House Prices

gerrydublin

Help!!!!!!!!!!!!!!!!
I'm being asked to give a balanced and impartial argument to someone buying an investment property. this is what I have so far, I'd be grateful for any additional points

Reasons to invest in property
· Excellent capital gains
· House prices have never fallen in this country
· Very few good alternatives to property investments
· Excellent Tax advantages to property investment

Reasons not to invest in property :mad:
· Have to be compensated for lack of liquidity (up to 9wks to sell a property)
· Stamp duty of 9% can be prohibitive for short term investment
· Solicitor’s fees, Surveyor’s fees, Auctioneer’s fees, etc need to be subtracted from profit
· No indexation relief since 2001 for property (as capital appreciation is taxed), while there is for other investments
· Rental income have been falling since late 2001(and are predicted to continue falling albeit at a decreasing rate)
· Management expenses of rental agencies reduce annual rental income
· Annual rental income can be as low as 2% of the investment after the deduction of PAYE taxes etc (rental yield = rent p.a. / current value of house).
· Dublin city council and other council are beginning a massive six year building programme for social and affordable houses. This should lead to a further supply of rental properties and lower rents
· Proof of poor future – a report by Threshold shows that financial institutions will not touch residential property in this country because of the low level of rental yields in this country relative to our European neighbours.
· Capital gains are now below 10% p.a. (IAVI are predicting 4 – 6% this year, as are PTSB) at a time when inflation is almost 2.5%
· Market is closer to its peak, worst time to invest
· Flood of Section 23 properties which came onto the market in mid to late nineties will reach their 10th anniversary which means their owners can sell them now and not have their tax allowances clawed back
· Future demand for houses expecting to fall as wage increases keep moderating, at a time the Dept of Environ statistics show an ever decreasing proportion of people applying for loans are in the top two quartiles income ranges
· Future population trends (Census 2002) shows a lower demand for housing into the future
· The flood of immigrants from eastern Europe and Asia has seen them opt more for renting than purchasing, mainly because many are working in menial jobs, hence they will only help the rental market from collapsing as opposed to keep the house prices rising
· Supply of 80,000 units of property is over 3 times of 10, 20 or 30 years ago (27,000 units in 1994, 25,000 in 1984, 26,000 in 1974)
· In fact since the FF/PD Gov came to power they have helped builders build over 436 thousand houses in 8 years, more than all the previous Gov’s combined from 1978 to 1996 just fractionally under 436 thousand
· Supply continued to grow as apartments accounted for close to 50pc of all new home completions and for around 70pc of recent planning permissions granted in Dublin city and county.(source IAVI Jan 05)
· The future plans for public transport are creating better commuting towns outside the city than at present. DART upgrade and service improvements on Maynooth/Kildare routes will lead to distortion of prices living along these lines to the detriment of other neighbouring areas
· Interest rates are at an all time low, they will only go upwards from here. This does not take account of the fact cost of rent is now lower than the cost of interest paid to a bank.
· Low post-tax annual rental yields, ever decreasing rates of capital appreciation, at a time when the Irish Stock exchange last year returned 25%, and forestry returned 12% plus. Even buying a government bond would guarantee you 4% p.a.


Please HELP!

gerrydublin

Have other point to add, this can be twisted as a for or against, depending on whether you have a house or appartment.From the Census 2002
As you can see this means that only 19% of appartments are owner occupied. If rents continue to fall, how many landlords will start selling? :eek:

"total " "House" "Appart" "Notstated"
Owner Occupied "945940" "917134" "21444" "7362"
Rented - Local Authority "88206" "69095" "16522" "2589"
Rented - Privately "141459" "79791" "60372" "1296"
Purch from Local Authority "44783" "41131" "2329" "1323"
Occupied free of rent "21560" "17765" "3477" "318"
Not stated "37669" "17625" "6314" "13730"
sum totals "1279617" "1142541" "110458" "26618"

% of Category "total" "House" "Appart" "Notstated"
Owner Occupied "74%" "80%" "19%" "28%"
Rented Local Authority "7%" "6%" "15%" "10%"
Rented- Privately "11%" "7%" "55%" "5%"
Purch from Local Authority "3%" "4%" "2%" "5%"
Occupied free of rent "2%" "2%" "3%" "1%"

Victor

gerrydublin wrote:

House prices have never fallen in this country

All the more reason for a future fall, as we move into more international norms. While the average market hasn't fallen materially (there have been blips) individual sectors have fallen in the past, e.g. when stamp duty was raised to 9%, the value of properties over €1m fell.

gerrydublin wrote:

Future population trends (Census 2002) shows a lower demand for housing into the future

I wouldn't be so certain. There is a lot of pent up demand from the 1970s baby boom.

