Why bother investing in Ireland?

maninasia · 28-03-2011 04:07PM

Euroland wrote: »

When Obama threatened to do that Microsoft replied that they would simply change their company registration address and stop being an American company. Obama quickly withdrew from this idea.

I sincerely doubt it was that simple. Do you think Microsoft can tell the federal government, one of their biggest purchasers of software and who actually make the rules regarding monopolies and licensing, what to do?

maninasia · 28-03-2011 04:13PM

Euroland wrote: »

I’m not talking about that particular estate, I’m talking about overall picture, our residential properties are undervalued relatively to many other countries in the world.

As regards to the rent, relatively to many other countries in the world, our residential rents are very low (as a proportion of average household income).

Your argument seems to consist of 'the price of our houses is now cheaper than some other places in the world'.

A bit like saying my crashed car is good value compared to yours speeding towards that great big concrete wall over there.

I have to call you out for selective logic and poor reasoning and simple lack of commonsense. You have an agenda to push for one reason or another. The situation is complex, you can't just pick and mix this indicator or that statistic and say this is what is going to happen to suit your vision.

I can give you a reasonable guess of what will happen though. The world is going through an inflationary period now due to increased demand and quantitative easing and instablity in Middle East but bosses and countries are loathe (or simply cannot) increase their employees pay. Businesses margins will be squeezed with this inflationary pressure too. In essence many people are caught in a trap, it will take years for real incomes to rise again. I'm talking not just about Ireland but large areas of the Western world in particular. What happens in Ireland will be dictated by the world at large, I'm not sure if you can see that from your particular little pond.

shoegirl · 28-03-2011 04:25PM

maninasia wrote: »

Your argument seems to consist of 'the price of our houses is now cheaper than some other places in the world'.

A bit like saying my crashed car is good value compared to yours speeding towards that great big concrete wall over there.

I have to call you out for selective logic and poor reasoning and simple commonsense. You have an agenda to push for one reason or another. The situation is complex, you can't just pick and mix this indicator or that statistic and say this is what is going to happen to suit your vision.

+1

This argument is trotted out time and time again, and the reason our rents appear to be notionally "lower" is because they are being compared with places like Manhattan and central London with exceptionally high rents and huge differentials in living standards between have and have not.

The real marker of whether or not a rent (residential or commercial) is "cheap" is by comparing it to an area with similar demographics, similar size and relatively similar income streams. The real issue in Ireland is outside-of-Dublin prices, which are largely being dictated by Dublin levels but not benefiting from the kind of more intensive growth you get here associated with it being a significant population centre.

So by rights we should be comparing prices in Dublin with somewhere like Denver rather than huge cities with massive financial districts like London.

But the real differentials become much more obvious when you look at the cost of living in cities like Galway (a small town by German standards) or Cork, which are not far behind Dublin in terms of cost of living, but well behind in terms of diversified development, transportation and other areas.

Euroland · 28-03-2011 04:39PM

K-9 wrote: »

House prices in Europe remain above long-term average; Further price declines likely in Spain, Ireland, the Netherlands, Italy and France

Decent article from 2010, showing the rises to 06, the UK being expensive and we only now are starting to get interest rates rises with more to come.

OK, there are several problems/issues with this report from DB colleagues:

1) They don’t disclose the base for their calculations so you cannot verify their initial data (whether it matches the actual numbers in each country)

2) They don’t disclose assumptions in their formulas (one can only guess what do they precisely mean by the price-to income ratio as there might be several meanings to it)

3) They didn’t include the rent affordability ratio (rent to gross household income), which is critical for identifying the pros and cons for each of the markets

4) They don’t disclose their assumptions regarding classification of numbers in their indicators (who they classify one result or another)

5) This report focuses only on a few Western countries, whereas for seeing full picture we also have to look to the other parts of the world

Despite that, they correctly highlight the problem with our high price-to rent ratio (exactly what I mentioned before, we cannot use it alone, as it gives for Ireland absolutely distorted picture), which should only come together with the rent-to-gross household income ratio (rent affordability ratio), which would disclose how affordable are the rents in each country.

Summary: this report contains so many unknowns and misses the critical ratio, so it is difficult to take it seriously and make any judgment based on it.

K-9 · 28-03-2011 04:47PM

I've a notion I could throw reports at you all night and it's pointless, you've your mind made up based on old, out of date data and will not accept anything disagreeing with that.

