Supply Shortage Slows Momentum

After a number of false dawns in 2012 and 2013 the property market improved significantly in 2014, much to the relief of everybody involved in the industry. The number of property transactions improved markedly over previous years, albeit from a low base, and agents found that properties that had been on the market for a number of years were suddenly getting offers. The second half of 2014 was particularly good as investors tried to secure deals before the expiration of the Capital Gains Tax incentive and many first time buyers acquired houses before the imposition of new deposit requirements.

Going forward, in the short to medium term, it is clear now that a lack of supply, which has been a problem in Dublin for a couple of years, is now a significant problem in Waterford city and county.  The ‘run’ on houses in the second half of 2014 has resulted in agents’ overhang of stock from the dark days of 2009 to 2012 being cleared. The lack of new houses coming on the market is due to a number of reasons such as negative equity and the requirement for second time buyers to have a 20% deposit. Also a lack of supply accentuates the supply problem itself because if owners don’t see a house that that want to trade up or down to then they won’t put their own house on the market.

One way to solve the problem is to get builders building again. With many solvent builders in operation, more finance on offer and cheap development land available why are we not seeing housing developments under construction? The simple answer is that it’s just not viable to build at the moment. Whilst prices increased in Waterford last year the rate of price growth in the medium term will probably not be sufficient to get builders building. What is required is a reduction in the cost of building. It’s estimated that almost 45% of the cost of a new home goes in taxes. These taxes include VAT on the sale price of 13.5%, development contributions to the local authority and the cost of Part 5 (Social and Affordable Housing). In addition, the new building regulations that came into force last year are estimated to add up to €18,000 to the cost of building a house. All these costs are ultimately passed on to the buyer, the consequence of which is that the price that a builder would have to set for a new house is unaffordable.

When the Government talk about strategies at solving the housing shortage, the reality is they don’t have to look too far to find the solution.

Barry Herterich BA MIPAV REV

Central Bank announces new regulations on residential mortgage lending

The Central Bank of Ireland today (27 January) announced the introduction of new regulations which will apply proportionate limits to mortgage lending by regulated financial services providers in the Irish market. The key objective of these regulations is to increase the resilience of the banking and household sectors to the property market and to reduce the risk of bank credit and house price spirals from developing in the future. It is expected that the regulation will be introduced under legislation in the coming weeks.

The measures introduce proportionate limits for loan to value and loan to income measurements for both primary dwelling houses and buy to let mortgages. The limits are supplementary to individual banks' credit policies and are not designed as a substitute for lenders’ responsibilities to assess affordability and lend prudently on a case-by-case basis.

Loan to Value (LTV) for principal dwelling houses (PDH)

There are different limits for different categories of buyers: 

·         PDH mortgages for non-first time buyers are subject to a limit of 80 per cent LTV.

·         For first time buyers of properties valued up to €220,000, a maximum LTV of 90 per cent will apply. For first time buyers of properties over €220,000 a 90 per cent limit will apply on the first €220,000 value of a property and an 80 per cent limit will apply on any excess value over this amount. 

·         The cumulative monetary value of loans for principal dwelling purposes which breach either of these limits should not exceed 15 per cent of the euro value of all PDH loans on an annual basis.

Housing loans for borrowers in negative equity who wish to obtain a mortgage for a new property are not within the scope of the LTV limits.

Loan to Value (LTV) for Buy to Let mortgages (BTLs)

·         BTL mortgages are subject to a limit of 70 per cent LTV.

·         This limit can only be exceeded by no more than 10 per cent of the euro value of all housing loans for non PDH purposes during an annual period.

Loan to Income (LTI) for PDH mortgages

·         PDH mortgage loans are subject to a limit of 3.5 times loan to gross income.

·         This limit should not be exceeded by more than 20 per cent of the euro value of all housing loans for PDH purposes during an annual period.

Switcher mortgages and housing loans for the restructuring of mortgages in arrears or pre-arrears are not in the scope of the Regulations.

Sale of Development Site at Custom House Quay and High Street, Waterford.

Property Partners Barry Herterich are pleased to announce the sale of the former An Post Sorting Office at Custom House Quay and an adjoining building on High Street, Waterford. The property was sold by public auction in conjunction with Munster Property Auctions at the Rochestown Park Hotel on the 3^rd December.

