Dublin – repossessions start soon
There are lots of reasons to see recovery in Ireland. Today's second look at Ireland demonstrates its desire to be the first country to leave the European rescue programme. Property is a key factor in this.
Ireland is now forecast to have the second highest growth rate in the euro region in 2013. In February, Ireland started selling its first ten-year bonds since the bailout and five-year borrowing costs have dropped to their lowest in eight years.
Ireland already has a highly developed infrastructure.
Another encouraging factor to remember is that mortgage lending for first-half 2013 begun to rise for the first time since 2008. And, of key interest to investors, Dublin rents have risen in the past two years.
Buying price points are now good, with the average asking prices for south Dublin houses now 53% down form the peak of 2008.
Meanwhile, prime Dublin residential yields are now among the most attractive in Europe at around 7%.
Reasons for caution
If there are arguments to jump in, there are reasons to wait. The central bank is pushing banks to chase the owners of investment properties with buy-to-let loans (BtL), more than the owner-occupiers. Repossession and eviction were considered a "cultural taboo" in Ireland, always a last resort, but an inevitable consequence for many victims of irresponsible lending is that now banks are instructed to call in the loans.
Irish bank the AIB says that about 12% of Irish private home mortgages are three months or more behind with payments, by value, double that if measured by the BtL-only category.
It’s hard to borrow, with bank financing unavailable in Ireland to non-Irish nationals that are non resident. As a result, foreign institutions are entering the market with their own funds. Another cloud, says Hong Kong based Irish property expert Paul Burke, is the unwelcome LPT (Local Property Tax) of 0,18% levied on properties under €1 m and 0.25% value thereafter.
The repossession Issue
International buyers often like distressed assets, thinking they are bargains, even though most of these are not located in the prime areas and much of it would not pass the professional investors’ criteria. Dublin’s popularity makes it more capable of absorbing repossessions than provincial towns.
More repossessions loom as the six main lending banks AIB, BoI, Ulster Bank, PTSB, ACC and KBC now have specific targets to sort out 20% of distressed customers by the end of June 2014, and 50% more by the end of 2014. Much depends how fast the banks deal with repossessions to allow the market to find a true price floor.
Bear in mind
So you’ve decided to bid for a distressed Dublin home. Don’t expect rapid results. In Ireland the domestic economy is towing the property trailer and the 2013 budget and new property tax kept the hand break on.
Interest rates are creeping up, with 170,000 Irish households facing rising mortgage rates from this week, as the AIB increased its variable rate from 4.00 to 4.44%. Ireland has no restriction on foreign home ownership but cash is king still for non resident buyers, unless they are able to raise funds overseas.
Burke believes foreign investors are distinguishing Ireland from the UK, Ireland's closest neighbour, with UK property seen as over priced (OECD report this week). Dublin is the only native English speaking member of the euro zone offers a discount to real value.
Burke agrees with a groundswell of professional opinion that Ireland's property market has moved into a recovery stage but specifically, led by Dublin.
When it comes to Capital Gains Tax: there’s good news. As an incentive to buy now and before end 2013, properties purchased in this period will not pay CGT if held for seven years.
Fundamentally, Burke is all about location. "In Dublin, go for the most affordable property in the prime districts and compromise on internal accommodation size and not on location," he advises. It’s not always wise to try to guess the next up and coming area in Dublin. Some of Dublin’s less desirable areas are not going to be regenerated at the same pace that we are familiar with in Sheung Wan and Kennedy Town. "The Dublin infrastructure is already very developed and some of the run down areas in north and inner city Dublin will remain looking tired."