Tuesday, April 29, 2008

Transparency of residential property prices

Following the National Consumer Agency's decision to involve itself in the disagreement between the Irish Times and certain estate agents, Geroge Hook yesterday had a discussion on his radio show with Pat Stephenson, director of Norths Property and Alan Ahern, economist from NUI Galway.

Ahern was quick to blame the industry for trying to 'talk-up' the property market. He added that the shortfall of the Irish property market is that the consumer must turn to the untrustworthy industry for any statistical information

Pat Stephenson advised that many agents, such as Norths, strictly abide by the privacy understood within private treaty sales and don't disclose any figures whatsoever. He also said that the level of inaccurate information was not an industry problem, but rather a problem of regulation, which he hoped the forthcoming auctioneers bill might go some way towards solving.

This morning, Ann Fitzgerald of the National Consumer Agency (NCA) was on Morning Ireland's business news. She argued that the reporting of inaccurate information on the prices paid for houses was illegal and created a "false market", against the interests of the consumer. She suggested that future breaches would see the NCA initiate legal proceedings under consumer protection legislation against the individual agency misreporting. She said it was critical that there be "a clear and transparent market".

Is there a necessary change underway in the Irish property market?

Have your say! Vote in our poll to the right! Should we have full transparency in the residential property industry?


Buyer's expectations


Can the decision to buy be justified when it’s obvious that prices are going to get lower?

Despite the economic slowdown, I’m still confidant that in ten year’s time any price paid for a property now will seem like a really good one. This means that the two main questions I ask myself remain the same: ‘Would I like to live here? Can I repay the mortgage?’

However with no sign of a let up in the slump and commentators now all but writing off 2008 completely, a third question has been added: ‘How much less could I get this house for at Christmas?’ Following the initial drop in prices, many agents reported a spike in viewings. From a personal point of view, this was because years of spiralling prices meant that going sale agreed anywhere under the asking price was a victory for the buyer - we were eager to capitalise on the perceived value in the market.

As it’s become clear that the property slump is no 3-month dip, our interest has waned. The low house prices of today are now being compared to the lower prices of tomorrow as opposed to the high prices of yesterday. Like many other house-hunters, I’m very relieved that bids I placed on houses 6 months ago were rejected and am anxious to avoid making a similar mistake.

A quick search through property chat forums reveals that common opinion estimates prices to fall by a further 10% this year. While this is mostly based on hearsay, the logic behind it that as prices fell by 10% last year, they’ll do the same this year before levelling out in 2009.

So, the first time buyer is expecting the €380,000 average Dublin home to cost €342,000 at year-end, and consequently that would be the sum we’re willing to part with now. This is, of course, assuming that prices pick up in 2009. However, recent events have begun to suggest otherwise.

Just as the issue of oversupply was working to correct itself, the last two weeks chaos in the mortgage markets have moved everything two steps back by placing a stranglehold on demand.

Put simply, the recall of 100% mortgages means that many prospective buyers are out of the running until they figure out how to come up with a +30K deposit. The tightening of some offers from 90% to 85% means that another group of people also have to find more capital before they can buy.

So we’re now only left with the first-time-buyers who have a deposit secured. As demand drops, so too surely must prices?

In the new homes market, over-exposed developers will acquiesce to the demand for lower prices. However, in the second hand market, vendors who had just become realistic about today’s prices will surely not be happy about facing a further 10% cut. All this makes business even tougher for the estate agent. My first comment at most viewings is ‘they know they’re not going to get close to this asking, don’t they?’ Unfortunately, I think many of them still don’t.

Friday, April 25, 2008

Sweeten the deal

Aside from simply cutting prices, how can developers convince nervous buyers to take the plunge on a new home? Initially it was thought that furniture packages and the tantalising possibility of a big raffle prize could cover up the drop in market value. Now, as buyers’ confidence continues to ebb, developers have begun to offer various insurances against the pitfalls of the market and in one case, even a money-back-if-not-satisfied deal.

