Shares in Ires Reit soared to their highest level in eight months on Monday after Taoiseach Micheál Martin signalled over the weekend that the rent cap system may be changed, or even removed, this year.
Shares in the State’s largest private residential landlord jumped as much as 4.2 per cent to just over €1 before closing with a more modest gain of 2.9 per cent on 99 cent.
Mr Martin said in an RTÉ Radio 1 interview on Sunday that the Government would explore an alternative to rent pressure zones (RPZs) by the end of the year when they are due to expire which would protect renters but “also enables people to have a clear, stable environment in which to invest”.
RPZs were introduced in Ireland in late 2016 and were designed to cap rent increases in areas where there is high demand for housing and for rental homes.
Ires’s 3,672 apartments and houses in Dublin are in such zones, where the rent cap is set at the rate of inflation, or 2 per cent, whichever is the lower. Irish headline inflation was running at an annual rate of 1.4 per cent in December.
Analysts say the rent cap has contributed – along with a surge in interest rates – to the underperformance of Ires’s shares in recent years. The shares are trading at a deep discount to the company’s latest stated net asset value (NAV) as of the end of last June of €1.26.
“Any change or improvement to the regulatory environment would provide a positive catalyst for Ires Reit’s earnings potential and asset values,” said John Blake, an analyst with Cantor Fitzgerald Ireland, adding that ongoing European Central Bank (ECB) rate cuts this year should also help reduce the discount at which the stock is trading.
A report from the Housing Commission last May called for reform of the RPZ regime, arguing that it should be replaced by a so-called reference rents system that ties rates to local buildings of a similar quality.
Pat Farrell, chief executive of lobby group Irish Institutional Property, said the “crude 2 per cent rent cap” had been one of the main reasons for apartment construction “falling off a cliff” in recent years.
“I think the new Government has come to the realisation that it needs to do something to get institutional funding – I’m talking about pension funds – into the market if we are going to reach its ambitious housing targets,” he said. “The ongoing presence of rental caps in their current form has damaged institutional investment for Ireland [in housing] in the broadest sense.”
Ires’s long-standing weak share price performance led to a Canadian activist shareholder, Vision Capital, starting a campaign almost two years ago to get the listed company to break itself or put itself up for sale.
Ires reached a truce with Vision last in April by offering two board seats to nominees of the Toronto-based firm as the group continued a strategic review into its options and the share price remained under pressure. Ires hired property industry veteran Eddie Byrne as its chief executive that month, succeeding Margaret Sweeney.
The board concluded in August that a substantive sale of the group or its assets – which Vision had been seeking – was not in Ires’s best interests, though it committed to a “capital recycling programme”, selling off noncore apartment assets to unlock some value for investors.
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