Real Estate Alliance

REA view of the Market for 2009

What Happens Next?

- REAL ESTATE ALLIANCE VIEW OF THE MARKET FOR 2009 -

 2008 was a watershed year in the Irish property market, precipitated by the arrival of the world global banking crisis.  Combined with ongoing speculation of future price reductions and issues on obtaining finance, a “perfect storm” emerged to bring about reduced buyer sentiment and ensuing a standstill in the marketplace by the end of last year. These events and the state of the property market are no secret. The question that remains is what happens next?

 With the expectation that prices are leveling out and the floor is forming in 2009, Real Estate Alliance agents expect to operate in a market with less speculation. Crucially, it seems that interest rates are going to reduce further. In fact, many anticipate that rates will fall close to 1.5% in Q2 2009. Coupled with the increase in mortgage interest relief for first time buyers, housing affordability will improve substantially in 2009. “These factors will combine to breathe confidence into the first time buyer market in the later part of 2009”, according to Paul Grimes, Chairman of Real Estate Alliance.

 Real Estate Alliance agents predict that prices are very close to leveling off and expect no more than a 10% decrease in 2009, which will be limited to certain areas. “The cooling off in prices we experienced in 2008 has rid the market of unrealistic vendor expectations. Vendors are now more motivated than they have been in recent years to sell which means that purchasers are now looking at a much-changed market and are seeing real value emerging. There are opportunities to be had and buyers are starting to see this. Enquiries have been steadily increasing over the last 2-3 months but the issues of obtaining finance is restricting activity”, according to Michael Boyd, Vice Chairman of Real Estate Alliance.

 “What has been lost sight of in the last number of years and what we may have all learned from this reality check is that a house is not a 12 – 18 month exercise in making money. Over 75% of all buyers opt for mortgages of greater than 20 years, it therefore makes sense to look at property in this timeframe or at least in a 5 – 10 year window when they may be thinking of moving”, he said.

 Commenting on the sales of new homes, Healy Hynes, director of Real Estate Alliance said, “Although new homes were not a key feature of the market in 2008 and first-time buyers only accounted for small percentage of purchases of new homes, all the indicators are that by the end 2009 we will experience a pick up in this sector. Decreased financing to developers means that there will be a lack of supply of new houses in 2010, which helps fuel demand.”

 Real Estate Alliance agents anticipate that decreased lower interest rates, decreased prices of up to 30% combined with increased rental yields of over 18% on last year, the investor may appear back in the market in 2009.  According to Harry Sothern of Real Estate Alliance, “the consequence of such a move would not only stabilise the market but increase vat returns and with demand for new homes picking up bringing employment back into this sector”

 With increased pressures on the development land sector and lack of finance from the banks, the supply of new homes will be at its lowest in 15 years in 2009 and activity levels will probably not improve until 2010. According to Harry Sothern of Sothern Real Estate Alliance in Carlow, “We expect development land values to drop significantly in 2009. The far sighted and cash strong developers will be keen to pick up real value in 2009 with a view to being in a position to produce housing stock when demand increases in 2010 onwards”

 Mr. Sothern also commented on the commercial retail market, “due to the lack of availability of finance there are now tenanted retail and commercial investment opportunities on the market, which would have been practically unheard of 12 - 18 months ago. The change on stamp duty will also make commercial property more attractive to investors as the barriers to entry are lower. ”

 Thomas Potterton of TE Potterton Real Estate Alliance commented in the Agricultural Market, “For the first 6 months of 2008, the land market held very firm and did not seem to be affected to the same extent as residential property.  But for the last 6 months of 2008 the market completely changed and prices fell back from anything between €5,000 and €10,000 an acre.  I would however say that there is still plenty of interest in land but the lack of funding available to prospective purchasers has resulted in a significant drop in values.”

Thomas also commented, “As regards 2009, personally I feel the land market will settle somewhere at prices that were achieved in 2004 when land in Co. Meath averaged in or around €12,000/€13,000 per acre. I think what is really noticeable is that the land market is now characterised by farmers as the investors/business people have to a great extent gone out of the market.”

 The conclusion from Real Estate Alliance agents is that we are most likely looking at a year of flat prices, followed by a gradual resumption of confidence in the summer of 2009 that may lead to more activity in 2010.  We would envisage some improvements due to the stimulus package that will come in with the change of the US president along with a decrease in inflation, lower interest rates and cheaper asset values.

- ENDS -

NOTE TO EDITORS

Real Estate Alliance is a strategic marketing alliance comprising some of the country's best-established auctioneers and estate agents. Our key focus is on locally-owned and established estate agents. With one quarter of the alliance's firms in business for more than a century, and with an existing IAVI president & five IAVI past presidents among the group's members, the alliance is characterised by the established strength of its membership. In addition, membership is only open to firms led by members of the Irish Auctioneers & Valuers Institute or the Society of Chartered Surveyors.

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