No let-up in slowdown

mastermind2005

It has been a long time coming, but the slowdown in the Irish property market is likely to continue into 2008.

For years, economic commentators have been confidently predicting the imminent end of the house price boom.

But while it may have taken longer than expected to come to pass, there is no doubt that 2007 will be remembered as the year when the Irish property party well and truly ended.

Last week, the Permanent TSB/ ESRI house price index reported that house prices had fallen by 4.7 per cent in the 12 months to the end of October 2007.The reality is that, in Dublin at least, the situation is far worse, with many estate agents conceding that prices have fallen back by as much as 20 per cent in some areas.

‘‘In a lot of locations, prices have gone back to the levels we were seeing at the end of 2005,” said Wade Wise, managing director of Savills Hamilton Osborne King. ‘‘The gains we saw during the first half of 2006 have been wiped out.”

For vendors, this has been a sobering year and one in which they have had to seriously adjust their expectations when it comes to the value of their homes. Many of them have had to drop their asking prices significantly in order to achieve a sale, but in a number of cases even that hasn’t been enough to counter negative buyer sentiment.

Rising interest rates, the credit crunch and fears about the future performance of the economy have all contributed to buyers getting a serious dose of the jitters, and getting deals signed off has proved challenging to say the least.

‘‘There are a lot of people out there who want to buy, but obviously they are nervous about whether prices are going to fall further,’’ Wise said.

The root of many of these difficulties can be traced back to the first half of 2006, when the secondhand market in the capital was showing dizzying rates of capital appreciation.

Many areas saw price increases of between 15 and 20 per cent, a fact which worried many industry observers who believed that buyers simply weren’t taking into account how the interest rate rises that would come later that year were likely to affect them.

The result was a rush of property onto the market in autumn 2006,withmany vendors convinced they could secure a bonus price. Even though many of these homes languished on the market well into 2007, it took some time for sellers to accept the fact that they were operating in a changed market.

‘‘The first six months of this year was a period of massive adjustment and I think a lot of people - vendors and agents alike - didn’t appreciate just how much the market had changed,” Wise said. ‘‘It was a steep learning curve and I think it has taken a while for the reality of the situation to filter through to all sections of the market.”

Unsurprisingly, the auction market was one of the main casualties of the slump, with the number of properties being sold in this manner falling sharply and the success rate for the ones that did go under hammer plummeting.

According to figures from Sherry FitzGerald Research, just 410 properties went to auction in the capital this year compared to 1,389 last year. Of that 410, just 68 were sold on the day of auction, a success rate of 24 per cent. The corresponding figure last year was 48 per cent.

The top seller in the auction rooms was 81WellingtonRoad in Ballsbridge, which made €10.5 million at a Lisney sale in November having had an advised minimum value of €6.75 million.

Next was Glenheather in Blackrock, which was sold by Sherry FitzGerald in March for €9.4 million, followed by 61 Park Avenue in Sandymount, which made over €7.8 million after auction through Sherry FitzGerald.

It was a busy year on Ailesbury Road, with four houses changing hands, although none was sold at auction. Among them was number 18, the former home of Albert and Kathleen Reynolds, which made around €14 million through Sherry FitzGerald.

The same agency achieved a similar price for 21 Ailesbury Road and also secured around €7.75 million for number 33. Derek Quinlan added to his property portfolio by acquiring 43 Ailesbury Road for around €8.5 million; the house next door, number 41, is currently on the market through Lisney for the same price.

Sherry FitzGerald and Savills Hamilton Osborne King are predicting a flat market next year, but others are not so optimistic.

Jim Power, chief economist with Friends First, expects prices to fall by between 5 and 10 per cent during 2008, but feels that vendors whose properties are currently stuck on the market may have to drop their prices by as much as 10 or 15 per cent to get a sale.

‘‘In a sense, it’s difficult to get a real handle on what’s happening with house prices, because there is so little selling,” he said. ‘‘I’ve been travelling around the country a fair bit recently and my perception is that the market has just died - I would think that only about 10 per cent of the stock that is on the market is actually selling. Confidence has been shattered and the market has effectively ground to a halt.”

Power does not believe that a cut in interest rates next will year will stimulate activity.

‘‘The rate cut will prompted by negative economic sentiment, so while it’s helpful, it’s not positive,” he said. ‘‘We will be in a typical deflationary environment next year: first-time buyers in particular will hold back in the expectation that prices will fall further, and that will become self-fulfilling as vendors have to drop their prices.”

However, he is more optimistic about 2009. ‘‘The building industry has responded very quickly to the changes in the market, so housing supply will fall back dramatically next year,” he said.

‘‘There is still strong demand for housing, as the current state of the rental market indicates, so eventually more and more tenants will make the move into buying their own home.

‘‘We are going through a transition from an extremely hot property market to a much more normal one and that was always going to be painful, but I think there are still reasons to be optimistic in the medium term.”

Wade is less pessimistic about the prospects for next year. ‘‘The properties which will come onto the market for the first time next spring will be priced right, so that should reduce the time it takes to sell houses,” he said.

‘‘I’m not expecting to see price rises but I think buyers will recognise that there is value out there, and will realise that if they can get a deal done on their own home, then they might be able to aim a little higher than they thought they would be able to.

‘‘At the end of the day, there will always be people who have a genuine need to move.”




http://archives.tcm.ie/businesspost/2007/12/02/story28654.asp

patrickolee

So good, you pasted it twice?