Overall, nobody can predict the future, we can only make educated guestimates.

D'Peoples Voice

not sure if this helps, but I've heard that its getting increasingly more difficult for people to get mortgages from banks.
I think this could have a serious impact on the future demand if the amount of people who can afford them are falling in numbers. And if as you say investors no longer have no interest joining the market, well economics says a falling demand with an ever increasing supply means at some stage they must reach equilibrium.

Related to the previous point, the first sign of a bubble is people panic buying, i.e. buying today for fear prices tomorrow will be too expensive. this is what was rumoured to be happening the late nineties. the question is if people's attitudes start going the opposite way, i.e. delay buying today in expectation tomorrow's prices will be cheaper, then they will be cheaper tomorrow.

Finally, the annual growth in appartment prices did not reach a peak until quarter 2 1998. It would follow that the greatest demand for appartments was in the period 1996-1998 quarter 1. It follows that these section 23 investors as you call them will not be selling off those appartments until at least 2006 if they wish to hold onto the tax reliefs they received.

dcr22B

Morning lads,

I don't think it's as hard to get a mortage as D'Peoples Voice has made it out to be although if you are applying for a mortgag on your own.

I'm actually going to collect the keys of my first house with my girlfriend this afternoon and even though we're not on brilliant money, the lending institutions were willing to give us a mortgage for more than we can afford.

I can see what gerrydublin is saying about the public transport making oprices ridiculuos, I'm from Raheny and my parents house value has skyrocketed from £45,000 in 1991 (when they bought it) and my next door neighbours sold for €375,000 three months ago.

I've bought in Lusk myself and I think I've timed it perfectly as that area is going to expand dramatically over the next 3-5 years.

Best of luck with it gerrydublin.

D'Peoples Voice

dcr22B wrote:

Morning lads,

I don't think it's as hard to get a mortage as D'Peoples Voice has made it out to be although if you are applying for a mortgag on your own.

Ok, I will find something positive to say again, but here is an extract from the Central Bank.
"The traditional January effect was evident in mortgage lending, with residential mortgages increasing by about €1 billion or just over half of the €1.9 billion rise in December. Annual growth in residential mortgage lending has declined consistently since July 2004; this trend continued in January, when the underlying growth rate fell to 26 per cent from 26.5 per cent in December."

Now I'm no genius, but if the growth in residential mortgage lending is declining consistently, then you need to ask what causes the growth to reduce.
That could mean that house prices are moderating or the number of mortgages being taken out are falling or both.
If it's the former, then why buy a house as an investment because your potential capital gain looks to be moderating. This is not good.
If it's the latter, demand must be falling, at a time when supply is at a record high, which is not good either.

But I have a positive point, the growth is still above zero

gerrydublin

dcr22B wrote:

Morning lads,

I don't think it's as hard to get a mortage as D'Peoples Voice has made it out to be although if you are applying for a mortgag on your own.

I'm actually going to collect the keys of my first house with my girlfriend this afternoon and even though we're not on brilliant money, the lending institutions were willing to give us a mortgage for more than we can afford.

I've bought in Lusk myself and I think I've timed it perfectly as that area is going to expand dramatically over the next 3-5 years.

thanks Lads, I think

dcr22B, at least you're more positive than D'Peoples Voice.

Victor your comment about there still being a lot of pent up demand from the 1970s baby boom is promising to hear, although it's the trump card we keep hearing about from the estate agents when someone mentions a slowdown. Playing devil's advocate, if these people are not buying now because they can't afford a house at today's prices, what makes you believe they can help bid up the prices in the future! Surely they can only stop house prices from falling. But hell, I can tell my friend that these people you talk about from the baby boom are waiting for their SSIA to expire, and then they will use that as a deposit, thereby adding to the price speculation again. I know, I know, that does not explain how they will get a mortgage for the remainder based on their salary, but that a minor problem