Property Bubble Going to Burst?

The usual scaremongering, with lots of "ifs" going on. People have been saying this for years.

Property is reaching its true value in my opinion. As a small coutry we are majorly affected by supply here, we have a limited amount of land, especially close to the city in Dublin. Prices will climb for another 2 -3 years and then level off with the possibility of a small decline.

Precisely. Our property was majorly undervalued for years, now demand is bringing it in line with other major European cities.

I would sell our house, bank the money and rent an equally nice one (in a nicer neighbourhood) for less than the interest paid on the proceeds of the sale.

Depends on a) how much equity you have in your house and b) how much interest you're getting.

Let's say the rent for a reasonably nice 3 bed house in a nice area is €2000 per month (you could spend double that easily enough). That's €24,000 per annum.

The best interest rate I've been able to find is 18.75% per annum on a 5year+ commitment means that you'd need €153,600 in the bank to draw down €2000 per month (as you have to pay DIRT at 20%). I'm no accountant though, so don't quote me - anyone good at figures please feel free to correct me. Of course, if you're paying out your interest as rent then it means your lump sum is being devalued by inflation so every year you are getting poorer.

Assuming she's right, and you've got equity in your house, then this might be a good option - if she's wrong then you're going to lose out on the opportunity of owning your own house.

You get nothing at the end of renting for 20 years.

You get a house which is worth something, whether it has appreciated or depreciated, if you pay a mortgage for 20 years.

Why don't people understand that? :mad:

Miss Fluff wrote:

Exactly, and that's why it's so contentious. I'm definitley not an accountant and that's why I'm interested to hear people's opinions. What she says would seem to make good economic sense but they've been saying it for years and surely supply will always meet demand???

AFAIK, supply has only started to meet demand in the last couple of years.

I heard that at the moment they are building more houses than are required.

But they are not always where people want them and from what I've heard there are some housing estates vacant around the country so that the builders can avail of tax benefits.

Keyser Soze 5 wrote:

You get nothing at the end of renting for 20 years.

You get a house which is worth something, whether it has appreciated or depreciated, if you pay a mortgage for 20 years.

Why don't people understand that? :mad:

Becasue for 20 years they get a service that people who own don't.

Renting is a viable an option as anything else.

I would prefer to own becasue I can afford something nice in a good location but if it meant a 3-4 hour round commute versus 15 minutes while renting I think I might have a different view. 225 minutes @ 5 days @ 50 weeks a year for 20 years is 781 days of commuting plus the cost of running a car doing the extra traveling.

Renting has value why can't people understand that?:mad:

Keyser Soze 5 wrote:

AFAIK, supply has only started to meet demand in the last couple of years.

I heard that at the moment they are building more houses than are required.

But they are not always where people want them and from what I've heard there are some housing estates vacant around the country so that the builders can avail of tax benefits.

SUpply can't really meet demand in Ireland due to population distribution. Dublin demand will always be higher than demand due to limited space.

I think a few statements have said it is possible that we could build more houses than we need. Mostly based on the belief we don't need houses it should be other properties.

Vcant housing estates do exist but they are holiday home estates that used tax breaks

I agree with all the rebuttals to the OP. That article is grossly misleading and shows a total lack of knowledge of both financial and economical circumstances. The prophets of doom have been harping since 1998 or so, and one would hope that most of them are still filling out their rent books in between bouts of banging their heads off the wall in sheer frustration. Am I glad I bought my first home in 2000 at the age of 23? Effin right I am.

Now, that said. I am very very sympathetic to the up and coming first time buyers. The relative youth of our population has spurred massive demand in property as we all know. The high prices that are out there are a result of cheap finance, that our parents could only dream of, and of course demand. Equality aside, the days of a homemaker (male or female) are long over, and that makes things even more difficult. I hope we're not rearing a generation of latchkey kids (another topic I know).

The villians of the piece are the planners, who through corruption and general incompetence failed to see this coming. People commuting 60 or more miles a day to work is not bloody on. (I am not one of them-although I used to be).

I am firmly of the opinion that Dublin as a city is fooked (I lived there for four years), and may never recover from the total lack of infrastructure, over-pricing in general and lack of cohesive housing strategies. I only mention it as an example, as it seems most of this community has links with the place

Another phenemenon is apartments springing up in the countryside, even in East Cork! I always though that high density housing was a solution for land shortages, not a slightly more economical way on to the ladder. These developments seem to be constructed with no thought for a decent management/maintenance set up and the earlier examples are now turning literally green from neglect, with mucky communal areas and dodgy lifts. Not good.

Good and bad in every slice I suppose.

ronoc wrote:

When you see the "owning to rent" crowd getting burned by the rental market this is a sure sign house prices are set to level off or fall.

Actually there are many people whom have gotten stung in the property game through stupidity rather than property market changes. In other words it is a sign of nothing other than humanity.

I bet you the f**king arse that wrote the thing has several properties :mad:

She's talking jibber jabber anyway, and I pity the fool

MorningStar wrote:

Actually there are many people whom have gotten stung in the property game through stupidity rather than property market changes. In other words it is a sign of nothing other than humanity.

Very true. Darwinism will always out. I fail to see the logic in paying say, a grand a month to a lending institution when claiming €800 in rent-and then calling it an investment. If I invested in stock with that kind of return, I'd string up my broker (or myself!)