Euroland · 28-03-2011 04:51PM

shoegirl wrote: »

So by rights we should be comparing prices in Dublin with somewhere like Denver rather than huge cities with massive financial districts like London.

But the real differentials become much more obvious when you look at the cost of living in cities like Galway (a small town by German standards) or Cork, which are not far behind Dublin in terms of cost of living, but well behind in terms of diversified development, transportation and other areas.

We have to compare capital with capital or capital with the largest city in the country as the largest cities/capitals usually take all financial pressures associated with corporate rentals and massive influx of foreign professionals/labor. Please don’t forget that during the last few years Dublin is quoted (The Global Financial Centers Index 9) among the 25-35 largest financial centers in the world, and Denver is nowhere to be seen in that rating.

Euroland · 28-03-2011 04:56PM

K-9 wrote: »

I've a notion I could throw reports at you all night and it's pointless, you've your mind made up based on old, out of date data and will not accept anything disagreeing with that.

The opposite, my view is up to date, but right now I don’t have time to show the numbers. Hope to show at least some of them very shortly (by country/largest city: average price/average gross household income/average rent and the ratios).

Amhran Nua · 28-03-2011 04:59PM

Euroland wrote: »

Despite that, they correctly highlight the problem with our high price-to rent ratio (exactly what I mentioned before, we cannot use it alone, as it gives for Ireland absolutely distorted picture)

No they don't, they say the exact opposite.

The economists say that of course, this simple house price-income indicator is an inaccurate measure of affordability, as it does not capture interest rate movements.

...

The economists say price-to-rent ratios still signal sizeable mispricing in Europe. The ratio increased in (almost) all OECD countries between the late 1990s and 2006. With prices falling in most countries and rents remaining comparatively stable, this ratio has almost fallen back to its 15-year average - - in the US a bit more than in the Eurozone. However, they say it is necessary to differentiate between developments in the Eurozone, as the Eurozone indicator has a strong downward bias due to the big weight of Germany in the indicator. In most Eurozone countries the price-to-rent ratio is still more than 20% above the 15-year average and significantly above the longer-term average (35 years) or compared to the long-term lows.

Can you clarify exactly why you think rents are too low, since this is why you are rejecting the key rent to price ratio metric? Rents are set by what the market will bear, for the most part, with upward distortions arguably being introduced by rental allowances. As far as I can see you're saying that landlords set prices too low during the bubble, and should now increase them, despite there being a surplus of rental properties available due to amateur speculators buying "investment properties"?

Count Dooku · 28-03-2011 06:09PM

Euroland wrote: »

To some extent, yes. Government was subsidizing the owners, owners in turn, were even more subsidizing the tenants. This is why Ireland for many years had unhealthy rental returns situation, and still has.

If it unhealthy unhealthy rental returns situation, then government should build more NAMA properties and let them on market with cheaper price
Burn previous investors and let new investors benefit from unwise decision of their predecessors

raymann · 28-03-2011 06:21PM

ive literally never seen anyone get schooled as hard in a thread as this euroland fella.

quick question for you though buddy, do you think interest rates are going to stay at this rate for ever? what do you think is going to happen if these all time historical lows, as crazy as this sounds, turn out to be temporary?

as an aside i cant believe he put two shoebox new build apartments up. you couldnt give those to a sane person.

Euroland · 29-03-2011 03:20PM

Amhran Nua wrote: »

No they don't, they say the exact opposite.
Can you clarify exactly why you think rents are too low, since this is why you are rejecting the key rent to price ratio metric? Rents are set by what the market will bear, for the most part, with upward distortions arguably being introduced by rental allowances. As far as I can see you're saying that landlords set prices too low during the bubble, and should now increase them, despite there being a surplus of rental properties available due to amateur speculators buying "investment properties"?

OK, according to Daft Q4 2010 report the average nationwide rent was €830 a month or €9,960 a year. The average national gross household income in 2009 was €56,522 a year. Therefore, our national rent affordability rate is €9,960/€56,522 *100= 17.62%.
Which means that with only 17.6% of our average gross household income people in Ireland can pay the average rent. However it is not the case in many other countries where this ratio would be of 30-50-80-100% (and people get used to live with it). I believe that the average worldwide ratio should be around 50%, making our rents significantly below the average. Therefore, the problem in our price-to-rent ratio is not the high price, but rather then unusually very low rent (being subsidized for many years). So, should we have the average rent price close to the world’s average (i.e. 50%, or €2,355 per month), you would immediately notice that our properties are undervalued. For example, €200,000/ (€2,355*12) = 7.08, which is a very attractive ratio indicating that our properties are undervalued.

