Ronald Quinlan: Trophy house price crash a symptom of ailing market - Independent.ie

Sunday February 12 2012

THERE'S a detached house in Carrickmines Wood in Foxrock, south Dublin, for sale for €675,000.

Perhaps that doesn't mean much or anything to you. But for anyone with an interest in the property market, Carrickmines Wood should ring a very loud bell, for it was there in 1999 that Ireland's first £1m (€1.27m) homes were sold.

It was the talk of the nation at the time with most people thinking it was pure madness. But it wasn't quite as mad as the €2m-plus the very same houses were selling for just five years later.

Fast-forward to today and prices in the exclusive Foxrock development have fallen far below their 1999 levels to reflect what a potential buyer might be willing to pay as opposed to how much they could once borrow far too easily to meet vendors' increasingly unreasonable demands.

Not that Carrickmines Wood or even the meteoric rise above and subsequent fall from its 1999 prices is representative of the Irish housing market generally.

But it does go some way towards illustrating what economists describe as the irrational exuberance that gripped the nation in the boom years, and how that exuberance has now been replaced by what some believe to be an irrational fear of investing in bricks and mortar, or even buying a family home.

Such generalisations aren't sufficient, however, in describing just what is happening right now.

Where once there was a housing market on a national level, there are now numerous locations where transactions are taking place while other areas have ground to a standstill completely.

Accounting for these discrepancies are a number of factors including property type, price, location, availability of mortgage credit, the present and future employment prospects of potential buyers and the country's overall economic circumstances and outlook.

Taken together, these factors have seen the quiet emergence of 'micro' property markets within certain Dublin postal codes such as Dublin 4, 6, 9 and 18, as well as pockets within the capital's commuter counties of Wicklow, Kildare and Meath. Further afield, transactions are taking place in the more desirable areas close to the cities of Cork and Galway.

But just who is buying houses in these areas and just how are they paying for them in the absence of mortgage lending by the country's banks?

According to estate agents, as many as one-in-four transactions now taking place is for cash. The funds for these purchases are coming from a variety of sources. In some cases, buyers are coming to the table with cash derived from the sale of family homes that they may have sold at or near the height of the boom which they then held on to in the belief that prices had peaked and were set to fall. Relying on that belief, these buyers have held out and waited for houses in the most desirable areas to come within their reach before putting their money down.

These cash-rich buyers aren't alone when it comes to snapping up houses in the country's best locations. Other buyers are coming from the ranks of the legal and accounting professions whose day to day to work sees them tidying up the mess from the dying days of the Celtic Tiger.

Top-tier lawyers and accountants not already burned by involvement in property syndicates headed up by the likes of former Revenue Commissioner turned financier Derek Quinlan currently enjoy huge earning power thanks to the seemingly endless stream of work arising from disputes in the Commercial Court, and companies going into examinership, receivership and liquidation.

In the last month alone, figures published in the Insolvency Journal showed four firms going out of business every day.

With even middle-ranking commercial lawyers commanding several hundred euro per hour in fees and receivers charging thousands to manage and sell assets, Ireland's economic downfall has produced a plethora of high net worth individuals who can put cash down for the home of their dreams.

Not that every house is being sold to a legal eagle or a bean counter. There are of course many buyers drawn from the ranks of those who refused to buy into the boom, and who chose instead to wait for the return of some semblance of normality to property prices before taking the plunge. Many of this cohort simply worked and saved in the manner that the Irish used to do before the era of cheap credit took hold. And while their uncommon sense may well infuriate those who fell under the banks' spell during the bubble years, they have deservedly benefited from their decision to keep their feet off the property ladder until now.

But what of the property market outside of the country's most sought-after locations, and more significantly beneath the financial firepower of the select coterie who can afford it?

Well that's a very different story.

Here a potent mix of unemployment, job insecurity for those still in employment, rising taxes, falling incomes and a lack of mortgage credit has depressed house sales and prices to the point where the rental market has now begun to suffer from a shortage of supply.

Indeed, only last Thursday, figures released by property website Daft.ie revealed how the number of properties now available for rent has hit a three-year low. Interpreting those findings, Daft's economist Ronan Lyons said they suggested what he called an underlying demand from a build-up of first-time buyers.

While Mr Lyons may well have a valid point, it is one that's difficult to prove given the dearth of funding being made available by the country's banks for mortgages as they battle to repair their balance sheets.

With prices continuing to fall at rates of up to 20 per cent per annum, it's unlikely that battered lenders will be willing to loosen their purse strings anytime soon for fear that the properties against which mortgages are secured will be in negative equity almost immediately.

Potential buyers, meanwhile, will continue to stay on the sidelines, deterred by the banks' requirement for ever bigger deposits, fear of negative equity, unemployment and in many cases their future in this country.

via independent.ie

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