Goodbody Stockbrokers says official Irish house
price data likely understates the fall from the 2007 peak which maybe 68%
compared with the CSO's index which is at 48% and does not track the current
high level of cash sales. Using data from auctions held by Allsop Space, the UK
firm, the brokers say house prices are now close to or back at fair value.
Dermot O'Leary, chief economist at Goodbody,
says: "Allied to tight credit conditions, housing oversupply and a weak
domestic demand environment, the lack of transparency on sales prices in the
Irish residential property market has contributed to the prolonged nature of the
Irish housing market crash. Auctions, however, do not face the same privacy
restrictions, and thus give an important snapshot of the current transaction
prices for property in Ireland. In a report based on Allsop Space auctions
released this morning, we estimate a 68% decline from the peak. Our analysis
shows that the average rental yield on these sales is 8.8%.
While cautioning on the small sample size, the
data set provides an opportunity to assess whether the price declines so far are
sufficient. On rental yields, the 8.8% average from the auctions is now slightly
higher than the long-term average of c.8%. Secondly, with a 68% price decline
from the peak, we estimate the price/income ratio stands at 2.8x (with a 60%
price decline the ratio stands at 3.7x). This compares to a long-term average of
3.5x - 4.0x in the UK.
While it would be our contention that prices
are undershooting due to lack of access to credit and a weak domestic economy,
this analysis suggests that residential property, at 60%+ from peak, is now
transacting for prices very close to, or at, fair value. The Allsop Space
auctions have brought an added transparency to the market that was badly needed.
The impending introduction of the Irish property register should also help.
A key ingredient for any recovery in the Irish property market is credit
availability. Last year, 14,000 mortgages were advanced (11,000 excluding
top-ups and re-mortgaging), some 93% below the peak level and back to levels
last seen in 1971. While transactions will not get back to the peak, these
levels are unsustainably low. With prices now transacting at the margin for more
than 60% below the peak levels, the fear of further large-scale price declines
should not be the major determinant to demand. Credit availability shouldn’t be
The report 'What price is residential property
really transacting for?' says a diverse range of residential properties were
sold in the Allsop Space auctions, ranging from a vacant two-bedroom
apartment in the north-west of the country that sold for €20,000, to a €2.3m
home on one of Dublin’s most sought-after streets. The average price of
residential property sold in the auctions was €145,000. On average, prices
achieved were 34% above the reserve price.
In terms of the type of buyer, 87% were Irish,
while 61% were investors. The majority (72%) were bought with cash, highlighting
the difficulty in accessing finance for property purchases.
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