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News : Irish Last Updated: Sep 3, 2009 - 8:07:50 AM


Irish property market may recover in 3 years or 10 years; Can there be a phoenix-style rise from the economic wreckage?
By Michael Hennigan, Founder and Editor of Finfacts
Sep 2, 2009 - 4:19:04 AM

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Image of the 37 storey tower for the site of the former Jurys Hotel, Ballsbridge, Dublin. Seán Dunne was refused planning permission for the tower but the planned development on the site and the adjacent former Berkeley Court Hotel, is now unlikely to go-ahead.

The Irish property market may recover in at least 3 years or 10 years, according to reports presented to the High Court hearing of a second application by embattled developer Liam Carroll's Zoe group of companies, for court protection from creditors, through use of the examinership process. Can there be a phoenix-style rise from the economic wreckage?

Zoe's case is that the recession will bottom out by 2010, with a general recovery beginning in 2011. A report from Dermot O’Leary, chief economist of Goodbody stockbrokers, supported this view, which would be generally endorsed by economists. It is argued, that following the beginning of a recovery, the Irish property market may in turn improve and a report by Big 4 accounting firm KPMG says assets could be worth €1.36 billion over three to five years, which would cover Zoe's liabilities and leave a surplus of €10 million.

By mid-2011, the global economic recovery will be underway for two years but given the fallout from the severest peacetime contraction since the Great Depression, it will be a fragile process.

Governments of developed countries have ramped up borrowing while the days of easy credit will not return for years. It will be  a case of once bitten, twice shy for bankers in many countries.

In the US, in the absence of equity release from rising house values, there will be less consumer spending, hitting demand from Asia, while the broad unemployment (including part-time workers who cannot get full-time employment) currently at a 16.3% rate, will weigh on the economy.

Coupled with the withdrawal of  public stimulus supports, in the recent words of European Central Bank president, Jean-Claude Trichet, there is a "very bumpy road ahead."

The Irish economy will begin recovering in 2011 but the struggle to restore balance to the public finances will be a continuing process.

It's very unlikely that the target of reducing the annual budget deficit to 3% of GDP -  the ceiling set in the Euro Growth and Stability Pact - - will be met by 2013.

The Live Register data for August, will be published today. In July, there was a total of 423,400 claiming unemployment benefit.

How many years will it take to reduce a total that may be heading for 500,000 by Christmas?

What sectors will provide say 220,000 jobs  - - equivalent to the total number currently employed in the Irish industrial sector.

ACCBank, which is opposing the Zoe examinership application, submitted a report to the court, by UCD economist Morgan Kelly, who claims the Irish property market remains inactive despite substantial price falls, and predicts the fall in property values will be “large and prolonged,” with property prices possibly returning to mid-1990s levels for the next 10 years or longer.

Michael Cush SC, for the Zoe companies, said Prof Kelly was “much more pessimistic” than other economists and the Zoe side had fully responded to his claims, Mr Justice Frank Clarke observed Prof Kelly was “laughed at” in 2007 when he predicted property prices here would fall by up to 50%. Prof Kelly was “almost right”, the judge said.

In an article on Tuesday, we provided information on data on international studies of market corrections following housing crashes.

Goodbody Stockbrokers' economist Dermot O'Leary, said in October 2008, that since April 2006, there had been some 148,000 housing units completed in Ireland, but only 86,500 mortgages were paid out for the purposes of purchasing a new home.

He said while some of these homes would have been bought without the use of a mortgage, it is clear that there had been a significant increase in the inventory of new homes over the previous two years.

The CSO said in an analysis of Census 2006, that there were 266,000 vacant dwellings in 2006 representing 15% of the total housing stock.

Of these, 175,000 were houses,  42,000 were flats and 50,000 were classified as holiday homes. County Leitrim had the highest percentage of vacant dwellings (29.3%) while 11.7% of dwellings in Dublin City were vacant at the time of the census.

There were 140,000 vacant housing units according to Census 2002.

It's clear that with capital gains tax cut from 40% to 20%, in a rising market, investors bought for example apartments on 5-year interest-only loans, with the intention of selling, without having the hassle of renting.

Now the question is, how long the unsold inventory will take to clear at a time of poor economic conditions for a significant segment of the population, even at a time of recovery?

Dermot O'Leary said last July: "Our latest weekly analysis of the Daft.ie site (the largest property website in Ireland) shows that there are still close to 57,000 second-hand homes for sale at the current time, representing over 19 months of supply on current sales rates. As we stated yesterday in relation to the US, the long-term average for supply in that market is about seven months. The US market has started to see some progress in relation to its overhang. Like with the economy, any recovery in the property market in Ireland will lag, due to significant over-capacity in the market."

Whatever, KPMG or anyone else says and for what purpose, there will be no phoenix-style rise from the economic wreckage.

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