Euroland · 29-03-2011 03:26PM

raymann wrote: »

quick question for you though buddy, do you think interest rates are going to stay at this rate for ever? what do you think is going to happen if these all time historical lows, as crazy as this sounds, turn out to be temporary?

There is a relatively high probability that the interest rates would go up this year, at least once or twice, as the “German Frenchman” Trichet is highly obsessed with inflation and he doesn’t care about Ireland and other “small” economies, which are in desperate need of low interests.

Euroland · 29-03-2011 03:33PM

raymann wrote: »

as an aside i cant believe he put two shoebox new build apartments up. you couldnt give those to a sane person.

Why don’t you like those apartments (60-70 sq. meters each)? It is a very typical accommodation for families in other European countries, first of all in Eastern Europe. Over 40% of all Europeans are living in apartments whereas only 3% of Irish people live in apartments. If you go beyond Europe the ratio of people living in apartments sometimes can be even much higher, up to 70%.

beeftotheheels · 29-03-2011 03:50PM

shoegirl wrote: »

Another issue is that (if David McWilliams is correct) up to 1/3 of companies "locating" here for tax purposes create no employment here at all, and our tax havan status depends heavily upon decision makers in the US and UK continuing to turn a blind eye to global repatriation of profit for tax purposes or all of Kenny's advocacy in Europe will really be in vain. What Dr Merkel thinks about Ireland's tax rate matters nothing if the US finally do what they have been threatening to do for years and stop US companies from moving certain types of profit offshore to evade tax.

First of all a point on semantics - companies like MS and Google do not move income streams offshore to "evade" tax. Evasion = fraud = illegal = criminal. If this was evasion the US could have ignored the structures and taxed the income. They move their income streams offshore to mitigate their tax liabilities which tax authorities refer to as "tax avoidance" - which they tend to disapprove of, but it is usually legal.

The second point is that tax, like any other cost of a business, reduces profits. Companies try to control their costs including tax. If the US were to negate the benefits of the "double Irish" structure tomorrow, MS and Google and co would immediately have to make a tax provision in the billions of dollars and this would have a negative impact on their share price - the reverse of what happened with Astrazeneca releasing their tax provision yesterday boosting earnings by 7%.

http://www.guardian.co.uk/business/2011/mar/28/astrazeneca-tax-refund-hmrc-irs

This would make US companies uncompetitive compared with their global competitors, and that is a reason why the US will not immediately close down the structure. They may phase it out over time as a trade off for a rate reduction as the UK is doing at the moment, but they won't shut it down tomorrow or any time soon - it is worth too much to US MNCs.

Amhran Nua · 30-03-2011 10:31AM

Euroland wrote: »

Which means that with only 17.6% of our average gross household income people in Ireland can pay the average rent.

Okay, well a few points here. First of all you haven't actually supplied any figures to substantiate what you are saying. Secondly many household incomes at that level will already have a mortgage, so comparing average household income to rents is fallacious. Younger people who are more likely to rent may just be staying at home with the family or emigrating.

Thirdly and most importantly, as I've already mentioned, market forces set rents far more so than house prices, which is why the rent to price ratio is so important. Renters are mobile in terms of work and in terms of where they choose to live, and there are a surplus of options available to them. So what mechanisms do you see forcing rents up? Vaguely implying that landlords have been giving renters too soft a time is mad, landlords set the rents as high as they can, just like any business. If they are falling, they can't set them any higher.

Euroland · 30-03-2011 02:48PM

Amhran Nua wrote: »

Okay, well a few points here. First of all you haven't actually supplied any figures to substantiate what you are saying.

OK, let’s take Moscow, for comparison:

Average rent in Moscow in 2010 was 69,400 RUB (€1,731) per month or €20,778 per year, expected to grow 5-8% in 2011.

In 2010 average salary in Moscow was 38,200 RUB (€953) per month and average gross income per household was 126,420 RUB (€3,154). In annual terms it means average annual salary of €11,436 and average annual gross household income of € 37,848.

