Property Investing - Is it time to jump back in ??? Check the figures !!!

pocketdooz

According to the Central Statistics Office (www.cso.ie) :

The average second-hand house price in Dublin in Quarter 3 of 2006 was €549,330

The average second-hand house price in Dublin in Quarter 1 of 2008 was €430,410 (taking quarter 4, 07 figure and discounting by 7%, the average figure quoted as being 2008's drop so far)

If the inflation rate is 4% then this is a 'real' reduction in house prices of just under 28% in the past two years. (€594,155 to €430,409). This is roughly what Jim Power of Friends First quoted too.

My questions are :

(1) Do we think prices are set to fall by much more . . . and Why ?

(2) Allowing for the fact that sellers are willing to drop prices now by 10/15% in order to sell . . .

Is this a good time to buy if you find a home, in an area you consider a good investment (Ringsend, Grand Canal Dock, East Wall etc.) ?

(3) Assuming ECB rates will rise by another 1/2 or 3/4 point by mid-2009 would it be reasonable to get a mortgage now and lock in a fixed rate ?

I'm looking to see what the general market consensus is out there.

Thanks for your time . . . please be as brutally honest as you can.

gurramok

Read the housing bubble thread for views, why start another thread on the same topic?

Buying a home as an investment, good luck at that.

And to be brutally honest, yes prices will fall alot more.

pocketdooz

gurramok wrote: »

Read the housing bubble thread for views, why start another thread on the same topic?

I thought that thread and kind of drifted of topic recently and I didn't know that everyone was aware of how long ago prices started to drop and the severity of said drop.

Buying a home as an investment, good luck at that.

We all need somewhere to live and in the long-term I think it's a good diversifying asset and a good hedge against inflation. There are tax benefits associated with it and income sources in the way of rent

And to be brutally honest, yes prices will fall alot more.

Thanks for you opinion. How much more do you think ? For how long ? And why do you think this ?

^^^ Regards

SimpleSam06

pocketdooz wrote: »

^^^ Regards

To be honest barring some drastic, drastic upheavals, it will be long decades before Irish property becomes a decent prospect for investment again. After it hits rock bottom, imho around 2011 or 2012, it will grow more or less in line with inflation, perhaps slightly above, and the kind of rental returns you might get then would want to be over 8% to 10% to beat out other forms of investment. You can even get 8% long term savings accounts from the banks right now.

I mean you can point out drastic property drops in two years, but remember two years isn't long at all in the property market, and it was growing just as rapidly for six to eight years before that. Also most fixed rate mortgages are far above the variable rate, or were the last time I checked anyway, much more than 3/4 point.

Property is not a smart place to be, forget property fever, forget becoming a flipper for a fortune, forget glib soundbites about the time to buy is when everyone else is selling, find somewhere else to put your money.

pocketdooz

SimpleSam06 wrote: »

To be honest barring some drastic, drastic upheavals, it will be long decades before Irish property becomes a decent prospect for investment again. After it hits rock bottom, imho around 2011 or 2012, it will grow more or less in line with inflation, perhaps slightly above, and the kind of rental returns you might get then would want to be over 8% to 10% to beat out other forms of investment. You can even get 8% long term savings accounts from the banks right now.

I mean you can point out drastic property drops in two years, but remember two years isn't long at all in the property market, and it was growing just as rapidly for six to eight years before that. Also most fixed rate mortgages are far above the variable rate, or were the last time I checked anyway, much more than 3/4 point.

Property is not a smart place to be, forget property fever, forget becoming a flipper for a fortune, forget glib soundbites about the time to buy is when everyone else is selling, find somewhere else to put your money.

Good answer - thanks for taking the time to write it.

Some quick questions.

1) Now, I'm not being smart, but genuinely wondering - where do you get 2011 / 2012.

Demand / Supply factors? General market sentiment ? etc.

2) Do you not think the 80 - 90 % leverage effects of an inflation - matching asset are not something to take advantage of ?

i.e - €400,000 home increasing at 5% per year = €563,000 after 7 years. Profit = €163,000

Downpayment was 15% = €60, so profit = 270% in 7 years

€60,000 investment in shares - would need to grow at around 16% per annum to equal that return - 3 times the inflation rate (assuming inflation equals 5%)

This does not even take into account the advantages of home-ownership, rental income and the tax advantages of property vs. tax disadvantages of share ownership or DIRT on savings.

