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News : Property Last Updated: Mar 13, 2012 - 4:41 PM

Irish house price fall from 2007 peak maybe as high as 68%; Prices back to fair value
By Finfacts Team
Mar 13, 2012 - 4:38 PM

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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 either."

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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