So, using the ratio of average annual rent to average annual gross household income we get €20,778/€37,848 = 54.9% (while in Ireland we have only 17.6%). Which means that average Muscovite household spends 54.9% of their average gross household income on rent. However, it should be noted that over 80% of Muscovites live in own accommodation and only around 700,000+ dwellings operate on Moscow rentals market.

Similar ratio pattern remains for the whole country.

Here you can find a little bit in English (just to get some flavor of Moscow rental prices):

Apartment rent in Moscow and New York: comparative analysis

http://evans.ru/moscow_newyork/

Invest in Moscow Real Estate

http://evans.ru/investments/

Basics on property prices in Moscow:

There is no information available on overall average dwelling price in Moscow (or Russia); traditionally they only provide data on market segments and on per sq. meter basis:

In 2010 average selling price for new properties was 205,900 RUB (€5,137) per sq. meter, and for the second hand properties 166,100 RUB (€4,144) per sq. meter.
Therefore, for an average new property with 50 sq. meters expect to pay €256,850 and with 100 sq. meters €513,700. Average second hand property would cost you €207,200 (for 50 sq. meters) and €414,400 (for 100 sq. meters).

In 2010 average new apartment in Moscow had 94 sq. meters. So it should cost around €482,878.

And here are the prices on quality accommodation in central Moscow (analog of D1-D8 in Dublin):

http://evans.ru/search/?type=set&set=fiplaces

Later I will step-by-step post the property data for other countries/cities around the world, but the pattern is clear: Ireland has one of the most affordable rental markets in the world, which creates serious problems for our price-to-rent ratios.

K-9 · 30-03-2011 03:24PM

Well it's hard to compare to Moscow without knowing details.

Home ownership here is one of the highest in Europe and of those who rent, the majority are in receipt of Rent Allowance. That is under pressure for budgetary reasons and was one of the reasons rent dropped, people couldn't afford to make up the bigger difference.

Over supply is a slight problem here too which will skew the market for the foreseeable future.

Amhran Nua · 30-03-2011 03:37PM

Euroland wrote: »

OK, let’s take Moscow, for comparison:

Average rent in Moscow in 2010 was 69,400 RUB (€1,731) per month or €20,778 per year, expected to grow 5-8% in 2011.

In 2010 average salary in Moscow was 38,200 RUB (€953) per month and average gross income per household was 126,420 RUB (€3,154). In annual terms it means average annual salary of €11,436 and average annual gross household income of € 37,848.

So, using the ratio of average annual rent to average annual gross household income we get €20,778/€37,848 = 54.9% (while in Ireland we have only 17.6%). Which means that average Muscovite household spends 54.9% of their average gross household income on rent. However, it should be noted that over 80% of Muscovites live in own accommodation and only around 700,000+ dwellings operate on Moscow rentals market.

Similar ratio pattern remains for the whole country.

Here you can find a little bit in English (just to get some flavor of Moscow rental prices):

Apartment rent in Moscow and New York: comparative analysis

http://evans.ru/moscow_newyork/

Invest in Moscow Real Estate

http://evans.ru/investments/

Basics on property prices in Moscow:

There is no information available on overall average dwelling price in Moscow (or Russia); traditionally they only provide data on market segments and on per sq. meter basis:

In 2010 average selling price for new properties was 205,900 RUB (€5,137) per sq. meter, and for the second hand properties 166,100 RUB (€4,144) per sq. meter.
Therefore, for an average new property with 50 sq. meters expect to pay €256,850 and with 100 sq. meters €513,700. Average second hand property would cost you €207,200 (for 50 sq. meters) and €414,400 (for 100 sq. meters).

In 2010 average new apartment in Moscow had 94 sq. meters. So it should cost around €482,878.

And here are the prices on quality accommodation in central Moscow (analog of D1-D8 in Dublin):

http://evans.ru/search/?type=set&set=fiplaces

Later I will step-by-step post the property data for other countries/cities around the world, but the pattern is clear: Ireland has one of the most affordable rental markets in the world, which creates serious problems for our price-to-rent ratios.

Er Moscow is one of the if not the world's most expensive city. Despite which many of it's citizens are on less than €200 a month, and rental prices are not the same for the whole country. Moscow also has a population of 11.5 million people, almost three times the population of this entire country, and no, you can't compare capital to capital just because they are capitals. Compared to Bangkok Dublin is drastically overpriced.

