2021 Irish Property Market chat - *mod warnings post 1*

Graham

PropQueries wrote: »

Also, the decline in the number of registered landlords is not as correlated with the decline in the number of available rental properties as in the past due to the rise of the more professional landlord who own several rental properties instead of one or two.

Figures were for registered private tenancies, not number of landlords.

PropQueries

Graham wrote: »

I'm sure some landlords thinking about exiting the market would be incentivised to stay if tax rates were adjusted in their favour.

Better solution may be to address the imbalance.

But what could they invest the proceeds in to get a similar return and also pay less tax?

Also, how many landlords are selling because they bought between 2012 and 2014 and can now sell without paying CGT?

There should be a lot more landlords selling up and leaving the market than there currently are based on those purchases between 2012 and 2014 alone which IMO would mean the returns of being a landlord in Ireland at the moment must be exceptional.

Graham

PropQueries wrote: »

But what could they invest the proceeds in to get a similar return and also pay less tax?

Given the volumes of landlords leaving the markets that doesn't appear to be a significant enough motivator to stay in the market.

I assume it will matter even less to any landlord that's spent the guts of the last year providing private COVID support to tenant/s unable to pay rent.

mcsean2163

PropQueries wrote: »

But what could they invest the proceeds in to get a similar return and also pay less tax?

Also, how many landlords are selling because they bought between 2012 and 2014 and can now sell without paying CGT?

There should be a lot more landlords selling up and leaving the market than there currently are based on those purchases between 2012 and 2014 alone which IMO would mean the returns of being a landlord in Ireland at the moment must be exceptional.

Stock market, capital gains tax is less

PropQueries

Graham wrote: »

Given the volumes of landlords leaving the markets that doesn't appear to be a significant enough motivator to stay in the market.

I assume it will matter even less to any landlord that's spent the guts of the last year providing private COVID support to tenant/s unable to pay rent.

I’d say it’s more to do with the landlords who purchased between 2012 and 2014 and can now sell without paying CGT.

Even if a tenant hadn’t paid any rent for 10 months in 2020, the landlord would be still better off than if he had sold last January and placed the proceeds in the bank.

He could have risked it in the S&P and got. c. 2% with significant more risk attached.

The rental yields are so high in this country, a tenant would have to get away with not paying rent for at least the next 5 years to make it a problem for any landlord who purchased their RIP for cash IMO.

Timing belt

PropQueries wrote: »

I’d say it’s more to do with the landlords who purchased between 2012 and 2014 and can now sell without paying CGT.

Even if a tenant hadn’t paid any rent for 10 months in 2020, the landlord would be still better off than if he had sold last January and placed the proceeds in the bank.

He could have risked it in the S&P and got. c. 2% with significant more risk attached.

The rental yields are so high in this country, a tenant would have to get away with not paying rent for at least the next 5 years to make it a problem for any landlord who purchased their RIP for cash IMO.

If rental yields are so high compared to other asset classes then the institutional investors have the ability to develop property that was previously deemed to expensive to invest in or cut rents.... but don't see rents being cut.

Graham

PropQueries wrote: »

The rental yields are so high in this country, a tenant would have to get away with not paying rent for at least the next 5 years to make it a problem for any landlord who purchased their RIP for cash IMO.

And yet we're losing landlords and tenancies at a rate of knots.

So either your hypothesis isn't reflective of the reality, or the landlords leaving the market have got it all wrong.

PropQueries

Timing belt wrote: »

If rental yields are so high compared to other asset classes then the institutional investors have the ability to develop property that was previously deemed to expensive to invest in or cut rents.... but don't see rents being cut.

If they cut rents (real or perceived), the value of all their property investments falls so it wouldn’t benefit them either way IMO

Rent of €20,000 at 3,5% yield values the property at c. €600k

Rent of €15,000 at 3.5% yield values the property at c. €400k

They could lose c. €200k just by lowering the rent by €5k.

