Investors, first-timers likely to buy“, so says the headline in the property section of today’s Irish Times in response to the recent Budget.  It goes onto to say, “the Budget’s concessions to first-time buyers are designed to get potential residential property buyers off the fence.”  It is a little way into the article before one of the elephant’s in the room is revealed: “banks will have to start lending on bricks and mortar again before many first-time buyers can get into the housing market.”  The other elephants are, of course, that changing the mortgage interest rate will make no difference to the wider economy, or the unemployment or Live Register rate, or that because of the wider budgetary measures everyone will be worse off and are more likely to be cautious on consumption (this was after all an austerity budget).

All of the people quoted in the piece are of course representatives of the property sector who have a vested interest in talking the market up.  No surprise then that they would like to see first time buyers plunge into the market.  The budget has not led me, however, to revise my assessment of the long term prospects for the residential property market one iota.  Spin is a wonderful thing, but is unlikely to make much difference to consumer confidence, and even if it did, many people are not in the position to enter the market.

The piece finishes with the ‘get in quick before it all disappears’ soundbite.  “Ironically, first-time buyers who are tempted to dip their toe in the market by Budget 2012 might realize it’s hard to get what they’re looking for.  Michael Grehan says that there is a shortage of the three and four-bedroom houses in traditional inner suburbs in northside and southside Dublin – the kind of properties its clients are looking for – on the market.” Only the Irish Times would think that everyone in the country wants to live inside the inner ring road of Dublin.  Even if property is tight there, and I’d want to see some evidence of this, not just the assertion of an estate agent, there is a massive oversupply everywhere else in the country.  Buyers have the pick of whatever type of property they want; assuming they can afford it and can access credit.

Rob Kitchin





Here are links to a pair of fascinating accounts of China’s ghost cities.

It is estimated that there are 64 million empty apartments in China at the minute with vacancy levels of 70% or more in a number of cities.  One city has been built for 1 million people and has an occupancy of 20,ooo.  Another is a new city designed for 12 million, the vast majority of which is empty.  As is one of the world’s largest shopping mall, with all but a handful of the 1500 units empty (6 years after opening).  Building continues everywhere, fuelling GDP growth (sound familiar?).  The assessment is that China is experiencing a massive property bubble that if and when it pops will have a massive knock on consequence for China’s economy and by implication the global economy.

Rob Kitchin



Yesterday the Irish Times reported that the Property Services Regulatory Authority (PRSA) hope to have a property register live by June 2012 that will give information on house price sales and commercial leases for 2010 and 2011.  The register will give a valuable insight into the housing and commercial market going forward and is to be welcomed.  What it won’t do is give us a detailed retrospective view of the property market at the tail of the boom and through the crash given the 2010 base date.

In collaboration with Ronan Lyons, Oxford University and economist at, NIRSA through its AIRO project has been working on producing a set of maps charting various aspects of the housing market including asking price and rental yield using‘s database.  This database includes over 980,000 rental observations and over 600,000 sales observations from 2006 through to the present day.  Importantly, the maps are at sub-county scale, plotted into over 1,000 geographical units made of aggregates of EDs and EAs.  We hope to launch the interactive mapping tool in the coming weeks, but thought we’d give a brief taster on IAN of some of the preliminary output.  The maps below are examples of our initial work and look at 3 bed semi (or equivalent) deciles of asking price , rental asking price, and rental yield. The new mapping tool will contain sales and rental prices for 2-bed, 3-bed, 4-bed and a weighted average for all 1-5 beds. Prices wil be avilable for the peak (2007 q3), current prices (2011 q3) and % fall in the average price.

Once the interactive mapping tool is launched we’ll provide some more maps and analysis of the material.