Picking that as an example to support your case isn't a reflection of reality.

Can you answer my question please, about what mechanisms you see forcing rental prices up?

ei.sdraob · 30-03-2011 04:36PM

Are we still wasting time comparing Dublin to worlds most important capital cities?

Euroland · 30-03-2011 04:42PM

Amhran Nua wrote: »

Despite which many of it's citizens are on less than €200 a month

These are only retirees on a minimum state pension and there are just a few percents of them, they all have own apartments and don’t pay rents. Many of them have other sources of income (i.e. sub-letting, etc).

Euroland · 30-03-2011 04:47PM

ei.sdraob wrote: »

Are we still wasting time comparing Dublin to worlds most important capital cities?

In the Global Financial Centers Index Dublin goes well ahead of Moscow, for the last few years Dublin being within 25-35th place range, while Moscow within 65-70th place range.

Euroland · 30-03-2011 04:50PM

Amhran Nua wrote: »

rental prices are not the same for the whole country

Yes, rental prices are lower so are the income levels, more or less keeping the same rent affordability ratio at 55%

Euroland · 30-03-2011 04:51PM

Amhran Nua wrote: »

Compared to Bangkok Dublin is drastically overpriced.

We are not talking about general overpricing; we are talking about rent affordability.

Amhran Nua · 30-03-2011 04:52PM

Euroland wrote: »

These are only retirees on a minimum state pension and there are just a few percents of them

Proof, source, evidence, anything... Here's a bit more info:

The average salary in Moscow makes up approximately 33,000 rubles ($1,000). The average salary in the rest of Russia makes up 15,000 rubles. A manager in Moscow receives 27,000 or 30,000 rubles ($900) a month, whereas the same manager in other large cities – Krasnodar, Yekaterinburg or Krasnoyarsk, for instance – would be paid up to 10,000 rubles ($320) for the same job.

So the average salary in Moscow is basically what you'd get on the dole here. Despite which it was rated the most expensive city on earth in 2009. Do you think that might have an effect on the proportion of wages being spent on rent there?

Amhran Nua · 30-03-2011 04:53PM

Euroland wrote: »

We are not talking about general overpricing; we are talking about rent affordability.

I give up.

Euroland · 30-03-2011 04:56PM

Amhran Nua wrote: »

Can you answer my question please, about what mechanisms you see forcing rental prices up?

First of all, both sides (landlords and tenants) have to learn about the fact that our rental market is significantly underpiced. And only when everyone will become well aware of and accepts that we can start discussing the mechanisms.

Count Dooku · 30-03-2011 05:02PM

Euroland wrote: »

OK, let’s take Moscow, for comparison:

How many ghost estates in Moscow?

Count Dooku · 30-03-2011 05:03PM

Euroland wrote: »

Why don’t you like those apartments (60-70 sq. meters each)? It is a very typical accommodation for families in other European countries, first of all in Eastern Europe. Over 40% of all Europeans are living in apartments whereas only 3% of Irish people live in apartments. If you go beyond Europe the ratio of people living in apartments sometimes can be even much higher, up to 70%.

Where we will get a jobs to employ so many people?

Euroland · 30-03-2011 09:14PM

Amhran Nua wrote: »

1) Proof, source, evidence, anything...

2) Here's a bit more info:

3) So the average salary in Moscow is basically what you'd get on the dole here. Despite which it was rated the most expensive city on earth in 2009.

4) Do you think that might have an effect on the proportion of wages being spent on rent there?

1) I can give you many links, however all up to date data would be in Russian. Are you OK with it?

2) Your info is out of date; salaries/income levels in Russia grow very fast, so, you better trust my numbers given above.

3) No, our dole is still higher, if you include accommodation and other allowances/benefits. Our dole used to be the highest in the world, and still remains among the highest.

4) This is exactly what I was talking about since the beginning, the poorer the country the higher proportion of household income spent on rent.

Count Dooku · 30-03-2011 09:19PM

Euroland wrote: »

3) No, our dole is still higher, if you include accommodation and other allowances/benefits. Our dole used to be the highest in the world, and still remains among the highest.

IMF will not subsidize forever so generous welfare benefits and at one stage the only choice for government will be to increase taxes to levels what we had in 80's and as result disposable income of household will fall dramatically

Why bother investing in Ireland?

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