They really are better off keeping them vacant and pretending they’re worth something, in the short-term at least.

Unless there’s a very real upfront cost to keeping them vacant I.e. a vacant property tax

PropQueries

Graham wrote: »

And yet we're losing landlords and tenancies at a rate of knots.

So either your hypothesis isn't reflective of the reality, or the landlords leaving the market have got it all wrong.

As I already said, IMO, it’s probably primarily either the landlords who bought between 2012 and 2014 selling to avail of their CGT exemption or it’s the banks/funds etc. forcing their Celtic tiger BTL mortgage holders to sell.

It 100% has got nothing to do with the “low” levels of returns in the Irish rental market IMO.

Timing belt

PropQueries wrote: »

If they cut rents (real or perceived), the value of all their property investments falls so it wouldn’t benefit them either way IMO

Rent of €20,000 at 3,5% yield values the property at c. €600k

Rent of €15,000 at 3.5% yield values the property at c. €400k

They could lose c. €200k just by lowering the rent by €5k.

They really are better off keeping them vacant and pretending they’re worth something, in the short-term at least.

Unless there’s an opportunity cost to keeping them vacant I.e. a vacant property tax

You seem to have a large rounding difference in your calculation as I make it
142.8k by lowering rent by 5k

But yes I agree with your point that they are better leaving them vacant in the short term.

The point I was making was that if a property with a rental income of 2m a year is worth 57m with a 3.5% yield. Then it would be worth 67m with a yield of 3% which means that previous buildings that would have cost to much to develop now become viable to institutional investors if they accept a lower yield.

Graham

PropQueries wrote: »

It 100% has got nothing to do with the “low” levels of returns in the Irish rental market IMO.

I made no such suggestion.

Graham

PropQueries wrote: »

If they cut rents (real or perceived), the value of all their property investments falls so it wouldn’t benefit them either way IMO

Rent of €20,000 at 3,5% yield values the property at c. €600k

Rent of €15,000 at 3.5% yield values the property at c. €400k

They could lose c. €200k just by lowering the rent by €5k.

Aren't most REITs looking for steady cashflow rather than increased share price / underlying asset value?

Isn't that one of the main reasons pension funds like them so much? Profits are distributed regularly and evenly as dividends.

That's not to say the asset value is irrelevant but it will be largely based on the 'real' yield not some notional yield. Certainly not for long.

Browney7

mcsean2163 wrote: »

Stock market, capital gains tax is less

Capital gains tax is the same for property as shares (if you bought between 13 and 15 and held for 7 years - which dropped to 4 - CGT on property was 0%). Income tax on dividends is marginal rate which is the same as property. Investors in IRES REIT pay CGT and income tax if their investment is outside a pension vehicle.

combat14

PropQueries wrote: »

If they cut rents (real or perceived), the value of all their property investments falls so it wouldn’t benefit them either way IMO

Rent of €20,000 at 3,5% yield values the property at c. €600k

Rent of €15,000 at 3.5% yield values the property at c. €400k

They could lose c. €200k just by lowering the rent by €5k.

They really are better off keeping them vacant and pretending they’re worth something, in the short-term at least.

Unless there’s a very real upfront cost to keeping them vacant I.e. a vacant property tax

always thought historic rental yields were at least 6% has that changed ..?

CorkRed93

"With the supply of properties for sale at a record low and robust demand, we now expect prices to grow this year by 4pc, a significant change from our previous estimate of -2pc"


https://www.independent.ie/business/irish/recovery-in-consumer-spending-will-be-swift-40005813.html

PropQueries

combat14 wrote: »

always thought historic rental yields were at least 6% has that changed ..?

No, I think you're right in relation to the small BTL landlords. I think someone here said before that REITS operate under a smaller yield so when discussing the REITS I stuck with the lower figure.

hometruths

If 5-8k rentals have been leaving the market per annum, that's equivalent of about 10% of annual sales volume. But with supply at historic lows it is clear they have not been entering the sales market.

