Institutional investment in residential property in eland fell by 80 per cent in 2023 and 2024, according to the Central Bank.
“Inward capital flows and equity financing for new residential development have fallen markedly,” the bank’s director of financial stability, Mark Cassidy, said at the publication of the regulator’s latest Financial Stability Review.
A deterioration in global financial conditions would have implications for development financing and could exacerbate recent falls in private capital for residential development, he said.
Inward investment in residential property here averaged €450 million a year in 2023 and 2024 compared to an average of €2.5 billion in 2021 and 2022, he said.
“The availability of this type of equity financing is particularly important for meeting supply targets for residential property over the medium term,” Mr Cassidy said.
Changes announced this week to the State’s system of rent controls were primarily designed to staunch the exodus of foreign capital.
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The Government’s new plan will permit landlords to reset rents at market rates when tenancies end instead of being tied into 2 per cent increases under the former Rent Pressure Zone (RPZ) rules.
Asked for his view on the changes, Central Bank governor Gabriel Makhlouf said the regulator had not had the time yet to adequately assess the changes. “But we do know – from international experience – rent controls have an impact on housing supply,” he said.
In its review, the Central Bank warned that rising geopolitical tensions, shifts in global trade policy and higher economic uncertainty have increased risks to the Irish financial system.
“As a small open economy, with a high reliance on foreign direct investment from the United States, Ireland is particularly exposed to recent trade tensions and external macrofinancial developments,” Mr Makhlouf said.
“In the short run, the main channel through which these developments are likely to affect the domestic economy is uncertainty as well as a reduction in external demand,” he said.
Mr Makhlouf noted that there had already been some softening in consumer sentiment while “industry engagement points to cautiousness among companies, at least for now, in terms of new investments”.
Any reduction in activity by US-owned multinationals, particularly “in economically concentrated and trade sensitive sectors” such as pharmaceuticals and ICT, could affect employment, tax revenue and investment here, the governor said.
In its report, the Central Bank said the outlook for global economic growth had deteriorated, with the euro zone vulnerable to a further escalation of trade tensions, due to its openness and lower growth prospects.
On speculation that the European Central Bank (ECB) may pause the current sequence of interest rate reductions in July amid the uncertainty, he said the bank was not on a predetermined path and was instead making decisions meeting by meeting.
“It’s not obviously clear as to what we should do at the next meeting. On the other hand, inflation is destined to be around our target [2 per cent],” he said
“We’re now in the territory where we’re likely to remain ... whether that means at the next meeting we decide not to move depends on the facts,” Mr Makhlouf said.
Frankfurt cut interest rates again last week but hinted at a pause in its year-long easing cycle, with inflation running at 2 per cent and uncertainty over US tariffs still to play out.
