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

timmyntc

Amadan Dubh wrote: »

Not pocket change as it is the equivalent of not having to hand over approximately €8,000 of your gross salary in a year!

Ah here you cant go looking at things like that in terms of gross.
That would be like me saying drink is mad expensive since its ~€9 per pint if you take it out of your gross salary!

It is a substantial amount certainly though - and I'd love to know if there is any reason why REITS would give discounts this way other than to avoid impacting the valuation of their property.

Ace2007

timmyntc wrote: »

The offers to save 4,200 a year if you start a lease are likely a way of making up for reduced demand.
INstead of dropping rent prices, you give an upfront discount, but the headline rent remains the same. I think it gets around RPZ rules, but also crucially it keeps the property valuations from dropping along with rental demand.

It's a very smart way of doing it, if they drop the rents, then they are capped at 4% increases.

timmyntc

Ace2007 wrote: »

It's a very smart way of doing it, if they drop the rents, then they are capped at 4% increases.

Exactly - and the property's value is based on the projected rental yield.
So if the headline yield is kept up (even if achieved rents are lower) it still stops their asset from depreciating.

Seems a bit like a bubble to me.

Marius34

timmyntc wrote: »

Exactly - and the property's value is based on the projected rental yield.
So if the headline yield is kept up (even if achieved rents are lower) it still stops their asset from depreciating.

Seems a bit like a bubble to me.

property's value profits is based on the projected rental yield.

If they reduce their actual rents let say 20%, their profits likely to go down in coming years, due to RPZ.

AlmightyCushion

timmyntc wrote: »

The offers to save 4,200 a year if you start a lease are likely a way of making up for reduced demand.
INstead of dropping rent prices, you give an upfront discount, but the headline rent remains the same. I think it gets around RPZ rules, but also crucially it keeps the property valuations from dropping along with rental demand.

The fact that the savings are advertised as yearly does indicate it is trying to get around the RPZ rules for rent increases. The apartment is €2,100 a month. When you factor in the discount it is €1,750 a month over 12 months. If they charged a straight €1,750 a month and did a 4% annual increase, in 5 years the rent would be €2,135 a month.

Jmc25

timmyntc wrote: »

Seems a bit like a bubble to me.

Not sure if it could be called a bubble, but I think there are too many high end apartments in Dublin for the amount of high paid workers who want to rent them.

I think there'll come a point where the newly built/fund managed places have to drop their rents and that will help take some of the pressure off the entire Dublin market.

But hey that's just my guess.

timmyntc

Marius34 wrote: »

property's value profits is based on the projected rental yield.

If they reduce their actual rents let say 20%, their profits likely to go down in coming years, due to RPZ.

Yes but the value is based on the potential profits.
THe value REITs pay for apartment blocks is based on an expected rental yield - if the yield dips, then its no longer worth it to buy at that price.

growleaves

This is good article from a German web magazine. It discusses the Irish situation, and it has an infographic of 'Europe's Biggest Landlords':

House prices: 'Wall of money' hits European real estate

Something else has been booming in Europe's property market though: the volume of institutional investment, particularly in the form of international capital flows from major corporations, hedge funds and other financial market actors.

Wall of money

According to data from Real Capital Analytics, institutional investment into Europe's residential market hit a new record in 2020, accounting for nearly 30% of total acquisition activity. That represents a huge jump from a rate of 10% in 2015.

The characteristics of the pandemic have helped fuel a trend that had already been developing, according to Oliver Knight, a residential property expert with Knight Frank, a real estate consultancy.

"Rising investment comes as we start to see a structural shift into residential investment markets away from some of the more traditional real estate sectors, such as offices and retail," he told DW.

I've highlighted a pertinent point since many people are now saying institutional investors have been in the Irish market a long time.

Yes they have, but they are really scooping up as much as they can right now. I think they're looking to hold physical assets as a hedge against a dollar collapse. Blackrock/Vanguard are buying up residential homes all over the US.

mcsean2163

timmyntc wrote: »

Ah here you cant go looking at things like that in terms of gross.
That would be like me saying drink is mad expensive since its ~€9 per pint if you take it out of your gross salary!