Offering sweeteners has been commonplace in the property market for some time. An example at the height of the boom in 2006 was when developer Paddy Gilboy decided to offer a free €21,000 two-berth cruiser as a raffle prize to those who purchased a home in his riverside development in the Upper Shannon. While a raffle ticket doesn’t seem like much reward for a home costing between €285,000 and €385,000, there were only 6 units launched in the phase. So, a quick sales run was considered worth a little under €4,000 per unit.

When the slump hit, the offers got bigger, better and more frequent. Lifestyle packages including high quality kitchens, bathrooms and landscaping became the standard for many new developments. Menolly Homes introduced their “Golden Hello” package which offered purchasers at The Coast in Baldoyle fittings worth between €8,500 and €22,000 depending on the value of their purchase. A Sligo developer went further and held a raffle for a free apartment for anyone who bought one of 12 tax-designated units - priced at €175,000. Buyers at Kings Court in Castlepollard, Co Westmeath were offered the choice of a Fiat Punto or furniture packages worth €15,000 and LM Developments are currently offering a free Volvo C30 with every house purchased at their Alderwood development at Hollystown in Dublin 15. Barrack Homes chose to offer a financial incentive as opposed to material goods. In late 2007 they launched their ‘Fixed Plan’ scheme which would subsidise purchasers’ mortgage repayments for three years on its developments in Newbridge, Kilcock and Ballitore.

Eclipsing all these offers, the deep pockets of DAMAC properties found a private jet and a private island in the Caribbean Sea to raffle to Irish investors who purchased an apartment during the Dubai Shopping Festival earlier this year. The company also offered a free car with each property ranging from a BMW 1 series for a one-bed costing €110,000, up to a Bentley Continental Flying Spur that came with luxury penthouses. Though the properties concerned were not in Ireland, the furniture and Fiat Puntos offered by Irish developers suddenly looked far less appealing.

Aware that buyers see these offers for what they are – a smokescreen to disguise a property’s drop in value - some builders have changed tack. Instead of offering freebies, they are now coming up with novel ways of giving buyers security against the market.

Woodgreen Builders will now guarantee buyers two years rent on their existing homes when they purchase a €395,000 home in Bettystown. Woodgreen say this will give sell-to-buyers the chance to ‘buy while house prices are at their lowest level in years and rent out your existing home at rock solid guaranteed rent for two whole years giving the property market time to recover before you sell your existing house at a potentially far more advantageous time’. Additionally, Woodgreen is offering to arrange the finance for the new home, the letting of the existing home and pay the bill for tax advice.

The most dramatic offer of them all was revealed in the Irish Independent today. The paper reported that Walsh Maguire is offering a “cash back guarantee” to buyers of its new 5-bedroom homes in West Dublin. If you’re not satisfied after 18 months, the developer will buy the home back for the original purchase price. The developer said that the scheme is intended to allay worries about negative equity on the homes which have already been reduced from €695,000 to €595,000. What’s next? Buy one get one free?

Quotes of the Week 25/04

I feel a bit like Brian Cowen. I get into the top job just when it looks like the party is over.’ – Edward Carey, President, IAVI.

The current price correction is welcome and brings prices back to end 2005 levels, which are sustainable. Now, we find ourselves in a more demanding market, which others may fear, but in which I see opportunities. There is activity in the market and properties will continue to sell where people perceive value. Although prices may have decreased, demand is good, rents are stable and people are still looking to set up homes all over the country.” - Edward Carey, President, IAVI.

"All the data suggests the economy has slowed down very sharply. The banks are assuming it will be spring 2009 before demand bounces back" - Scott Rankin, analyst, Davy Stockbrokers.

"You might not want to shout about it, but the odds are long on there being any meaningful recovery this year” – unnamed senior banker, Irish Times.

They're not threatening an immediate rate [ECB] hike, but the hawks are framing the debate now” - Nick Kounis, Economist, Fortis Bank.

"There is a substantial adjustment to be made. There is a disconnect between what banks are paying for their money and what the customers are paying for their loans. It is finally coming home to roost. The whole market has been topsy-turvy since last August." - Mark Duffy, Chief Executive, Bank of Scotland (Ireland).