The sale of this property is another boost to this area of Waterford city and the quays  which has seen the rejuvenation of several major buildings in the last few years.  The site area measures c. 0.37 acres and comprises two adjoining properties which link Custom House Quay and High Street. 

Located in a pivotal location with frontage and direct access onto The Quays along with access to High Street at the rear, the area in general is the focal point for a number of shopping and tourist attractions including the Waterford Crystal Showrooms, the Bishop’s Palace, Reginald’s Tower, the Medieval Museum and the renovated Theater Royal.  This is also the principal retail location with Arundle Square shopping centre located to the rear of the property.

Economic growth to boost property market

Recent economic data showing that Ireland’s economy is now expanding seven times faster than the European average and at a pace not seen since 2007 should ensure the continued recovery of the property market over the next number of years. With Ireland’s growth forecast upgraded from 2.1% only last April to 4.5%, an increase in employment, reducing emigration and higher disposable incomes should ensure increased demand by young workers to get a foot on the property ladder.

As first time buyers enter the market in increasing numbers and with no new homes being built locally, owners who bought their starter homes ten or fifteen years ago will have a greater opportunity to trade up as they find there is more demand for their homes. Eventually, the demand at the lower end of the market feeds to the higher end. In Tramore, only seven houses sold in 2013 over €250,000. I would expect the figure to be twice that by then end of 2014.

The improvement in the market is evidenced in the Property Price Register where the number of houses sold in the first eight months of 2014 is up 25% on the corresponding eight month period in 2013. In addition, the total euro value of sales in this period increased by 22%. This is partly due to the fall in the proportion of sales made up of holiday homes.

What is happening locally can often be at odds with the evidence produced in national house price reports. For example, figures released by Daft.ie last month showed a fall in the asking price of houses of 3.7% in Waterford city over the last twelve months and a fall of 1.5% in Waterford County. Our experience in Tramore on the other hand is that asking prices and prices achieved have increased, albeit marginally, over the last year. The housing market is full of micro markets and all that really matters is what is happening in your area.

Barry Herterich BA MIPAV REV

Tramore Property Market, Prices begin to grow again

After over 6 years of declining prices , the Tramore property market is finally growing again.

Barry Herterich, Tramore auctioneer, told the Munster Express last week the prices were growing in low digit numbers in the past few months in comparison to a year before.

One of the best performing segments is that of holiday property, where prices have risen 5-10 per cent and are selling at between 50 and 60,000 euro for two bedroom apartments.

A shortage of stock for sale is an issue.  Buyers tend to be  from the couinties along Dublin Waterford  motorway, such as Kilkenny, Carlow and Kildare as well as Dublin.

There had been many properties sold in Pebble Beach in recent years and a supply shortage has forced prices up.

Some emigrants are also buying property and are cash buyers.  These properties are then rented out with the parents managing the property, until son or daughter returns when the job market improves back home.   This is their first step on the property ladder and are doing it now that the market is beginning to turn in a positive fashion.

First time buyers are also  active in Tramore with 4 and 5 bedroom semi-detached homes the most popular, these are selling at 150-175,000 euro in the Ring Road area.  Sample estates that are doing well are Ballycarnane Woods, Clarinwood, Meadowbrook and Moonvoy Valley.

Three bed semis are at 135-145,000 euro .

These properties tend to people in steady jobs, like the public sector and get full mortgage approval, Barry notes however that in some cases, a full drawdown may not be done, as buyers are still very careful when taking on debt.

The market at house prices over 250,000 euro is seen as slow, with a few trading up from smaller properties but there are not too many.

The other active sector is what Barry describes as doer uppers in the lower price levels

Tramore does not have too many in the under 100,000 euro segment in like Waterford city, where there is large quantity of terrace property in the city centre.

But small town houses in the 80-120,000 euro range are in demand and some buyers are spending money doing them up.  These are properties in the older parts of Tramore.

On the commercial side there have been a number of significant deals agreed in the last year but due to the fact that these are predominantly bank sales the sales have yet to close.

There are two pubs currently on the market namely the St. Leger at a price of 160,000 euro and the Powers pub on Queen St., Tramore, popularly known as Marthas.  This was a very popular haunt during Race week, but sadly Martha died over a  year ago.