100gSoma wrote:

Immigration is having a huge impact on housing. As long as the eatern euopans continue to stream in (and they will) they will need places to live. The market is not going to "burst". To many vested interests, and too easily controlled by the developers. At best it will level off.

from sunday business post.
But this has not happened. Supply has far outstripped demand, by most demographic measures. In fact, supply has expanded so massively that the construction industry now constitutes a bloated 14 per cent of the economy.

In recent months, the future of our housing market and our prosperity has been put on the broad shoulders of our immigrants. The new argument is that, even though domestic supply has caught up with our own demand for housing, the 70,000 new immigrants a year will keep demand - and prices - motoring. So, the more immigrants, the higher house prices.

But the problem with this argument is that all studies of immigration show that at a certain stage, the cost of housing affects the choice to come here or not. A recent study by the ESRI - entitled Rising House Prices in an Open Labour Market, and written by David Duffy, John Fitzgerald and Ide Kearney - suggests that, not only will the rise in our house prices have a significant impact on the amount of new people that will come here but, more interestingly, the high cost of houses will drive the immigrants back home when they reach settling-down age. Let us examine the 120,000 or so Polish workers who are here. Will they all stay? Hardly! Again, new economic studies indicate that the decision to move to another country is now a temporary one.

The young Polish workers are emigrating by text. They are being bombarded by texts from friends and moving as a result.

If they don’t like Ireland, they will go home. If you doubt this, check out Ryanair’s website: 40 per cent of its new routes are to Poland, Slovakia and other central European locations. If you ask Polish workers whether they plan to stay here, the vast majority say no. These patterns are typical. They want to settle in Poland, and now they can. They will take the money they’ve earned here and then find value back home. Unless Poland and its economy revert to communist torpor, opportunities will emerge for them back home and they will go.

This happened here. The Irish emigrants of the 1970s,1980s and early 1990s came home in their tens of thousands - close to a quarter of a million Irish emigrants have returned here since the mid1990s.This pattern is likely to be repeated with Poland, and the price of houses will actually accelerate this process.

So, far from being the underpinning of further price rises, dependency on the ‘‘immigrant factor’’ contains the seeds of its own destruction. When our immigrants tire of living three to a room, ten to a house, they will reassess the Emerald Goldmine. Magda from Krakow will wake up one day after five years here and think: ‘‘Hold on a second, I’m 30, in a serious relationship with a lad from Gdansk and I’ve no prospect of ever affording a house in Mullingar for my family - time to go.” This lifestyle choice will be repeated by thousands all over the country.

But what might pull them home apart from lifestyle choices? There is no reason to believe that the Polish economy will remain in the doldrums forever, tied as it is to the German economy. It seems likely that, as Germany emerges from its post-unification coma, Poland will recover too. If these economies do turn around, Poles will return home. Euro interest rates in Europe will rise in tandem.

Where might that leave us, with our enormous mortgages, investment properties and our massive housing overhang the product of today’s building splurge?

As we have seen with Australia over the past 12months, interest rates do not have to rise enormously to hurt an excessively borrowed population - particularly those at the bottom layer of the pyramid.

I'm not saying I agree with speculation, just explaining the reasoning behind it is not to harvest rental income but to allow you to surf an upward property wave while someone else mainatins the majority of the mortgage payments.

I'm not suggesting for a moment that proces will continue to increase by 10% pa for 30 years, the prices will level off and slow down. I just don't believe that a crash is impending.

MorningStar wrote:

Anybody who thinks their speculative view makes them the smart one and other views the fool must have a problem understanding the nature of sepculation.

Rent yields do not determine house prices demand does and always will. Rent yields may effect demand.

On you beleif that imigration does not effect things HOK are saying in Property view that 32% of their sales are to new imigrants. The governemnet also released figures saying how the people will be staying.

Now play nice or I'll have to point out other issues about how this is all opinion and the only foolish people are those who beleive the media such as SBP

32% of their sales may be to immigrants but they are only one estate agent selling a few thousand properties a year,the vast vast majorityof immigrants rent in houses with loads of others so theres ten to a house in many cases.

rental yields are an indicator of demand for rental property which is highly relevant if these immigrants are going to be renting.40% of property bought each year is by investors who are renting it,take them out and prices wouldnt rise much.
supply is meeting the demographic demand -the rest is speculation. based on all fundamental economic measures property is overvalued,levels of incomes ,rental yields population densities etc.

ionapaul wrote:

I remember the same arguments used by dotcom bulls a few years ago...'you bears have been saying our stocks are overvalued for five years, and the NASDAQ breaks records every quarter!' 'this is a new economy, the old values are useless' 'Nortel is worth $200/share' etc etc etc. The situation is so similar to the property situation in Ireland it amazes me that others can't see it for themselves. Maybe I am only thinking like this because I believed some of the crap the first time around...however, the fundamentals cannot be ignored indefinitely, either wages and rents are going to skyrocket to match the historic ratio with house prices, or...

One big difference is property has a construction cost and is required to live. Dotcoms were all paper value. Try to get a house built and see how expensive it is. The bricks are expensive and have value. Dotcoms didn't have any assets. THe fundementals you are talking about are cost, supply and demand. People don't have to own there house so maybe what has to give is the belief that people can buy houses rather than a crash so people can buy them. Yours is a view that appears to be based on that it just can't keep going up. Seeing as we have the highest home ownership in the world I am guess that anomily will be the thing that gives first. Everyone I know who does own wants to own. Sounds like a healthy demand there. Do you know anybody who doesn't want a house or property?