"It had been very much a cat-and- mouse situation. All lenders want to be the first to be seen to be cutting rates, but nobody wants to be the first to raise," – Emer Lang, Analyst, Davy Stockbrokers.

"All our competitors will react. Why? Because they won't make money out of mortgages. If this continues, it will be very bad news for everyone in the circle." - Mark Duffy, Chief Executive, Bank of Scotland (Ireland).

We now have a strong distribution channel through which we can sell our mortgage product range. We have already announced that we intend to grow this network, which will provide further capability to increase our mortgage market share” – Ulster Bank commenting on the withdrawal of its mortgages from the broker market.

"It will remain an interesting exercise if the lender can increase market share and maintain profit margins operating solely via the branch network." - Frank Conway, Director of Brokers, Irish Mortgage Corporation.

"Here, the workload on a mortgage has not diminished but expanded because the credit crisis means more cases involve a degree of negotiations with lenders. So the deal is more complex, and if the commission has been cut by the lender then there is no alternative but to charge the appropriate fee." - Diarmuid Kelly, Chief Executive, PIBA.

With financial institutions either abolishing or slashing fees to brokers it's hard to be confident that they will direct consumers to products or institutions where they receive less or no income … There is now a potential conflict of interest and a concern that ways and means will be found by some brokers around this to maintain their income. This is especially so in a much slower market.” - James Doorley, Chairman, Consumers Association.

"How would you feel if you come into work one day and you were told that your income was to be cut in half?" – Jack Fitzpatrick, Chairman, Professional Insurance Brokers Association.

The builder [Walsh Maguire] says it will guarantee to buy back homes for a period of five years from the date of purchase at the original price after 18 months has lapsed if the buyer gets itchy feet after purchasing one of 16 new five-bedroom homes at its development in West Dublin.” – Irish Independent, 25/04/08.

Woodgreen Builders is guaranteeing buyers two years rent on their existing homes when they purchase a four-bed house for €395,000. Woodgreen is promising to manage everything from arranging the finance for your new home in Roseville to managing the letting of your existing home. He will even foot the bills for tax advice.” – Irish Times, 24/04/08.

Brian Cowen, should be asked to examine the possibility of replacing stamp duty with a more sustainable and equitable form of property tax” – The Sunday Business post reporting on recommendations made by the National Economic and Social Council.

110,000 sq m of new Dublin office space was completed in the first quarter of 2008. This means that we built more offices in the first three months of 2008 than in the whole of 2006. Looking at the projects currently under construction, this building boom seems set to continue for another 15 months. The market will take time to digest the amount of new product coming on-stream and this could see the quantity of available space begin to creep up later in the year”. – Paul Hipwell, Divisional Director, Lisney.

New office developments that have not yet broken ground could potentially be put on hold given the current market environment. More rigorous assessment of new office schemes is a welcome outcome of the current funding crisis as this will ultimately prevent oversupply and sustain rental values, even if occupier demand starts to ease” - Marie Hunt, Director of Research, CB Richard Ellis.

It would appear that office occupiers are becoming even more focussed on city centre properties as economic prospects decline” - James Mulhall, Director of Office Agency, CB Richard Ellis.

The plan identifies eight ‘‘high intensity clusters’’, in which high-rise buildings may be permitted. The areas are the Dublin Docklands, Dublin Port, the south bank of the Liffey near Poolbeg, the Tara Street area, the areas around Connolly and Heuston Stations, the Digital Hub, and Grangegorman” – The Sunday Business Post reporting on a new policy permitting high-rise development in Dublin.

Monday, April 21, 2008

"Call our agency!"



This development in Carrickmacross, Co Monaghan - Lough na Glack - is clearly after a Dublin market, advertising on the back of the 16 bus here, and emphasising that is only 45 minutes from Dublin airport (it doesn't say at what time of day that is). But what's most interesting about the marketing is the down-playing of the agent: no mention on the bus poster, and only the slightest indication on the website at the foot of the page that it is Property Partners Gartlan that you are calling when you enquire - no logo. Has the agency been too prominent in the marketing of new homes developments in Ireland over the past decade or so? Will the tighter market bring about a shift back to the developer in that respect?