With regard to the two year point, I agree, it is not long in the property market but . . .

Average price in Q.4 2004 = €411,439
Average price now is = €430,410

So, we're not far off where we were 4 years ago.

3) On your last point I agree - the days of 'property ladder' and the easy money with anyone buying and selling and making easy money are over. But, I think people over-react always in markets. On the way up we over-reacted and maybe on the way down we will over-react. Those who are prepared can take advantage of these things

Thanks

pocketdooz

micmclo wrote: »

My vote for funniest thread of the day

No offence intended OP

Pointless answer really but trust me, no offence taken.

In my opinion in matters of investment and finance by the time the man on the street and the mainstream media start over-hyping about a certain market direction you can make money by shrewdly examining the other direction and making preparations to buy into it.

jetski

Pointless answer really but trust me, no offence taken.


+1

gurramok

pocketdooz wrote: »

We all need somewhere to live and in the long-term I think it's a good diversifying asset and a good hedge against inflation. There are tax benefits associated with it and income sources in the way of rent
Thanks for you opinion. How much more do you think ? For how long ? And why do you think this ?

I'll try to put in a nutshell on the general picture

Yes we do need somewhere to live. However, that somewhere has a cost whether one is buying or renting as a tenant which has been too high for the vast majority of workers.(67% of the workforce earn below 35.5k, source budget2007.gov.ie)

We have oversupply of housing with fewer buyers who are finding it hard to get a big deposit together as the banks are clawing back the amounts they can borrow due to rising ECB rates and Euribor rates plus you still need two working people in general to afford a gaff.

FTB's who hold up the ladder are fewer in number to hold it up hence we have a lot of people on the 2nd rung who mostly bought recently (<3yrs) trapped with negative equity.
Investors will not invest when prices are falling(it makes sense). Speculators have ran. Both investors and speculators accounted for 40% of buyers in the later bubble rising years.

We have emigration of both Irish and foreigners as the economy which had a dependency on construction related activity of 22%+ GNP in 2006 is reversing in that huge sector.(this includes banking and retailers as well(think furniture stores as an example))
This along with oversupply has freed up alot of rental stock hence the huge rise in rentals available(see daftwatch) which is feeding lower rents. (supply and demand). This is evident in both rural and urban areas.

We have the highest private debt rate in the EU.(off hand it was 150%+ i think) and it has to be paid back. A population can only borrow so much!

Based on other countries which had housing bubbles, this downward spiral would usually last another 3 years but it's going to take longer as Ireland has the highest rise in prices for a bubble ever(270%+)

I'm sure i missed other factors but thats why prices will continue to fall.

SimpleSam06

pocketdooz wrote: »

1) Now, I'm not being smart, but genuinely wondering - where do you get 2011 / 2012.

Demand / Supply factors? General market sentiment ? etc.

Not a bother, these things are not immediately apparent, despite what some posters seem to feel. Take all with a large pinch of IMO, of course. Supply and demand and sentiment had little enough to do with the rapid rise of house prices, although they were without a doubt factors.

The key element is the amount of money the banks could lend, and this is currently being severely retracted due to the credit crunch. My thinking for a wide variety of reasons is that this will ease somewhat by then, after a rough period, or to put it another way, affordability will have more or less stabilised with value.

Again you can't just make sweeping statements about property in general, apartments are going to be hit extremely hard, while desireable areas not so much. Everywhere is being hit though.

pocketdooz wrote: »

2) Do you not think the 80 - 90 % leverage effects of an inflation - matching asset are not something to take advantage of ?

i.e - €400,000 home increasing at 5% per year = €563,000 after 7 years. Profit = €163,000

Downpayment was 15% = €60, so profit = 270% in 7 years

Wow, you're not including payments on the interest portion of the mortgage or the capital itself in this equation, never mind inflation will take a good 3% to 5% slice off your profit margin annually, and the fact that property is not currently increasing, not to mention capital gains tax, carraige and transfer fees as well as selling costs, you should come out after seven years, even at 5% gain in value owing some tens of thousands of euros.

And thats if you can sell at all with the massive overhang in supply which will last a lot longer than seven years.

pocketdooz wrote: »

€60,000 investment in shares - would need to grow at around 16% per annum to equal that return - 3 times the inflation rate (assuming inflation equals 5%)

Why are you factoring in inflation to the shares when you aren't in the property ownership?

pocketdooz wrote: »

With regard to the two year point, I agree, it is not long in the property market but . . .