Justin Gleeson and Rob Kitchin

The general consensus amongst economists and property specialists is that the housing market is yet to reach its price floor.  Prices have fallen by 40-50% across the country and are expected to fall by c.60% by the time they are fully unwound.  There has been some speculation that the market might recover quite quickly, especially in the cities, with population growth cited as the prime factor to drive such a turnaround.  The hope is that Ireland might mirror the reasonably rapid recovery of the mid-1990s Finnish property crash, rather than the stagnation of the Japanese crash from the late 1980s wherein present property prices are still below those twenty years ago.  My own view is that the Irish crash will be nearer to Japan’s experience than Finland, with property prices unlikely to rise to peak 2007 prices for at least another ten to fifteen years, and longer for some parts of the country.  There are six reasons why.

1.  Still unwinding

As noted, Ireland is experiencing a steady but relatively slow unwinding of the property market, with property prices still falling.  They seem set to keep falling for at least another 12-24 months and possibly longer.  Until the market has fully unwound there will be no correction or growth.  And once it’s unwound there are a number of factors, set out below, that are likely to see the market flatline or only grow marginally for a number of years to come.

2. Oversupply

The property sector have tried to spin the data around oversupply every which way they can to make the issue appear better than it is.  Principally they’ve tried to focus on unfinished estates, arguing that oversupply is brand new, complete but vacant property.  They ignore the stock still being built on these estates and the vacant, brand new and under-construction one-off properties around the country.  They also largely ignore the vacant stock in the rest of the housing stock, principally on the argument that any property that is owned does not represent a problem, despite the fact that it can still be a part of the housing market and affect that market.  The Census 2011 preliminary results reported that there are 294,202 properties around the country that are vacant and habitable (14.7%).  Some of these properties, c.80-100,000 are holiday/second homes.  In any housing market one would expect some vacant stock, usually 3-4% (the Irish government uses a base vacancy rate of 6%).  Even in Dublin, vacancy is running at 7.8%, with a large oversupply of apartments in particular.  What that means is that there are c.200,000 vacant properties in the country excluding holiday/second homes, c.100,000 of which are in excess of expected base vacancy.  That is a substantial oversupply.  When supply exceeds demand prices fall or remain weak.  Until supply and demand are aligned, it is unlikely that prices will rise to any great degree.  For the last two years the property sector has told us that supply is running out in some areas and we need to start building again.  The data – either in terms of oversupply or units available to the market – does not yet support this assertion.  The property sector can try and spin oversupply estimates however they want but the evidence of vacant oversupply all round the country is plainly evident to purchasers.

3.  Weak demand

Demand for housing in Ireland over the past twenty years has been driven by two principle factors – population growth (net natural increase, net migration increase) and household fragmentation.  Basically, population grew rapidly (by a million people between 1991-2011) and the average household size fell.  The effect of the latter process can be quite profound, for example if the population remained the same size but the average household size fell then the population would need to occupy much more stock.  Whilst we do expect the population to grow over the next twenty years, it is tempered by two factors – emigration (there is presently net migration of -34,000 per annum) and age profile (the bulk of natural increase is accounted for by children under the age of five).  Emigration is primarily being undertaken by young adults (aged 20-40) who are at household formation stage; children under the age of five will not be at household formation stage for another twenty years.  Household fragmentation is affected by economic circumstance with children more likely to stay at home, parents less likely to separate, and young adults to share property to keep down costs.  These are often choices, not a compulsion, and until the wider economy recovers household fragmentation is likely to weaken.  One factor used to try and off-set these arguments is to focus on the social housing waiting list as evidence of pent-up demand.  In March 2011 the DECLG revealed that there were 98,318 households on the social housing waiting list.  However, 65,643 of these were in suitable housing, but they could not afford the rent and were receiving rent supplement.    The need for additional social housing stock then is c. 33,000 (still a relatively substantial need), though it’s fair to say that that much social housing stock is in need of replacement, though the State cannot afford such programmes at the moment.

