Irish Property Market chat II - *read mod note post #1 before posting*

enricoh

schmittel wrote: »

Turns out these are being sold by NAMA, ie the taxpayer.

You'd have to wonder how good an asset management job on our behalf the National Asset Management Agency is doing if they can only achieve a 48% occupancy rate rented at a 30% discount to market rates.

Iirc the average salary in Nama is over 100k, once they keep each other in a job they are doing great!

hometruths

Hubertj wrote: »

Did I read in 1 article the vacant units have never been let?

Yep empty since 2005.

Hubertj

schmittel wrote: »

Yep empty since 2005.

makes sense if you’re a public servant

Villa05

MacronvFrugals wrote:

Finance minister ignored advice over new stamp duty rules for cuckoo funds

Hubertj wrote:

makes sense if you’re a public servant

Alot of public servants stating the obvious and being ignored.

Is it the servants or there masters?

Hubertj

Villa05 wrote: »

Alot of public servants stating the obvious and being ignored.

Is it the servants or there masters?

I would hold all of them in equally low regard

C14N

MacronvFrugals wrote: »

The department is more in line with the opposition on this measure as well as shared-equity

Finance minister ignored advice over new stamp duty rules for cuckoo funds


https://www.irishexaminer.com/news/politics/arid-40325594.html

I really didn't understand they they exempted apartments from this at all. Was there any real reason or incentive for it? Is it just down to the old-fashioned Irish attitude of "nobody wants to actually buy an apartment. Apartments are only for transients, immigrants, and students, who will all learn in good time that they really want to live in a house instead"? Is it because REITs and the like mostly only buy apartment blocks anyway so this doesn't upset the apple cart on them very much? Even their own coalition partners in the Green Party openly opposed the measure, never mind the opposition.

MacronvFrugals

C14N wrote: »

I really didn't understand they they exempted apartments from this at all. Was there any real reason or incentive for it? Is it just down to the old-fashioned Irish attitude of "nobody wants to actually buy an apartment. Apartments are only for transients, immigrants, and students, who will all learn in good time that they really want to live in a house instead"? Is it because REITs and the like mostly only buy apartment blocks anyway so this doesn't upset the apple cart on them very much? Even their own coalition partners in the Green Party openly opposed the measure, never mind the opposition.

I get it with FG sure in their 2011 manifesto it was full steam ahead with the introduction of "US style REIT's" so it looks like they're continuing on that road but FF I cant quite understand, maybe the developers getting a fortune from BTR per unit is enough to keep them happy!

C14N

MacronvFrugals wrote: »

I get it with FG sure in their 2011 manifesto it was full steam ahead with the introduction of "US style REIT's" so it looks like they're continuing on that road but FF I cant quite understand, maybe the developers getting a fortune from BTR per unit is enough to keep them happy!

I do think there is a place for REITs to the degree that they do help funding construction of new blocks of apartments to let, even if they end up owning them all themselves. More building is generally a net good, and there probably are cases where a REIT works with a developer to guarantee a purchase, and that building might otherwise not have gotten built.

But I don't see any value at all in letting them snap up units that were already getting built to be sold to individuals on the open market. This is just transferring property from the sale market (which is also experiencing a pretty big shortage) to the rental market.

Imo, it should be prohibitively expensive to buy existing homes "as an investment" right now for anyone. Other countries (I think the Netherlands might be one) have laws that strongly discourage individuals from owning more than one residence. Building new ones, fair enough, but not just buying homes that exist to turn them into rentals.

cnocbui

REITs are not 'necessary' for funding of blocks of apartments, though. Almost all those built in 2019 were self funded by the builders with the REITs only swooping in at completion and buying the finished product as a job lot before they could be offered to the general public.

Timing belt

Y

cnocbui wrote: »

REITs are not 'necessary' for funding of blocks of apartments, though. Almost all those built in 2019 were self funded by the builders with the REITs only swooping in at completion and buying the finished product as a job lot before they could be offered to the general public.

You are correct in saying Reits didn’t fund the development but other funds would have invested in the developers to build in the first place.