An offer  has  been made on the Grand Hotel but there is no official announcement yet  from Purcell Properties regarding this sale.

Property market recovery continues

Hardly a week goes by now without there being a report on the RTE news or a headline in one of the national newspapers about soaring house prices in Dublin and the emergence of a new property bubble. The lack of construction of family homes since the crash coupled with the emergence of a highly paid IT sector, many of whom are in their late 20’s and early 30’s,  has created a situation where it’s common for as many as 50 people to view a house on the first day. Already young couples on excellent salaries are being priced out of the market. This is not how a properly functioning property market should operate.

 

Fortunately what is happening in Dublin is not occurring in the rest of the country. In Waterford there are very few new houses being constructed. This is due to a number of factors not least the excellent value available to buyers in the second hand market but also due to factors such finance for developers, high development contributions, VAT and social and affordable requirements. 

 

However despite the absence of new houses we are getting back to a more normal property market. Where houses are priced accurately there are numerous viewers, a number of offers and in most cases deals are being done. Sales are happening faster which is better for the owners and buyers feel their getting in at the right time. A lot of buyers feel there is a lack of choice in the second hand market but it appears that this will be a problem for a number of years to come. Buyers however are not experiencing the frustrating & often upsetting scenario that is playing out in Dublin.

 

With ECB interest rates approaching zero we could see a situation by the end of 2014 where banks will charge to hold money on deposit. This will encourage more people with savings to invest in property. With mortgage lending now rapidly improving and a general confidence that the property market has bottomed out the conditions are in place where hopefully we will see property prices in the Waterford area beginning to increase, but at a moderate rate.

 

Barry Herterich BA MIPAV REV

Property market revival haunted by nightmare of negative equity

Are rising house prices a good or a bad thing? Well that depends on a range of factors, such as whether you're buying or selling, are in negative equity or in the enviable position of having only a small mortgage or being mortgage free altogether.

Given the havoc our national obsession with home ownership has wreaked on all our lives over the past decade, it's hardly surprising that the return of rising house prices has received something of a guarded welcome from those surveyed for the Sunday Independent/Millward Brown poll.

When asked if they welcomed the recent increases in the price of houses, 46 per cent of respondents said they did, while 13 per cent said their support for rising prices was conditional.
Some 34 per cent of respondents, meanwhile, were clear that the recent resumption of house price rises has been an unwelcome development; while seven per cent of those polled said they didn't know if rising house prices were welcome or not.
Significantly, the age of those polled would appear to inform their opinion in relation to the resurgence of the property market.
Indeed, of the 46 per cent who welcomed the recent rise in prices, support was higher among those aged between 45 and 54, at 52 per cent; while 51 per cent of those aged 55 and above favoured the price rise trend.
Given their respective age groups, one could reasonably surmise that a large proportion of these respondents bought their homes before the country was caught up in a property buying frenzy.
Any increase in property prices, therefore, would translate into an increase on the equity these respondents would have in their homes.
For those respondents in their mid-40s who may have bought their homes in the early stages of the bubble, the recent rise in house prices may have been sufficient to lift them out or alleviate the burden of negative equity.
But while those who've paid their mortgages off or at least paid them down substantially are happy to see the value of their homes on the way up again, others who might be thinking about taking that first step on to the so-called property ladder are understandably less than thrilled that prices are rising.
Some 41 per cent of respondents aged between 18 to 24 and 39 per cent of those aged between 25 and 34 don't welcome the return to house price growth, according to the findings of today's poll.
But where public opinion might be divided on the subject of rising house prices, those with a professional interest in the property market are clear that it's a welcome indicator of the country's economic recovery.

