash has finally ended” – the share price for IN&M, the group that publishes the Indo and Sindo closed at 2.9c on Friday valuing the entire group at €15m after a loss of €177m for H1,2012 and a massive debt that needs be resolved in the next quarter, so the Indo probably knows as much about the property business as it does about the media business, but it is still surely just a happy coincidence that rising property prices might give a desperately-needed shot in the arm of property advertising.
But stepping back, and examining the CSO’s index for the past 12 months does seem to indicate a change in the residential property market with prices increasing in four of the past five months, and prices overall down just 5.7% in the past 12 months. Yes, estate agents will tell you there was a stampede by first time buyers to complete by the end of 2012 to qualify for valuable tax reliefs which come to an end on Tuesday next, and the property tax relief in 2013-2016 is paltry by comparison, no-one is going to stampede over saving €157 in 2013 on a €150-200,000 home. There was certainly a major boost to first time buyer lending as revealed in mortgage statistics .
The Property Price Register which was launched on 30th September 2012 and you would rationally have thought in a buyers’ market, the Register would force prices to decline to the lowest comparable level or even below. Having said that however, if the Register was only available from the start of October 2012, then there is likely to be a time-lag in the work-out of the effect of the Register.
Allsop Space had another terrific year and clearly leads the Irish property auction field by a country mile and until the Register was introduced, these mega auctions were practically the main way of seeing what the national cash market for mostly distressed property looked like.
NAMA has had little effect on the residential market in 2012 despite all the fears beforehand. The Agency has overseen the disposal of about 1,000 of its 13,000 Irish homes and seems generally satisfied that the homes are located in rentable locations and doesn’t seem to be in any rush to sell. The 80:20 deferred mortgage initiative which now applies to 295 homes has apparently been a success but that seems to be more a function of marketing and profile than the mortgage product itself with few buyers apparently taking the new mortgage product.
Interest rates have not been much of a factor in the housing market this year with the ECB maintaining rates at record low of 0.75% with little imminent prospect of major change. Banks however have been lifting variable rates and that shouldn’t be a surprise as they rebuild their once devastated balance sheets – before our generous recapitalization, that is.
Vacancy levels in Ireland remain at about 14% which is about twice international standards and twice the actual level of vacancy in Northern Ireland, but there is wide variation in vacancy levels and indeed in some parts of the country, we may be at levels which would normally prompt new construction.
As with property, residential rents have had a year of two halves, with the first half experiencing mild declines but the second showing signs of robust growth. In January 2012, Joan Burton’s Department of Social Protection slashed rent assistance levels by a simple average of 13% but some rates were really slashed by 29%. This seemed to have an effect in the first half of the year with the CSO reporting monthly declines of up to 0.9% but then from the second half of the year, there has been growth every month with November 2012 rents up 0.6% on a month-on-month basis.
In Ireland, the rent versus value of a home and yields went out the window during the boom years. Who cares about achieving a 7% annual yield when the underlying property is appreciating by a stonking 10-20%. So it is no surprise that in the property collapse that rents have had less of a decline than selling prices. In fact 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 6.1% increase (mostly recorded in February and October 2011 and February and September/October/November 2012).
The results of the Census 2011 showed that there has been a massive increase in renters, with privately renting households increasing by 120% from 145,317 in 2006 to 320,319 in 2011. The ESRI recently opined that this build-up in renters will eventually unwind, though the ESRI failed to consider the growth in the trend of renters. However for the time being, it certainly means that the demand for rented accommodation is elevated, particularly in the better urban and suburban locations.
Commercial selling prices
Estate agents or at least the select few selling major commercial property are a happier bunch at the moment, with 2012 seeing up to €750m of investment transactions, compared to a low of less than €200m in 2011 though we are still off the €3bn record in 2006. There is limited liquidity and buyers in the market, but yields are still all over the place and there have been transactions at close to 15% yields this year.
But 2012 should have been a bumper year and many thought prices would recover. Not so on here where it was predicted there would be a 0-5% decline and in the event, prices have declined 5.2%. Despite the give-away Budget announced in December 2011, where stamp duty was reduced from 6% to 2%, where reform of Upward Only Rent Reviews was abandoned, where capital gains incentives were put in place, despite all this, prices still fell 5.2%. If you assume the long term “normal” vacancy level for commercial property is 5% – and that is disputed in some quarters where it is suggested it should be closer to 15% – then current vacancy levels remain an extreme drag on prices.
But 2012 has seen a rebound in transactions in all sectors, particularly offices and hotels, though it seems on here that industrial continues to lag behind.
Reflecting the shaky domestic economy and the overhang of vacant property, commercial rents generally continued to decline but at a lower rate than previously. Landlords have some degree of certainty that the Government will not tinker with Upward Only Rent Review clauses, so there is no incentive to negotiate with tenants unless the landlord believes the tenant’s business is jeopardized and that there will be voids in the event of any collapse in the tenant’s business. NAMA has said that it has approved €6m of rent reductions in 2013 but remember that these rent reductions, or “abatements” , are temporary and provided on a year-to-year basis and as the economy improves, NAMA will be less likely to give its approval.