4. Negative equity and mortgage arrears

Properly functioning housing markets require a mobile population.  It is estimated that at least one in three household mortgages in the state are in negative equity.  Regardless of whether they want to trade-up or down, or to move to another part of the country they are locked into their present property unless they are prepared to realise a loss.  The Central Bank estimate that over 50% of investor, buy-to-let properties are in negative equity.  When prices do start to rise at least one in three housing units with mortgages are largely precluded from moving until prices rise sufficiently that they can trade.  Moreover, 62,970 households (8.1% of mortgages) are more than 90 days in arrears on their mortgage payments and a further 36,376 have restructured their mortgages (and so far are not in arrears).  This is a substantial growth on the 26,271 households in arrears in Q3 2009 and looks set to keep rising as households struggle to meet debt commitments, and might well be joined by many investors on interest only mortgages if they are asked to start paying down the capital.  Further, 25% of properties have more than one loan secured against it.  What this all means is that a sizable chunk of potential movers/sellers are impaired and will be absent from the market for some time.

5.  Downward spiral of the economy and accessing credit

The Irish economy has been severely weakened over the past four years and household income and access to credit is much reduced.  Austerity measures are biting through various tax increases and deductions.  Many are living with a radical change in financial circumstance through unemployment (14.4%) or underemployment.  An unstable Europe and general weak global economy is having a deadening effect.  The banks are reluctant to lend for mortgage credit.  What this all means is that even if a household wanted to purchase a property, their own reserves are depleted and their access to credit restricted.  This is unlikely to change until the wider economy recovers and the banks have worked through their corrections.  This is going to take a number of years, probably the best part of a decade or more.

6.  Confidence and caution

Confidence in the property market and the property sector in general is at an all time low.  Few at this stage believe what property professionals have to say regarding the property crash, housing need and construction.  They are seen as self-interested groups who are more concerned in their own bottom-line than the state of the nation.  People view the work of NAMA with deep scepticism and lack trust in the government and local authorities to address issues such as unfinished estates and taking in charge.  Issues around poor construction typified by Priory Hall and disputes concerning pyrite in concrete have weakened confidence further.   Investment purchases by individual households, a key feature of the boom (27% of mortgages in 2007), is likely to be much less prominent giving how badly burnt many investors have been by the crash. Combined with the issues above, it seems likely that confidence will remain weak and that buyers in future will proceed with caution.  Growth when it does occur then will be marginal and hesitant, perhaps after a short dead cat bounce.   Assuming the market falls 60%, at growth rates of 5% a year, which would be a good target to aim for, it will take 19 years to reach 2007 prices.  Even in the cities, where growth is likely to be the strongest, it’s going to take some time for confidence to return.

I would like to provide a more upbeat, positive assessment, but the evidence just doesn’t support that sentiment at this time.  Ireland’s property crash, aligned with the weak domestic and international economy, is severe.  For the reasons above, it’s my view that the market is going to be very slow to recover.  It will though recover as supply and demand align and the economy stabilises and starts to grow again.

Rob Kitchin

NAMA have today revealed a bit more of a detailed breakdown of the NAMA loan book in Northern Ireland and its geography.  NAMA NI loans total £3.35bn (c. €4bn) and relate to 180 individuals and companies.  The loan book is 5% of NAMA’s portfolio.  Undeveloped land accounts for £2bn (60%), investment properties £1bn (29%), and land and property under development, £350m (10%).  Just 1% relates to residential development. With respect to Geography: 32% of the loan portfolio is located in Belfast, 21% in County Down, 19% in County Antrim, 8% in County Londonderry, 7% in County Tyrone, 7% in County Armagh, 4% in County Fermanagh and 2% in the city of Derry.

What is striking here is the amount of land in the portfolio.  I’m assuming that the £2bn figure is after the haircut is applied and using Nov 2009 prices.   Of course the market has fallen since Nov 2009 and £2bn in today’s market will buy an enormous amount of acreage, so one presumes the NAMA holding constitutes a very sizeable landbank.  Given the geographical spread of the loans, much of it has to be located in rural areas and around small towns and villages, and one presumes that it’s main commercial usage over the short term is agriculture.  It would be very interesting to get a further breakdown of the size of the landbanks, where they are, and how much was paid by NAMA for the loans on them, so as to get some idea as to how they view the long term use of the land – I’m working on the principle that much larger haircuts will have been applied to land that has limited development potential and is more suited to agriculture.