Average price in Q.4 2004 = €411,439
Average price now is = €430,410

So, we're not far off where we were 4 years ago.

There has been some talk going around of the "rule of twelve", when rental returns are 8% or so, true equilibrium value has been reached.

pocketdooz wrote: »

On the way up we over-reacted and maybe on the way down we will over-react. Those who are prepared can take advantage of these things

Short bank shares so, would be my advice, if I played the market, which I don't.

johnnyskeleton

pocketdooz wrote: »

In my opinion in matters of investment and finance by the time the man on the street and the mainstream media start over-hyping about a certain market direction you can make money by shrewdly examining the other direction and making preparations to buy into it.

I think this is a derivation on some sound advice on high risk investments.

The people who made massive money on IT, property, oil, etc - anything that experienced a massive boom, were investing in it before the media got it's claws into it. Hence the expression buy when everyone else is selling and sell when everyone else is buying (attributed to Rockefeller, JP Morgan or one of those guys).

However, I think a less catchy expression (but better advice) is buy when it's a good investment and no one else has noticed it yet, and sell when taxi drivers start to tell you how much money they made in it.

Buying a depreciating asset never makes sense unless an immediate lack of supply is imminent (not true of the Irish property market) or if the yield is massive and greatly exceeds the depreciation and cost of finance (for this in property you would need to get rents of about €5-10k a month on a dingy one bed apartment, so this is also not true of the Irish market).

If short selling were possible in the Irish property market then there would be a killing to be made, but since that is not possible there are very limited ways to make money from property at the moment, and most of these are to do with investing in repossession and demolition companies.

pocketdooz

Thanks to SimpleSam, Gurramok, JohnnySk for your answers. I understand where you're all coming from.

The main reason I started this thread is that I am currently in the process of buying a house but am having second thoughts. I have agreed the sale and put down a fully refundable €10,000 deposit. Here is the situation - what do people think ? I am half-thinking of backing out and would like some neutral opinions. Thanks

It is a 3 bedroom end-of-terrace house in Ringsend/Grand Canal Dock, right next to the Gasworks, Google building and many other companies (including my own, which is 7 minute walk, door-to-door). The asking price was €400,000 but I got the lady down to €350,000. I then agreed to purchase. ( An identical, mid-terrace house 8 doors away sold for €560,000 in May 2006 :eek: )

I am putting down 10% and have 90% mortgage secured with IIB. So my mortgage is €315,000 and the monthly re-payments are c. €1700. (No stamp duty as I'm a First Time buyer)

I can rent out the other two bedrooms, fully furnished for €150 per week and thus my cost will be €500 per month, taking into account mortgage interest relief so my net will be less than €100 per week. This will save me €80 per week (nearly €4000 per year) on the rent I am currently paying to someone else close by.

So, my yield is 4.5% (from the other 2 rooms) , I get to save €4000 per year on what I am currently paying in rent, it is an up-and-coming area, close to work.

Am I giving myself enough of a cushion from further falls?
Is there no value to having your own place?
Will city centre (the city is moving east toward the Point) housing hold it's value better than elsewhere?

etc.etc.

Thanks for your feedback. Be as brutal as you want.

gurramok

Good god, your too close to where i hang out, talk about small world, reserve me a parking space next time i'm down there
Your either on Barrow st, Gnd Canal st or Sth Lotts rd i think. Probably one of the latter two. Nice area with alot on your doorstep.

Now, you've done all the figures and the following sticks out:
'Is there no value to having your own place?'

How is it your own place when you have to share with at least 2 strangers??!

As you don't want to share with strangers for another 30 years, i hope you've set aside the scenario when you want to live on your own and take on that mortgage by yourself for 1,700 a mth?

Your rent is too high for the rent a room scheme. 150 a week is 1200 a month which equals 14400 a year. Your 4,400 ove rthe threshold and the taxman will chase you with interest accrued.

