Why the Irish property market is screwed. Part 1

I’m so fed up of hearing the non-sense from so called property experts and economists on the Irish property market. Look if your business was in property would you really admit markets go in waves its been up for 30 years and now its going through a natural recession. If your news papers property section is completely funded by ads from estate agents and property developers would you really let people know that what their selling at the moment is a very bad buy… and if you did do you think they’d pay tens of thousands to advertise on the page beside that article.

“Dublin property prices inched up 0.1% in April, and were up 10.6% over the past year, with the average house in the capital now costing €429,754.” says RTE’s business site. What they actually should be saying is relative to Inflation property FELL 4.9% in a month!

And this doesn’t even start to explain the seriousness of the problem, sales figures are massively down – noone is buying whats on the market on their is a buyer seller stand off. I’ve heard of properties being valued for above 25% less than they got valued at three months before. That news makes it hard to come to a sell decision, its an ego thing. The “experts” say this is because with the change of government, stamp duty will probably be aboloshed. I believe, while that is true, its only the tip of the iceburg. The problem is property is Irish Property, in general, is no longer a good investment!

Look when everyone thinks the easy way to make money is a certain way its time to get out of the market. Every person at the water cooler ofcourse would have told you its fool proof – after all doesn’t “property always goes up over time”! Ofcourse when you take out your phone pretend to answer it and pass it to them telling them its Japan from the 80’s calling wanting their prices back, they look at you like you just kicked a baby. Residential Land in Tokyo is down almost 60% with a steady year-on-year declines.

Recently a property developer told me that he’s not going to be going ahead with any new buildings untill the market sorts itself out. See the big guns in the property market aren’t going to be the ones worst affected, some will, however if your a single teacher (or similar) who stretched yourself to buy a second house in 2006 and is subsidising the mortguage for capital gains your likely to get a devastating awakening.

Forget all the technical mumbo jumbo. This isn’t complicated, here’s why property at the moment is a bad investment.

1. A single person needs to be earning at least 100,000 to afford a reasonable sized house.

2. Population growth! (Info taken from the CSO Census 2006 – Preliminary Report.)
‘From a ten-year perspective, Ireland’s population increased at an annual average rate of 1.6 per cent between 1996 and 2006 – the largest population growth rate in the EU.’ Lots of immigrants coming over to enjoy the country while its ecomony was on fire, if/when there’s an economic cool down some will leave less new ones will come. This massively affects your rental market.

But here’s the big issue. My father came from a family of 13 kids (thats right a soccer team with subs), they all had to grow up and find houses. Large familys weren’t uncommon in those days. Now days having 4 kids is considered a status symbol! ‘The average number of children per family decline from 2.2 in 1986 to 1.4 in 2006.’ Why? Condoms, Abortions and the Price to raise kids nowdays. In fact all of the EU is a shrinking population. So in 20/30 years there wont be that first times buyers market to keep up with the availabilty of residential property coming on the market due to deaths. As the population continues to get older they will prefer spacious living accomidation rather than the tiny apartments so popular with investors nowdays.

When the stand off between buyers and sellers escilates the market drops a little because the smart people take the hit and leave graciously. Then suddenly its fashionable to be getting out of the property market, even if the market was stagnant you could still be loosing money by subsidising rents so the smart thing to do is get out, or so the talk at the water cooler goes. But now your asking people to potentially take a loss they can’t afford, so they hold on. Things get worse, houses are cheaper and therefore rents start to drop because the new sophisticated investors come in to stabilise the market and get a deal; for example housing is down 40% so new investors come in at that price, rent for 30% below 2007 market rates eventually forcing more and more unsophisticated investers into repo.

Its already started happening and i think its going to happen fast and brutally.

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