Wealth Blog

Foreign investors drive up Dublin property prices

PUBLISHED : Wednesday, 04 September, 2013, 9:56am
UPDATED : Wednesday, 04 September, 2013, 9:56am

I know you all love property investment stories. Monitoring property prices has proved a reasonably useful guide to the pace of recovery in the blighted Eurozone. Of the PIGS, (Portugal, Ireland, Iceland, Italy, Greece and Spain,) Ireland had the biggest bubble and crashed the furthest. Having only a tiny population, about half the size of Hong Kong and scary levels of both negative equity and mortgage arrears, only a year ago Ireland faced an impossible climb to get the economy going again. With galloping emigration and unemployment, it seemed impossible.

If the darkest hour is before the dawn, Irish property is now showing signs of life. But only in certain areas. Having just returned from Dublin and the western seaboard, it’s evident that any recovery is confined to parts of the capital alone. Country fields are still dotted with half-built bungalows and the shells of unfinished housing estates.    

Encouraging statistics

But Ireland’s Central Statistics Office says Dublin house prices have jumped 8 per cent in 12 months and 3.3 per cent during the month of July. Granted, that’s off a very low base, but Ireland’s Residential Property Price Index shows that nationally, residential prices rose 2.3 per cent in the 12 months to July, compared with a fall off 13.6 per cent in the 12 months from July 2011 to 2012. This July, Dublin house prices stood 7.5 per cent higher than a year previously, with Dublin apartments 11.6 per cent higher. Agents report residential rental yields are also strong, at 6 to 8 per cent in prime Dublin 4 and 2 areas. 

Only a Dublin story

According to the CSO numbers, this means Dublin house prices are now 52 per cent off their early 2007 peak and apartments 59 per cent. House prices in the rest of Ireland dropped less, about 48 per cent, with prices in the rest of Ireland down 0.1 per cent for the month of July, so it’s really only a Dublin story.

The Irish Times quoted Goodbody economist Dermot O’Leary as saying Dublin residential prices are now rising at their fastest rate since May 2007, due to tightening supply. “Of some concern is the fact that this acceleration in price inflation has come without any pick-up in mortgage lending,” he said.

Wherever you go in Ireland you hear resentment at the conduct of the Irish banks, which, in spite of enormous bail outs, are still reluctant to lend, while the Government continues its austerity drive. The average Irishman is still gloomy and in negative equity – so it must be foreign investors who are pushing up house prices, because it’s certainly not the locals. 

Time for an insightful chat with Paul Burke, Hong Kong’s Irish property expert, who monitors things closely. He agrees the major recent driver for Dublin house prices has been foreign investors, who have piled in as the Euro has appreciated 7% against the dollar and similar amount against sterling in the past year. “Dublin residential prices rose 8% in euro nominal terms during the past year also. It’s very encouraging,” he says.

Like everyone else, Burke has been trying to gauge the bottom of the Irish market and is about to take the plunge. In January 2014 he plans to buy “something in Ballsbridge Dublin 4,” a prime area. He has a short list of apartments priced under € 300,000 (HK$3.1 million). “The basket of affordable properties in that price range is becoming smaller, while the euro is becoming more expensive,” he says. “But the strengthening in prices is encouraging in the context of an environment where domestic Irish financing is limited.” He thinks that Dublin will become increasingly attractive to British investors as well. Dublin is both an attractive yield and capital play, he adds, and the strength of the currency is just "icing on the cake" for investors holding sterling and dollars. “There is no other European capital that currently offers similar investment returns.”

The vast number of home owners in Dublin with negative equity will no doubt be cheered by these property indicators. Burke predicted in precious columns that "Dublin would be the first euro zone capital to recover," but he admits he didn't anticipate the recovery in residential prices and currency would be quite this sharp or fast.