Asked by the Sunday Independent if he welcomed rising house prices, Bank of Ireland (BoI) CEO Richie Boucher said: "I think what we're seeing is confidence coming back into the market and that's a reflection of confidence in the economy. We see employment numbers increasing and that's going to be reflected in house prices, some of which are coming off very depressed values anyway."
Asked if he agreed with Finance Minister Michael Noonan's recent assertion that there was no need for concern as house prices were still a long way from the peak they had hit during the boom, the BoI chief added: "I think house prices are a reflection of the economy as a whole, and they're a reflection of affordability factors and the funding and liquidity that's available. It's hard to predict or say what's the right price for property. Affordability is the main thing."
Clearly mindful that interest rates are at historic lows, Mr Boucher made it clear that the BoI would be careful to assess the capacity of mortgage customers to withstand future rate increases.
"Interest rates are likely to stay low for a period of time. When we assess a mortgage, we assume there could be rises in interest rates. It's [the level of mortgage] an income multiple," he said.
Responding to recent criticism of his bank's effort to attract new mortgage customers by offering to pay their stamp duty, Mr Boucher said: "It doesn't impact on the loan assessment. The key [when giving mortgages] is affordability. We look at something [like stamp duty] which is an expensive item and we see [paying] it as something that can attract customers.
"It's a commercial proposition. We're not in the broker market so we don't pay broker fees, which can be up to one per cent as well."
But while Mr Boucher and his BoI colleagues may be keen to give out new mortgages, the ongoing fallout of Ireland's property crash would appear to be hampering the normal functioning of the housing market.
"You have a huge amount of people living in family homes who can't sell because of their negative equity," Robert Hoban, director of auctions at Allsop Space told the Sunday Independent.
"Normally, in a functioning market you would have thousands of properties coming to the market which would be sold in the normal course of life – when you trade up, when you move jobs, when you get married, when you move out of your family home – all of these things would usually involve a house coming to the market, but they're all trapped.
"So the normal flow of properties is not coming to the market," he said.
For this situation to change, Mr Hoban believes that house prices will either need to rise to meet the value of home-owners mortgages, or some mechanism which allows people to sell their homes and carry their negative equity with them will need to be introduced.
Asked what kind of properties were in demand, he said: "There's a huge demand for family homes. Generally that's a house, but it could also be a town house or a large duplex, so when anything like that comes up we'll get multiple bidders and they generally go for a strong price."
According to Hoban there are very few family-friendly homes on the market, particularly in Dublin and other urban areas. Despite the lack of appropriate family homes, Hoban says he has noticed an increase in the confidence of Irish property buyers as well as a larger number of private sellers who use the auction room to sell their homes 'transparently' and without any of the 'smoke and mirrors' that can often be involved in private sales.
"In our auction rooms, the domestic buyer has strengthened," Hoban explained. "In 2011 and 2012 we were selling 20 per cent of properties to overseas buyers and they were a mixture of Irish abroad and foreign investors."
"Interestingly, the number of overseas bidders has increased since, but the number of successful overseas bidders has decreased," he added. "At our last auction in February, 94pc of the properties were bought by people in Ireland.
"So even though there is talk of overseas funds coming in and buying up half of Ireland, that's not necessarily the case in the auction room."
Michael Grehan , the managing director of Sherry FitzGerald Residential in Dublin, says he has noticed an increase in people buying investment properties – something which he believes is down to the sharp increase in rents.
"Property is back on people's investment agenda again," he told the Sunday Independent.
According to Grehan the number of prospective buyers, who are actively looking for properties to purchase in the current Irish market has increased by approximately 40 per cent. However, the supply has not increased accordingly.
Sherry Fitzgerald has also noticed a small increase in the number of people buying second homes and in those who are choosing to move out of rental accommodation and on to the property ladder.
"There has been a lot of talk about apartments being unsellable over the last five to seven years but apartments are very saleable at the moment, for both investors and downsizers," Grehan added.
Carol Tallon, the author of the Irish Property Buyers Handbook, believes that first-time-buyers and those eager to move are creating another 'mini property bubble' in many urban areas around Ireland.
"There is very little new stock coming to market, especially in Dublin, so the chronic shortage is very real and buyers are having to fight in some areas over family homes that are coming up," she said.
Tallon believes that while first-time buyers might be in a better position than those who bought property during the boom, they could be in danger of making the same mistakes if they buy out of desperation.
"The average age group has gone from mid-20s back to people buying for the first time in their mid- to late-30s now," she said.
"Now many first-time buyers are in a much better position with maybe up to 30 per cent deposits, which would have been unheard of during the boom. But first-time-buyers at the minute are paying more for properties than investors and if the recovery slows down at all, the people who bought in the last year could be in danger of negative equity still."
Tallon advises that first-time buyers looking for property in urban areas wait two years until more houses become available.

Sunday Independent