It is a substantial amount certainly though - and I'd love to know if there is any reason why REITS would give discounts this way other than to avoid impacting the valuation of their property.

I paid €7 for an ale and €6 a Guinness in stoneybatter last week. €26 for 4 takeaway pints. I wonder where you are getting pints for €4.50?

Marius34

timmyntc wrote: »

Yes but the value is based on the potential profits.
THe value REITs pay for apartment blocks is based on an expected rental yield - if the yield dips, then its no longer worth it to buy at that price.

No the property value is not based on profits. It's based on Market sale price, not rental price.

L1011

mcsean2163 wrote: »

I paid €7 for an ale and €6 a Guinness in stoneybatter last week. €26 for 4 takeaway pints. I wonder where you are getting pints for €4.50?

4.50 was a fairly common price for a pint of Guinness, in the bar, in a non-fancy pub in Dublin.

Takeout pints have overheads, reduced margin due to reduced volume and so on so not comparable.

Stoneybatter is no longer cheap either, bit like for housing.

timmyntc

Marius34 wrote: »

No the property value is not based on profits. It's based on Market sale price, not rental price.

Yes but the price it will fetch on the market is directly related to the rent it can achieve.

Higher rent = higher prices, lower rents = lower prices.

REITs see apartment as a mechanism for yield - an investment.
When buying they consider market rent to be fixed (at that time), and then set the sale price based on the minimum yield they need.

So for market rent of (example) 12000pa for an apartment, and they want a 3% yield, the max price they would pay is 12000 / 0.03 = 400k per apartment.

If that rent were to fall 20%: 9600/0.03 = 320k max sale price for 3% yield.

Obviously there is a floor on prices based on how much it costs to construct apartments, but the price ceiling is based on market rent and desired rental yield.
As you pointed out, the RPZ rules make dropping rent so much more painful, as even if market rents rebound you are stuck behind for years.

mcsean2163 wrote:

I paid €7 for an ale and €6 a Guinness in stoneybatter last week. €26 for 4 takeaway pints. I wonder where you are getting pints for €4.50?

I was assuming €5 pint and less than 50% marginal rate of tax

growleaves

L1011 wrote: »

Stoneybatter is no longer cheap either, bit like for housing.

Stoneybatter is a part of the hipster-industrial complex, thoroughly gentrified.

When Christy Brown used to live there the family were plasterers.

Amadan Dubh

timmyntc wrote: »

Ah here you cant go looking at things like that in terms of gross.
That would be like me saying drink is mad expensive since its ~€9 per pint if you take it out of your gross salary!

It is a substantial amount certainly though - and I'd love to know if there is any reason why REITS would give discounts this way other than to avoid impacting the valuation of their property.

Generally taxes, salary increases and bonuses are done on a gross salary basis and people generally don't think in net terms with respect to their annual salaries. As such, it is important to contextualise 4k as needing to earn or else saving 8k more gross salary, as there is a risk of thinking "oh, 4k isn't a lot, I earn 80k".

timmyntc

Amadan Dubh wrote: »

Generally taxes, salary increases and bonuses are done on a gross salary basis and people generally don't think in net terms with respect to their annual salaries. As such, it is important to contextualise 4k as needing to earn or else saving 8k more gross salary, as there is a risk of thinking "oh, 4k isn't a lot, I earn 80k".

I suppose, but most people think of rent in terms of the cash they have, albeit thats on a monthly basis. I suppose if you look yearly then you can compare with gross, not too many people know their net yearly income off-hand.

Villa05

Bass Reeves wrote:

Problem is the truth hurts unfortunately it is still the truth. Often you have to be blunt and condescending for people to understand your point.

I think it's the smugness of the 2 individuals involved. The bloated DCC official with thoughts of how easy his job is going to be when all he has to do is sign taxpayer funded cheques every month for 10k properties
""shur this cheaper than emergency accomodation"

The man thinks he's a genius saving the country the country a fortune.