What's happening to all these properties?

Graham

PropQueries wrote: »

No, I think you're right in relation to the small BTL landlords. I think someone here said before that REITS operate under a smaller yield so when discussing the REITS I stuck with the lower figure.

The 3.5% figure you've mentioned sounds more like the generally discussed REIT yield of dividends as a percentage of share price.

Graham

schmittel wrote: »

If 5-8k rentals have been leaving the market per annum, that's equivalent of about 10% of annual sales volume. But with supply at historic lows it is clear they have not been entering the sales market.

What's happening to all these properties?

Some EAs have already reported a very significant proportion of their sales are a result of landlords exiting the market.

hometruths

Graham wrote: »

Some EAs have already reported a very significant proportion of their sales are a result of landlords exiting the market.

Recently yes, but this has been going on for a few years. Were EAs saying this in 2018/9?

Graham

schmittel wrote: »

Recently yes, but this has been going on for a few years. Were EAs saying this in 2018/9?

Can't say I've looked but previous landlord-exit figure were at the lower end of the scale and more likely to be mixed with higher volumes of standard residential transactions.

If an EA is getting two-thirds of current listings as a result of landlord-exits, it's going to be a lot more noticeable.

hometruths

Graham wrote: »

Can't say I've looked but previous landlord-exit figure were at the lower end of the scale and more likely to be mixed with higher volumes of standard residential transactions.

If an EA is getting two-thirds of current listings as a result of landlord-exits, it's going to be a lot more noticeable.

What EA is getting 2/3?

JimmyVik

fago wrote: »

These properties don't disappear into the ether so surely they help the apt/starter home market.
I read all of the 2021 predictions/shills and don't recall any of the same agents mentioning supply being helped by the increase in rentals for sale.
I've seen one auctioneer in a local paper predict flat for 2021, but then 4% in a national paper.
Even within Ireland there's a good few micro markets, in my opinion you re best off understand where you are buying what sells, what struggles and watch the PPR.

One micro market is the council. Micro might be a bit much, they are significant. And I think a major cause of both rent and purchase price rises.


Rent rising costs the govt a lot less than it costs the average punter.
The govt get half the higher rent in tax for a start. Then when they pay out rent to a private landlord for social welfare, they get half that back in tax anyway.
A nice little con they have going on.



I know one person who sold their rental about 2 years ago.
It was a 2 bed apartment. One of the couples who were renting it we were having a baby so moved out. The other couple moved out about 3 months later. As soon as it was empty he put it on the market. When he put it on the market the council contacted him and offered to buy it. He accepted. There is now one very noisy and annoying woman living in the apartment on her own.
He also owns the apartment beside it and has decided to sell that as soon as the current tenants moves out, which he thinks will be soon, because the one next is making their lives hell. He will offer it to the council first. If not he will put it on the market.

hometruths

JimmyVik wrote: »

One micro market is the council. Micro might be a bit much, they are significant. And I think a major cause of both rent and purchase price rises.


Rent rising costs the govt a lot less than it costs the average punter.
The govt get half the higher rent in tax for a start. Then when they pay out rent to a private landlord for social welfare, they get half that back in tax anyway.
A nice little con they have going on.



I know one person who sold their rental about 2 years ago.
It was a 2 bed apartment. One of the couples who were renting it we were having a baby so moved out. The other couple moved out about 3 months later. As soon as it was empty he put it on the market. When he put it on the market the council contacted him and offered to buy it. He accepted. There is now one very noisy and annoying woman living in the apartment on her own.
He also owns the apartment beside it and has decided to sell that as soon as the current tenants moves out, which he thinks will be soon, because the one next is making their lives hell. He will offer it to the council first. If not he will put it on the market.

Interesting, thanks. I suspect a lot of the landlords waiting to exit the maket when covid restrictions end might end up selling to the council with tenants in situ. Govt does not have much choice.