C14N

cnocbui wrote: »

REITs are not 'necessary' for funding of blocks of apartments, though. Almost all those built in 2019 were self funded by the builders with the REITs only swooping in at completion and buying the finished product as a job lot before they could be offered to the general public.

I never said they were necessary, just that they had a place. We do need rental units built too and an institutional landlord has the capacity to do this more efficiently than an individual one. For the most part, these apartments are generally built to be sold as a big block to an institutional investor to rent them out, not to individual owners (they are even designed with different, less stringent regulations and standards than owner-occupied apartments have to be).

If designed to be built for rentals, and they end up being bought by an investor for rentals, I generally think this is fine. What I don't think is fine is taking owner-occupier homes out of the market at a time when there is already far more demand than supply for people buying homes.

MacronvFrugals

enricoh wrote: »

Iirc the average salary in Nama is over 100k, once they keep each other in a job they are doing great!

When people wonder why we're falling down the corruption index stuff like this is so blatant!

Eclectic Econometrics

I maintain that interest rate rises are the biggest threat to economies around the world & house prices here. I see a few posters are confident there's no bubble and prices still have a way to go (up). I think a lot depends on how transitory this inflation really is.

https://www.ft.com/content/b664c3a0-7b59-48a6-83ef-3a4fe5f2f9ea

1% rise in interest rates and the housing market substantially cools. 3% for untold pain. 6% and your life will become the The Dawn of Man scene in 2001: A Space Odyssey. ;-)

Marius34

Eclectic Econometrics wrote: »

I maintain that interest rate rises are the biggest threat to economies around the world & house prices here. I see a few posters are confident there's no bubble and prices still have a way to go (up). I think a lot depends on how transitory this inflation really is.

https://www.ft.com/content/b664c3a0-7b59-48a6-83ef-3a4fe5f2f9ea

1% rise in interest rates and the housing market substantially cools. 3% for untold pain. 6% and your life will become the The Dawn of Man scene in 2001: A Space Odyssey. ;-)

It highly depends on inflation. if interest rates goes 1%, but inflation increase as well by 1 percent, it would unlikely to cool the market. Same for 3%

hometruths

Marius34 wrote: »

It highly depends on inflation. if interest rates goes 1%, but inflation increase as well by 1 percent, it would unlikely to cool the market. Same for 3%

I'm not sure it works like that.

cruizer101

schmittel wrote: »

I'm not sure it works like that.

Yeah it really doesn't.

Currently a 300k mortgage with 2.5% interest has repayment of 1185
Put that interest up to 4.5% repayment is 1520.
Thats a 30% increase in repayment, that will cool the market even if there is a significant increase in inflation.

Marius34

cruizer101 wrote: »

Yeah it really doesn't.

Currently a 300k mortgage with 2.5% interest has repayment of 1185
Put that interest up to 4.5% repayment is 1520.
Thats a 30% increase in repayment, that will cool the market even if there is a significant increase in inflation.

That's what we may want to believe how it works, to keep optimism. But history tells it otherwise. Inflation has higher correlation to price increase, than interest rates, in its nominal value.

hometruths

Marius34 wrote: »

That's what we may want to believe how it works, to keep optimism. But history tells it otherwise. Inflation has higher correlation to price increase, than interest rates, in its nominal value.

And when was the last time in history we saw a scenario that might fit with the statement: "if interest rates goes 1%, but inflation increase as well by 1 percent"

I think history tells us that we are more likely to see a scenario whereby the interest rate rise outpaces the inflation - that's kind of the point.

And cruizers point is very valid. IMHO.

Hubertj

schmittel wrote: »

And when was the last time in history we saw a scenario that might fit with the statement: "if interest rates goes 1%, but inflation increase as well by 1 percent"

I think history tells us that we are more likely to see a scenario whereby the interest rate rise outpaces the inflation - that's kind of the point.

And cruizers point is very valid. IMHO.

In the past (recent history) have we seen interest rises by 1% in 1 go? Would it not usually be smaller increments?

hometruths

Hubertj wrote: »

In the past (recent history) have we seen interest rises by 1% in 1 go? Would it not usually be smaller increments?

For sure I think interest rate increases would normally be smaller increments. There's no doubt if they jumped 1% in one go it would cool the market!