Anyway, everywhere will plummet in price, some will plummet more than others. As i know the area, i feel the prices will fall the least for the houses around there(not for those horrendous gasworks apts)

SimpleSam06

pocketdooz wrote: »

I can rent out the other two bedrooms, fully furnished for €150 per week

Thats your weak link right there. Most landlords estimate one month of the year empty, and €150 a week to share a room in an owner occupied house seems a bit steep anywhere. Rental rates are dropping as a lot of new rental properties are coming up. Factor in €100 a week and one month empty to be on the safe side. Interest rates will climb, but so will inflation, which should eat into your capital owed, assuming salaries rise to cover it (and thats quite an assumption all things considered).

As far as holding its value goes, you managed to knock 12% off the price with a bit of haggling, that should tell you something.

With that said, if you don't view it as an investment, but rather as a home for you and your future family, I'd say you could do worse.

Supercell

Come back to me in a couple of years.

In a nutshell you are asking is it sensible to try and catch a falling knife?, come on, looks like you did your homework and know the answer already.

If in any doubt go read http://www.thepropertypin.com , this stuff is discussed rather a lot there.

pocketdooz

gurramok wrote: »

Good god, your too close to where i hang out, talk about small world, reserve me a parking space next time i'm down there
Your either on Barrow st, Gnd Canal st or Sth Lotts rd i think. Probably one of the latter two. Nice area with alot on your doorstep.

Now, you've done all the figures and the following sticks out:
'Is there no value to having your own place?'

How is it your own place when you have to share with at least 2 strangers??!

As you don't want to share with strangers for another 30 years, i hope you've set aside the scenario when you want to live on your own and take on that mortgage by yourself for 1,700 a mth?

Your rent is too high for the rent a room scheme. 150 a week is 1200 a month which equals 14400 a year. Your 4,400 ove rthe threshold and the taxman will chase you with interest accrued.

Anyway, everywhere will plummet in price, some will plummet more than others. As i know the area, i feel the prices will fall the least for the houses around there(not for those horrendous gasworks apts)

Yep, you're right, it's on South Dock Place, a small cul-de-sac in the estate between Grand Canal Street and Sth Lotts Road, the old redbrick terraced houses there.

The two I'd be moving in with are friends I grew up with who are still living at home but I get your point. I've not really set aside that scenario as I'm in my mid-twenties and unmarried so I'd imagine I'll be moving on up at some stage.

What do you mean with interest accrued ? Can't I just declare 4400 and pay tax on it ?

I'm playing the devils advocate here but if I talk myself out of this deal and back into renting (any of your neighbours need a roommate !?!?!?:D) I want to make sure I'm right.

Thanks

pocketdooz

Supercell wrote: »

Come back to me in a couple of years.

In a nutshell you are asking is it sensible to try and catch a falling knife?, come on, looks like you did your homework and know the answer already.

If in any doubt go read http://www.thepropertypin.com , this stuff is discussed rather a lot there.

Yep, you're right, I've done my homework and I do know the answer - but hard to face up to it ye know ???

pocketdooz

SimpleSam06 wrote: »

Thats your weak link right there. Most landlords estimate one month of the year empty, and €150 a week to share a room in an owner occupied house seems a bit steep anywhere. Rental rates are dropping as a lot of new rental properties are coming up. Factor in €100 a week and one month empty to be on the safe side. Interest rates will climb, but so will inflation, which should eat into your capital owed, assuming salaries rise to cover it (and thats quite an assumption all things considered).

As far as holding its value goes, you managed to knock 12% off the price with a bit of haggling, that should tell you something.

With that said, if you don't view it as an investment, but rather as a home for you and your future family, I'd say you could do worse.

Good points all of them - esp. re: the one month empty per year. There's always something that comes up right ?

astrofool

If you go over the 10000 threshold you pay tax on ALL of it afaik.

Supercell

pocketdooz wrote: »

2) Do you not think the 80 - 90 % leverage effects of an inflation - matching asset are not something to take advantage of ?

i.e - €400,000 home increasing at 5% per year = €563,000 after 7 years. Profit = €163,000

Downpayment was 15% = €60, so profit = 270% in 7 years

€60,000 investment in shares - would need to grow at around 16% per annum to equal that return - 3 times the inflation rate (assuming inflation equals 5%)

This does not even take into account the advantages of home-ownership, rental income and the tax advantages of property vs. tax disadvantages of share ownership or DIRT on savings.

I should add that you haven't really used a realistic scenario here.

What if (more likely) prices drop by 20% before reaching bottom (2-3 years) then flatten out for another 5-10 years at least before starting to beat inflation in rises (boom bust is not asymmetric, there are periods of of stabilisation in between).

