2012 Review:While house prices have stabilised somewhat, a two tier market is emerging, and homeowners are fearful
Can we look back on 2012 as the year when the residential property market halted its cataclysmic decline? The answer depends on where you’re sitting, literally. There is a clear two-tier market emerging between urban and rural properties.
The national average house price has more or less stabilised since February, but house prices outside of Dublin in many cases continue to fall particularly in Munster and Connaught. House prices in the capital now stand about 56 per cent lower than at their highest level in early 2007.
Sales recorded on the new Residential Property Price Register for the first nine months of 2012 are up 24 per cent on the previous year. In pockets of Dublin reports are coming in of record attendances at house viewings, a number of successful residential auctions achieving prices above the estimate and shortages of stock in some areas.
However the expiry of mortgage interest relief for first-time buyers on December 31st has driven most transactions in the last quarter of the year.
The real driver of market sentiment has to be consumer confidence. The failure of the banks to lend continues to stymie activity. Buyers can’t get the funding they need, and vendors can’t move until they have sold. There’s a significant number of houses going sale agreed only to fall through when funding fails to materialise. October mortgage figures reflected a 27 per cent annual increase in approvals, a positive development but an increase that is working off a very low base.
According to Ed Carey, chair of the residential property group of the Society of Chartered Surveyors Ireland (SCSI): “Scarcity will be an issue in 2013. Negative equity is stopping people putting their homes on the market, they can’t do business with the banks. They can’t sell up so they can’t move on.”
The combined effect of the abolition of mortgage interest relief, the new property tax and other austerity measures could apply further downward pressure to house prices next year. Annette Hughes, director of DKM Economic Consultants, says: “People’s ability to pay has been seriously impacted. I would expect that this will drive prices downwards as people won’t be in a position to borrow the same amount – it’s a further drag on disposable income which will fuel lenders’ decisions. There will be less money chasing the same properties.”
Property seizures
News this week that in the New Year the banks will get the power they need to seize control of homes in mortgage arrears, will certainly terrify homeowners already in difficulty, but it’s likely the primary focus of the new measures will be on the one-third of buy-to-let homes in arrears. (The Central Bank’s recent figures show 169,000 home loans consisting of €31 billion in debt in arrears at the end of June, with arrears for 90 days or more running at 20 per cent.)
Losing these properties is a dire outcome for their owners, but according to one of the larger estate agents, rent receivership is already big business. That is, chasing mortgage payments on rental properties from defaulting owners by intervening to redirect payment from tenants directly to the receiver or bank. This sorry development may well lead to greater housing stock levels in the New Year if the banks decide to sell some of these properties on.
Resident homeowners who are already in arrears are increasingly frustrated by the banks’ painstakingly slow response to the Central Bank’s call for them to implement clear mortgage arrears resolution plans (Marp).
A lot of activity in the market this year has been contributed to by cash buyers who now account for about 46 per cent of house sales. According to Hughes: “The good news is that those who can afford it can now buy the property of their dreams and get better value, subject to having the ability to repay.” Cash buyers accounted for 53 per cent of the sales at Allsop auctions this year, where, on average, buyers paid 35 per cent above the reserve price.
Stock levels in the capital are at their lowest since early 2007, however in Munster and Connaught the market is still well oversupplied. According to Angela Keegan, managing director of property website myhome.ie, which is owned by The Irish Times: "What we've seen from the property register this year is just over 20,000 transactions – an increase on last year – but in a normal functioning market that figure should be almost double. There is still a long way to go. The number of new builds should be about 30,000 a year, we're at 7,000 a year."
Cue calls from the construction industry for the Government to intervene to address stock shortages and to get the industry building again. There was provision in last week’s Budget for targeted incentives for already identified regeneration areas. Add to this the recent provision of loan finance by Nama to finish properties (€2 billion over the next four years) and a number of estates and multi-unit developments should begin completion from next year. This should boost some jobs and improve supply.
Price register
The introduction of the property price register has been a godsend, shining a light where previously there was none. Though it lacks house specifics, it brings far greater transparency as buyers and vendors can better inform their decisions, rather than needing to over-rely on anecdotal advice regarding the value of a property.
The new property tax is likely to cost the average homeowner between €200 and €300 annually from 2014, and significantly more for those living in cities where market values are higher. One curious provision in the new tax gives local authorities the power from 2015 to vary the rates by 15 per cent above or below the central national rates “to better match their funding”. In what reality can anyone envisage a local authority deciding it already has enough cash, and lowering its levy from the property tax?
The “mansion” tax on properties valued at over €1 million will see owners of these properties paying a minimum of €1,800 annually plus the excess over €1 million charged at 0.25 per cent. This wealth tax will affect about 1 per cent of properties. For those who felt they had covered their commitment to locally provided services in one very substantial Stamp Duty cheque prior to 2011, the new tax is particularly difficult to stomach, especially when no temporary relief was provided for.
There are deferral options for those who can’t afford to pay now, but these will attract an interest charge. It’s a concern for older people with low cash reserves, who now fear a clawback from their greatest asset by Revenue when they pass on.
The application of PRSI to rental income will certainly have investors in rental properties assessing their options. Add to this the €200 Non Principal Private Residence (NPPR) charge they will pay next year before its abolition in 2014, along with the half year property tax and landlords may seek to offset the cost by passing it on to tenants through increased rents.
Early 2013 will be pivotal for the market as the full impact of the property tax, abolition of mortgage interest relief, uncertainty in the EU and more austerity budgets on the horizon inform people’s future plans.