I didn't really understand Marius' interest rate/inflation analysis to be honest, but I've always understood that if CBs are using rising interest rates to control inflation, the base rate tends to be higher than the inflation figure. Certainly historical rates would indicate that.

I suppose the problem now is interest rates are so low, that if inflation meaningfully overshoots 2% what can the CBs do? They are hardly likely to raise them to 3% overnight, but it seems likely that small increments would come thick and fast.

That's presumably why the mere hint of any sort of interest rate rise spooks markets. If the trend turns, it will turn fast.

Amadan Dubh

Eclectic Econometrics wrote: »

I maintain that interest rate rises are the biggest threat to economies around the world & house prices here. I see a few posters are confident there's no bubble and prices still have a way to go (up). I think a lot depends on how transitory this inflation really is.

https://www.ft.com/content/b664c3a0-7b59-48a6-83ef-3a4fe5f2f9ea

1% rise in interest rates and the housing market substantially cools. 3% for untold pain. 6% and your life will become the The Dawn of Man scene in 2001: A Space Odyssey. ;-)

Before covid, interest rates needed to rise to cool the asset bubble as the post-08 QE served its purpose years ago but for some reason was continued despite evidence economies were recovering. Covid has accelerated QE and therefore the need to raise interest rates. Reading about house prices increasing in the US and UK at the fastest levels since the 00s the past year blows out of the water any argument that inflation is somehow temporary (surely a year of explosive house price growth is not transitory for the purpose of inflation). As economies reopen over the next 6 months, many people have cash and little debt which means they would pay higher prices for the same pre-covid goods and services - most of us already see our haircuts and pints have gone up noticeably in price. It is going to roar on, for sure. Unemployment is being kept artificially high from covid restrictions in order to justify the line that more QE is needed to help the economy.

The economy and its components seems to be like a seesaw, with the central banks trying to balance it (with policy such as QE/bond buying and interest rates) rather than having it go up and down constantly. However, the central banks have actually engineered a situation where one side, the public and real economy, is being weighed down with massive debt while the other side, assets such as stocks and house prices, is sky high. The efforts at balancing have actually created an imbalance with the seesaw, some would say intentionally, however it now means the central banks have a choice to try to cool the imbalance with their (arguably limited) tools such as interest rate rises or let it run and hope it balances out again. They appear to be aiming for the latter at the moment.

To not raise interest rates is to loot from savers and pensions in order to enrich asset holders. Raising interest rates by a meaningful amount will do a great service to correcting asset values.

Marius34

schmittel wrote: »

For sure I think interest rate increases would normally be smaller increments. There's no doubt if they jumped 1% in one go it would cool the market!

I didn't really understand Marius' interest rate/inflation analysis to be honest, but I've always understood that if CBs are using rising interest rates to control inflation, the base rate tends to be higher than the inflation figure. Certainly historical rates would indicate that.

I suppose the problem now is interest rates are so low, that if inflation meaningfully overshoots 2% what can the CBs do? They are hardly likely to raise them to 3% overnight, but it seems likely that small increments would come thick and fast.

That's presumably why the mere hint of any sort of interest rate rise spooks markets. If the trend turns, it will turn fast.

The point is that interest rates will be raisin, if there is higher inflation. And inflation in itself has positive impact on property price.

mcsean2163

C14N wrote: »

I never said they were necessary, just that they had a place. We do need rental units built too and an institutional landlord has the capacity to do this more efficiently than an individual one. For the most part, these apartments are generally built to be sold as a big block to an institutional investor to rent them out, not to individual owners (they are even designed with different, less stringent regulations and standards than owner-occupied apartments have to be).

If designed to be built for rentals, and they end up being bought by an investor for rentals, I generally think this is fine. What I don't think is fine is taking owner-occupier homes out of the market at a time when there is already far more demand than supply for people buying homes.

My guess is that we have an excess of rental units at the moment.

hometruths

Marius34 wrote: »

The point is that interest rates will be raisin, if there is higher inflation. And inflation in itself has positive impact on property price.

Yes I understood in the first instance that was what you were saying.

What I didn't really get was how if interest rates were raised by 3% and inflation was 3% that it would not cool the market.