Friday, April 18, 2008

Chapped lips?

Drop in to Savills reception area on Molesworth Street and pick up on of these ...



It won't act as a balm to your property worries, but as a marketing gimmick, I quite like it. It's better than crummy calendars; and it's more "out there" than say key chains and pens. What's next, a tube of branded aspirin or antacids? Or would that imply too much that there were serious problems in the property market?

Friday, April 11, 2008

Quotes of the week 11/04



"So the Daft survey simply shows that now vendors are not as daft as they were last year." Donal Buckley, Irish Independent journalist.

"The Taoiseach is providing a shelter for people who are buying. This pertains to the major developers and big high-rolling development land purchases are what is being protected. To tell members (of the Dail) this practice has been around for some time makes it worse. This is a gift to people who are making big money on the exchange of development land and who have made massive profits on it." Eamon Gilmore, TD, Leader of the Labour Party.

"You can't be worrying about construction employment on Tuesday and then on Wednesday try to trigger something that will affect the construction industry." Taoiseach Bertie Aherne, TD, President of Fianna Fail.

Furthermore, at that point, the interest cycle had not yet peaked. It was widely tipped, expected and accepted that the ECB would yet again raise rates that September - and possibly again at Christmas. If this scenario had played out, we would now be dealing with interest rates of 4.5 per cent. This would have severely impacted any recovery or resilience in the different residential market segments. We would have potentially seen increased rates of foreclosures, something that is plaguing the US residential markets, as well as the major banks - which are having to write-off billions of dollars.” Mary-Kate McGarry, economist with Savills Hamilton Osborne King in Dublin

"While supply continues to retrench, there are signs that housing demand might finally be stabilising. House prices are bottoming out some 15 per cent off their peak 2006 levels and a more normal level of activity will return to the market in the second half of the year." Dr Ronnie O’Toole, chief economist with National Irish Bank

According to the Daft.ie data, the stock of homes for sale on the website has begun to stabilise over the past few months. However, closer analysis reveals that stock levels in Q1 were still 51% ahead of last year’s levels. The stabilisation has been mainly due to the fact that the number of homes being put on the market has fallen quite significantly, by 48% year-on-year in Q1 in fact. This may be due to a number of reasons, including a realisation by the sellers that the market has reached a saturation point or that sellers are unlikely to achieve their desired selling price in the current market. To clear this stock, asking prices may have to be adjusted further downwards, and vendors should not let their emotions get in the way, as recent evidence suggests buyers are willing to move at the right price.” Dermot O'Leary, Chief Economist, Goodbody Stockbrokers

The first signs things were going wrong appeared earlier this year when property funds, which had been the main final buyer in the market, were forced to freeze withdrawals. With the potential of large sales by property funds, rising vacancy rates, a large supply of new properties, and the difficulties of some large lenders in the market in raising funds; there is a real prospect of sharp falls in commercial property prices.” Morgan Kelly is professor of economics at University College Dublin.

‘‘All banks are more cautious about development finance following the sub-prime crisis; the extent of this shift and the way in which it is reflected in lending terms varies widely across markets… One possible consequence of a reduction in the supply of development finance, and therefore new buildings, is that any softening in tenant demand is partially offset by lower supply growth, thereby limiting any rental downside.” CBRE report on a survey of lenders in 19 European countries.

Thursday, April 10, 2008

Throwing the first stone in a glass house

One of the Around the Block market comments in the Irish Times property supplement today discusses a piece of marketing from Owenass for a development in Portlaoise: a 20-page magazine devoted to the Esker Hills development, that the writer reckons is a first in terms of marketing developments in Ireland.

It's the comment that 'The magazine includes "articles" about the residential market' that I find interesting. Articles being put in inverted commas suggests that (of course) they are not the same as "articles" in newspapers such as the Irish Times, that is, articles with a capital A, you might say. Inverted commas used like this are usually about highlighting something unreliable in the use of the word in the context: here, that the articles cannot be taken as "independent".