Of course properties will be sold to the taxpayer for top whack, and it will cost us a fortune!

JimmyVik

schmittel wrote: »

I agree. I suspect the volume will be large enough that govt has another problem on their hands here, knowing there is a record number of tenancies about to be terminated in one go. Very difficult for them to handle the fallout.

O'Broin already has a plan to stop those landlords who cant make it work leaving - apparently

JimmyVik

Graham wrote: »

I've no doubt REITs are taking up some of the slack from departing private landlords and reducing the reliance on private landlords was one of the aims of the tax treatment.

Problem 1 is private landlords are leaving faster than their rental properties are being replaced (by REITs).

Problem 2 is the REITS are obviously concentrating on the most profitable cities.

Problem 3 is the REITs are concentrating on the higher end of the market.

I sont know for certain, but i wouldnt imagine REITs would be too interested in anything but apartments. Maybe the odd small development of houses in high demand areas, but in general i dont see them interested in houses.
Problem is private landlords who own houses are getting out even faster than those who own apartments.

JimmyVik

Villa05 wrote: »

The article does mention tax as a factor. Do you think the perceived landlord/tennant imbalance would be cushioned if reits and private landlords had tax equality ie both pay 25%

That would be significant gain for the private landlord

It might make it more attractive to private landlords if the tax burden was reduced significantly. But is it enough to convince private investors wither in or back in. I doubt it. I see the biggest problem beiong they have been whipped up and down for a decade now and have had enough. They have no reason to believe if they get in now that things wont move against them next year. The frog has been boiled and now i think it might be dead.

JimmyVik

PropQueries wrote: »

I’d say it’s more to do with the landlords who purchased between 2012 and 2014 and can now sell without paying CGT.

Even if a tenant hadn’t paid any rent for 10 months in 2020, the landlord would be still better off than if he had sold last January and placed the proceeds in the bank.

He could have risked it in the S&P and got. c. 2% with significant more risk attached.

The rental yields are so high in this country, a tenant would have to get away with not paying rent for at least the next 5 years to make it a problem for any landlord who purchased their RIP for cash IMO.

There is no investment that is more risky than being a private landlord in Ireland.


I had about €100k ready to invest 3 years ago.
I wanted to invest it in an investment property in Ireland.
While i did my research I left it in ETFs. S&P and world UCITS. I probably could have found a more tax efficient way to invest it, but that was nice and easy.
Anyway I couldnt make the risk/reward on residential property work for me so i left it there. I am glad now that it worked out that way.

PropQueries

Ok, according to the RTB, the number of registered private landlords in Q3 2020 was 166,615 and in Q3 2017, it was 176,251, so a fall of c. 20,000 over 3 years.


Isn't it a real possibility that the investors who purchased properties between 2012 and 2014 to avail of the CGT tax exemption from 2018 onwards (i.e. they can now sell without paying CGT) are now a significant percentage of these sellers? i.e. it's not the "unfair" tax system, but more due to cashing in their profits from their investments during 2012 and 2014.

MacronvFrugals

Darragh O'Brien: Ambitious aims and imaginative solutions can solve housing woes

Data from the US and UK show that millennials are financially worse off than their parents were at the same age after housing costs are factored into account.

More diverse, liberal and better educated than any previous generation, they are also faced with the bleakest economic prospects and an increasingly greasy housing ladder. Covid-19 has had a disproportionate impact on them.

The increase in the average age of buying a home from 26 in 1991 to 35 today reflects the much harder path that young people must travel to own their own place.

This is a demographic financial time-bomb when these households retire and need state support for their rent.

The political implications of the age divide can be seen in a more profound crisis of democratic legitimacy.

Darragh O Brien in the Examiner this morning speaking to the 18/35s demo - https://www.irishexaminer.com/opinion/commentanalysis/arid-40212971.html