Can you talk me through how that works?

Marius34

schmittel wrote: »

Yes I understood in the first instance that was what you were saying.

What I didn't really get was how if interest rates were raised by 3% and inflation was 3% that it would not cool the market.

Can you talk me through how that works?

When there is inflation people are more concern that their money will devalue, as well as their mortgage over time, thus they are more willing to risk in investment for long term.

hometruths

Marius34 wrote: »

When there is inflation people are more concern that their money will devalue, as well as their mortgage over time, thus they are more willing to risk in investment for long term.

Yes I understand that theory. But we're talking about countering the inflation with an equal rise in interest rates.

I guess what I don't understand is the idea that if inflation is 3% and interest rates rise by 3% then it means the inflationary effect on price will be greater than the effect of the increased cost of borrowing.

Could you explain how this works? To me it seems like the interest rate rise would have a far greater effect on prices.

Or as you said:

Marius34 wrote: »

That's what we may want to believe how it works, to keep optimism. But history tells it otherwise. Inflation has higher correlation to price increase, than interest rates, in its nominal value.

What does this mean? If this is proven historically, do you have a link where I can learn more?

Timing belt

Eclectic Econometrics wrote: »

I maintain that interest rate rises are the biggest threat to economies around the world & house prices here. I see a few posters are confident there's no bubble and prices still have a way to go (up). I think a lot depends on how transitory this inflation really is.

https://www.ft.com/content/b664c3a0-7b59-48a6-83ef-3a4fe5f2f9ea

1% rise in interest rates and the housing market substantially cools. 3% for untold pain. 6% and your life will become the The Dawn of Man scene in 2001: A Space Odyssey. ;-)

Remember that a 0.25% rise would have the same impact as 1% rise on a higher rate like 5%.

I am still not convinced it will cool the housing market directly as the yield on property will still attract investors compared to bonds etc.

Marius34

schmittel wrote: »

Yes I understand that theory. But we're talking about countering the inflation with an equal rise in interest rates.

I guess what I don't understand is the idea that if inflation is 3% and interest rates rise by 3% then it means the inflationary effect on price will be greater than the effect of the increased cost of borrowing.

Could you explain how this works? To me it seems like the interest rate rise would have a far greater effect on prices.

Or as you said:

What does this mean? If this is proven historically, do you have a link where I can learn more?

It wouldn't be first time if interest rates move higher than inflation, that doesn't mean of likelihood result of property price decrease.
It's difficult to evaluate how exact numbers could work, but the larger inflation over the time the higher money devaluation, the higher chance of income increase. In Irelands case, there is lots of savings, there is LTI limits.
With increase of income, it increase the ability to borrow,
with increase of material cost, construction cost increase as well,
with the worry of holding cash in saving for devaluation, more money could move to property.

not sure about the link, maybe this one written about correlation (I'm not saying it's high correlation, but with higher inflation you could expect prices to go up over few years)
https://www.investopedia.com/ask/answers/correlation-inflation-houses.asp

hometruths

Marius34 wrote: »

It wouldn't be first time if interest rates move higher than inflation, that doesn't mean of likelihood result of property price decrease.
It's difficult to evaluate how exact numbers could work, but the larger inflation over the time the higher money devaluation, the higher chance of income increase. In Irelands case, there is lots of savings, there is LTI limits.
With increase of income, it increase the ability to borrow,
with increase of material cost, construction cost increase as well,
with the worry of holding cash in saving for devaluation, more money could move to property.

not sure about the link, maybe this one written about correlation (I'm not saying it's high correlation, but with higher inflation you could expect prices to go up over few years)
https://www.investopedia.com/ask/answers/correlation-inflation-houses.asp

Once again it seems the goalposts have shifted. That link talks about the correlation between house prices and inflation. Nobody is disputing that.

It doesn't come close to explaining this:

Marius34 wrote: »

That's what we may want to believe how it works, to keep optimism. But history tells it otherwise. Inflation has higher correlation to price increase, than interest rates, in its nominal value.

If that's the best link you can find to explain this apparently historically proven phenomenon, then we'd best leave the discussion there.

combat14

so how high will house prices go here before they pop again leaving a big fat mess - any thoughts