The size of the land holding in the portfolio is what troubles me.  It is the part of the portfolio that has fallen most in value and will be more difficult to sell on, unless an investor is prepared to sit on it for a while to let it appreciate in value.  Most developers seek to turn land over quickly because it’s a sunk cost with no working return.  Clearly NAMA has time to wait for the market to stabilise and recover before selling on, but even so that’s a lot of land to be managed, sold on or developed.

Clearly, one of the concerns for the Northern Ireland property market is for NAMA to destabilize it through firesales, and Ronnie Hanna, Head of Risk and Credit, who released the figures today, went on to try and reassure that this would not happen and that NAMA will act responsibly.  To quote him, he said that NAMA would:  “assist in the stabilisation of the property market in Northern Ireland, by providing liquidity to the market and by being able to take a longer-term approach where necessary”.   That’s all well and good, but what I would like to see is a more detailed business plan as to how NAMA intends to try and realise its assets over the long term in NI given the nature and geography of the portfolio.  This is likely to provide more reassurance to the property market there.  At the minute we’ll still at very broad brush generalities, though at least it’s a small step in the right direction.

Rob Kitchin

Rates of stamp duty are presently zero on values below €125,000, 7% on the next €875,000 and 9% on the balance above €1m.  In today’s budget, it was announced that the rate of stamp duty on residential property will be reduced to 1% on all properties valued up to €1 million, and 2% on the balance above €1m.  All stamp duty reliefs and exemptions on residential property are to be abolished with immediate effect (I can’t see anything on stamp duty on land, so assume these remain as is).  Abolitions include:

  • First time buyer relief
  • Exemption for new houses under 125 sq m in size
  • Relief on new houses over 125 sq m in size
  • Exemption for residential property transfers valued under €127,000

New and secondhand properties, regardless of size and price, are now liable to stamp duty for all buyers.

For first time buyers a new barrier to entry has been put in place.  On a property costing €250,000 they will have to pay €2,500 stamp duty.  Not an insignificant sum given they will also need a need a minimum of a €25,000 deposit given no lender is offering above a 90% mortgage, plus solicitor and other fees (this is more than off-set by the drop in the value of the property they are purchasing, the issue though is immediate cash in hand for a new additional expense).  For developers seeking to sell brand new properties, stamp duty is also now liable, again also potentially placing an additional barrier to sale (though again drops in prices off-set this).

For secondhand sellers and buyers the situation is a little different, with a significant reduction in the amount of stamp duty liable.  For a house valued at €250,000, stamp duty drops from €8,750 to €2,500, a significant saving.

Is this likely to get the housing market moving?  For those looking at trading up or down then the changes may well get things moving, especially at properties valued at over half a million where stamp duty costs were prohibitive (for example, a house costing €1m incurred €61,250 stamp duty; it’ll now cost €10,000).  The big issue for this group is whether they are in negative equity and therefore feel able to trade down if desired in order to reduce their overall level of debt.  For those outside of negative equity, with prices falling the price gap for trading up might remain relative in percentage terms but lowers in real terms and thus becomes more affordable.  For example, a household’s own house might have fallen 40% in value from 300K to 180K, but the house they are interested in buying has fallen 40% from 500K to 300K, with the difference dropping from 200K+26K stamp duty to 120K+3K.

The stamp duty changes then will potentially get some of the market moving into both new and secondhand homes – those that are already home owners and are not in negative equity – it will potentially slow down, however, first time buyers from entering the market (despite the increased affordability of property overall).  The big question and uncertainty for buyers, however, is the forthcoming site-property tax and how trading up might be affect household expenditure on an annualised basis, rather than a one-off payment.  For the property market to really get going – other than the economy starting to recover, people returning to work, and credit starting to flow – potential buyers will need to know where they stand with respect to future property tax payments.

Rob Kitchin