God forbid the council of a capital city would have to build an maintain property that kind of work is beneath them it appears

As for the other guy, it's scary that he was chief advisor on housing policy. Its obvious to see why we are where we are

On a side note Varadkar bragging about the fact that that people in houses valued at over 1 million would actually pay less under the new property tax regime is an eye opener
It looks to me that people in average houses priced between 200 and 400k would see the rises as that's where the maximum house price inflation because of government policy of demand led interventions in the market

Proof if it was ever needed of where there priorities lie.

Amadan Dubh wrote:

Not pocket change as it is the equivalent of not having to hand over approximately €8,000 of your gross salary in a year!

Taxed to the hilt and its then used to push up your rent

We're the Brits kinder to us when they occupied the entire country.

Marius34

timmyntc wrote: »

Yes but the price it will fetch on the market is directly related to the rent it can achieve.

Higher rent = higher prices, lower rents = lower prices.

REITs see apartment as a mechanism for yield - an investment.
When buying they consider market rent to be fixed (at that time), and then set the sale price based on the minimum yield they need.

So for market rent of (example) 12000pa for an apartment, and they want a 3% yield, the max price they would pay is 12000 / 0.03 = 400k per apartment.

If that rent were to fall 20%: 9600/0.03 = 320k max sale price for 3% yield.

Obviously there is a floor on prices based on how much it costs to construct apartments, but the price ceiling is based on market rent and desired rental yield.
As you pointed out, the RPZ rules make dropping rent so much more painful, as even if market rents rebound you are stuck behind for years.

Yes, REITs chasing rental yield, and its profits. And see if it's worth investment. The lower property value, and higher rents, the higher rental yield, but rental profits does not change the property value.

timmyntc

Marius34 wrote: »

Yes, REITs chasing rental yield, and its profits. And see if it's worth investment. The lower property value, and higher rents, the higher rental yield, but rental profits does not change the property value.

Why would investors chasing a minimum rental yield of 3% buy a property at 400k if the market rent wont give a 3% return on investment? They wont.

The market rents dictate the market prices (as a function of demand) - what else would?

Marius34

timmyntc wrote: »

Why would investors chasing a minimum rental yield of 3% buy a property at 400k if the market rent wont give a 3% return on investment? They wont.

The market rents dictate the market prices (as a function of demand) - what else would?

They would not invest in that market if they not happy with rental yields. It doesn't mean that now they can buy/build that apartment block much cheaper, to keep their rental yields.

Ace2007

timmyntc wrote: »

Why would investors chasing a minimum rental yield of 3% buy a property at 400k if the market rent wont give a 3% return on investment? They wont.

The market rents dictate the market prices (as a function of demand) - what else would?

Sure there is capital appreciation as well that's not linked to rental. As you've shown plenty of times rent is capped at 4% per annum, but property inflation is much higher.

Rental yield is around 5/8% so if the property goes for lower - the yeild is higher and vice versa, but to say that the price is determine by the yield is not right - every investor has different wants and needed so what yield would you use?

timmyntc

Marius34 wrote: »

They would not invest in that market if they not happy with rental yields. It doesn't mean that now they can buy/build that apartment block much cheaper, to keep their rental yields.

If nobody would buy the apartment block because of poor yield, then the price must be dropped if the owner ever wants to sell it. Supply and demand.

As I said previously, there is a floor on prices based on construction costs. The ceiling on costs is based on rental yields. As rents fall, the max price an REIT would pay for apartments also falls.

And finally, whoever owns an apartment block, should the rents fall - not only will they see their rental income fall, but the valuation of the asset they own (the principal) will also drop. So its a big hit to their investment. Hence why they will try to circumvent RPZ rules and keep "market" rents as high as they can.

Amadan Dubh

Villa05 wrote: »

We're the Brits kinder to us when they occupied the entire country.

It's a very good question; I had a great grandad involved in advocating for tenant rights 100 years ago and to be honest I feel the cause is quite similar 100 years later.

Marius34

timmyntc wrote: »

If nobody would buy the apartment block because of poor yield, then the price must be dropped if the owner ever wants to sell it. Supply and demand.