The example given by Around the Block is that the magazine articles about the market PREDICTABLY suggest that "it's a buyers' market don't ya know". The tone achieved by the 'don't ya know' is the belittling device.

I have one question to put, rhetorically, on this matter: How many "articles" have you read in the Irish Times property supplement that mention negative things about the houses they are describing (and which happen also to be "advertised" in the very same supplement, don't ya know)?

Wednesday, April 9, 2008

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Friday, April 4, 2008

Property Partners website



Relieved to see Property Partners have freshened up their website: the old one was becoming extremely painful to look at. Unfortunately, there's a bit of the "missed opportunity" about this as many aspects of the new site are just the old ones touched up cosmetically. The navigation area is still very unpolished-looking, and the placement of the black-background treatment of the logo on blue is really not very pleasant to behold. (It even includes the web address, when you're already there! Like finding a location map on the door of an office you're visiting!)

The supplier responsible, Strata 3, claim the following on their website:
29-02-2008

Property Partners Goes Live

Strata3 have launched a comprehensive portal for Property Partners. The system designed & developed by Strata3, features residential and commercial property sales & lettings for agents throughout the country. The site in effect links 50 property companies through a single web system.

Yet, really much of that architecture seems to me to be what was there already and all they have done is tweak the graphic overlay. Pity. Maybe it was one of Colliers Jackson-Stops terms for agreeing to a commercial property alliance.

Quotes of the Week 04/04


“The evidence from quarter one shows that the Dublin market is recovering somewhat, a trend which will begin to spread to the rest of the country in the coming months.” – Marian Finnegan, Chief Economist, Sherry FitzGerald Group.

"We expect house prices to decline by about 6 per cent this year and stay approximately flat in 2009." - Jean-Michel Six, economist, Standard & Poors.

“We expect affordability to improve further for first-time buyers this year on the back of slowing house prices and possible decreases in mortgage interest rates – we expect that during 2008, more than likely in the latter half of the year, the ECB will reduce rates albeit it is difficult to predict by how much.” - Dara Deering, Director of Membership Business, EBS Building Society.

The monthly increase in residential mortgages in February was well below last year’s level. The monthly increase of just .712 million was the lowest in five years, and brought the average monthly increase in 2008 to date to .768 million. This is similar to the average monthly increase in 2002.” – Central Bank.

“Relative to other European economies, the Irish retail market continues to perform well regardless of wider economic concerns and occupier demand remains robust. Threats of potential oversupply, while very real, have, in our opinion, been overstated in recent months." – Marie Hunt, Director of Research, CBRE.

“My assessment of the [retail property] market in Ireland from 2008 out to 2010 is that we will see many winners and losers. The so-called ‘‘already established regional schemes’’, or those with expansion potential, are the ones that are likely to continue to perform best and will show ongoing rental growth into the future.” – Stephen Murray, European Retail Director, Jones Lang LaSalle.

“On one hand, rents have been driven up by tighter supply of industrial space in Dublin. This follows from the fact that industrial development has increasingly been displaced by higher end-use value development such as residential, retail and offices in locations close to the city. This process has been facilitated by infrastructural improvements which have made surrounding counties such as Meath, Wicklow and Kildare more attractive locations for logistics occupiers.” - Dr. John McCartney, Head of Research, Lisney.

"Prime industrial rents remain stable at around 130 per square metre and we do not anticipate any significant change in the coming months.” – CBRE

“To cope with our growing population, developers should be required to pay more towards the cost of providing schools, public water and sewage facilities, roads and footpaths and public transport infrastructure” – Mr John Gormley, Minister for the Environment

"The new arrangement gives Property Partners a double-edged advantage with the benefit of CJS's commercial consultancy strength, expertise and access to world markets alongside unrivalled representation through 55 branches of Property Partners across Ireland." - Marcus Magnier, Director, Colliers Jackson-Stops.