Re-run the numbers, your leveraged bet is pretty ugly looking now, I think this is a more realistic scenario to the one you proposed earlier.

pocketdooz

astrofool wrote: »

If you go over the 10000 threshold you pay tax on ALL of it afaik.

Are you serious ? That sounds crazy . . .

Are you sure if this is correct ?

gurramok

Yeh i thought so too. Once you go over the 10000 threshold, you automatically become an investor.
In that scenario, your liable for income tax on your returns at the marginal rate(i assume your on this to able to borrow 315k)
What i meant was that the taxman will chase you for outstanding amounts which have accumulated interest over the years until they catch you.

It's a good area, wish someday i could live there without sharing (i have relations down that way).

As your in your mid-20s, you have to factor in when your mates move away(they will at some point) and you will be living with strangers.

And then if you meet your future missus and marry, she will have half your house

If your awash with money and dont mind the prices falling in your PPR over the next number of years and catered for rising interest rates with a very solid job to afford it, then you can go for it without worrying about losing money.

But on the other hand, if your tight on money, you know the answer.

Climate Expert

Rents are falling.
Interest rates are rising.
Property prices are falling.

Until some of the above change I'd leave it.

Supercell

Oii!!, why don't you post in the weather forum ?
, are we missing some expert advise?

Sorry for going OT

pocketdooz

Sorry, but just to clarify

If you take in let's say €9000 per annum in rent, it's tax free but if you take in say €11,000 per annum you pay tax on the whole €11,000 ?

Is this correct ? I will obviously check it somewhere legal if I proceed but if anyone knows for sure that's be great, thanks.

astrofool

pocketdooz wrote: »

Sorry, but just to clarify

If you take in let's say €9000 per annum in rent, it's tax free but if you take in say €11,000 per annum you pay tax on the whole €11,000 ?

Is this correct ? I will obviously check it somewhere legal if I proceed but if anyone knows for sure that's be great, thanks.

Under the rent a room scheme, that is correct.

http://www.citizensinformation.ie/categories/housing/buying-a-home/owning-a-home/rent_a_room_scheme

You will not get Rent a Room tax relief if your gross income from rent is over €10,000. In this case, your net rental income will be treated by Revenue as part of your total income and should be included in your tax return.

pocketdooz

astrofool wrote: »

Under the rent a room scheme, that is correct.

http://www.citizensinformation.ie/categories/housing/buying-a-home/owning-a-home/rent_a_room_scheme

Thanks Astro

SkepticOne

I think we are some way away from market bottom. If you look at the attached graph from Daft, you see that not only are buyers holding off buying, but sellers are also holding off putting their properties on the market (see the flow line descending 2007 and 2008). This is a stand-off situation and is characteristic of an early phase of the bear market.

It was predicted before the pop that this would happen but I don't think people expected it to go on this long. There has been some speculation in recent months that there might be a large backlog of buyers waiting to jump in at the bottom and thereby push prices up rapidly. This graph, if true, shows that there's also an even bigger backlog of sellers waiting for the market to improve.

It is the sellers that will inevitably lose the standoff. The reason for this is that whereas a first time buyer can always hold off buying (there is never a situation where an FTB is forced into buying), there are situations where a homeowner or landlord is forced into selling.

When the stand-off phase is completed we will then see the capitulation of the losing side. We should then see this flow line on the attached graph start to rise as investors try to exit the market at once. It is in the middle of that the the best buying opportunities will appear.

drunkmonkey

I'd agree with Simple Sam, i'd wait and see what happens after 2012, your in your mid twenties, single, party for a few years, enjoy yourself....and be ready to splash the cash when you see a 5% rise and hear good things about the property market on boards;)

Pull out of that deal...get your money back and book a holiday of a lifetime...

whizzbang

Do you really want to be your mates landlord? That could become tense...

Mate talking to other mates on the phone: "ahh my landlord is really screwing me these days"
You: "Dude, I'm right here."

drunkmonkey

whizzbang wrote: »

Do you really want to be your mates landlord? That could become tense...

Very true...

Rent with mates, don't rent to mates;)

jimmycrackcorm

€350k for that area is a no-brainer. At the same price as many typical 3 bed suburbs it doesn't matter if price drops more, in the log run you'll gain or someone else will if you don't.