As I said previously, there is a floor on prices based on construction costs. The ceiling on costs is based on rental yields. As rents fall, the max price an REIT would pay for apartments also falls.

And finally, whoever owns an apartment block, should the rents fall - not only will they see their rental income fall, but the valuation of the asset they own (the principal) will also drop. So its a big hit to their investment. Hence why they will try to circumvent RPZ rules and keep "market" rents as high as they can.

Just because they would drop now rental price for current empty properties, it doesn't mean that their estimated new investment rental price should drop as well. When they invest they look at potential rental yield. They are well aware that lockdown is not gone yet.
Just because rents went down in Dublin city during Covid, it doesn't mean that property value went down as well.

timmyntc

Marius34 wrote: »

Just because they would drop now rental price for current empty properties, it doesn't mean that their estimated new investment rental price should drop as well. When they invest they look at potential rental yield. They are well aware that lockdown is not gone yet.
Just because rents went down in Dublin city during Covid, it doesn't mean that property value went down as well.

Rents didnt go down over lockdown.
If they are expecting rental prices to go up post covid, why are they advertising big rent discounts designed in such a way as to bypass RPZ rules? Surely if they had confidence in rents going forward they could charge full rent with no discount?

Marius34

timmyntc wrote: »

Rents didnt go down over lockdown.
If they are expecting rental prices to go up post covid, why are they advertising big rent discounts designed in such a way as to bypass RPZ rules? Surely if they had confidence in rents going forward they could charge full rent with no discount?

There were lots of discussion on other thread last year, that rents are going down around Dublin City.

Regarding RPZ, That's exactly why they advertising with discounts to bypass RPZ.
If they just reduce the rents instead of providing discounts, they would not be able to increase price more than 4% a year, that's what RPZ is for.
Let say they have 2 bed apartment in city center with rent estimated post-lockdown on 3000E/month, now they can get only 2400E/month.
What do you think they should do, if they expect demands to return from September? and prices to go up?

timmyntc

Marius34 wrote: »

There were lots of discussion on other thread last year, that rents are going down around Dublin City.

Regarding RPZ, That's exactly why they advertising with discounts to bypass RPZ.
If they just reduce the rents instead of providing discounts, they would not be able to increase price more than 4% a year, that's what RPZ is for.
Let say they have 2 bed apartment in city center with rent estimated post-lockdown on 3000E/month, now they can get only 2400E/month.
What do you think they should do, if they expect demands to return from September? and prices to go up?

September is only 3 months away - a 4200 discount on rent is a lot if they expect rents to rebound from Sept.

agoodpunt

On a North city street DCC are developing an old dericlict aquired building into a family hub the house nextdoor was privately developed and has a mix of hap tenants i know the LL and what it cost him he collects the hap pays a portion back to revenue and maintains manages.
The house next door might get a pic or 2 next but after 1 1/2 years its shaping up but they will end up with an asset costing 5 times more the extravance is mind blowing 1 contracter boasted how the job didnt go to plan but not my problem as there is no budget.
I looked at the show last night pointing to waste look at the hosp, garda hq only private can do in budget
The example I mention is in the same area as those but the local councilars wont allow it to be broadcast

Marius34

timmyntc wrote: »

September is only 3 months away - a 4200 discount on rent is a lot if they expect rents to rebound from Sept.

The rebound shouldn't be all at once, that they would fill up all empty apartments in single month.

combat14

why you will never be able to buy a house in ireland - whats facing most young irish first time buyers today

https://youtu.be/8-xEOvfNTRc

combat14

combat14 wrote: »

why you will never be able to buy a house in ireland - whats facing most young irish first time buyers today

https://youtu.be/8-xEOvfNTRc

Not agree with that
I saving money for my house in Ireland last 10 years and only couple years left before I will buy house for cash
Believe me or not
The house is not the problem the problem is that too many people want get it for half price.
My mate bought brand new BMW for 70K for cash what could be 20 per cent of his mortgage.Now his BMW parked beside his renting property and he crying he cant afford buy the house.
Say NO to everything for 10 years.What the problem ? Or government has to worry about you just because you want drive BMW and show your friends Iphone for 1200 euros ?