Dublin house prices will rise again this year after yet another record 12 months in the Dublin property market. A shortfall in supply of good quality properties combined with readily available finance has pushed house prices to new heights.

The latest Department of the Environment statistics show second-hand house prices increased by 24.4 per cent in the Dublin area in the 12 months to October, 1997, and while official statistics are not yet available, the out turn for the year looks like being about 26 per cent. This brings the average price of a second-hand home in Dublin above £100,000.

However, this is only an average figure. Some areas of Dublin have seen phenomenal increases - well above the 30 per cent mark. The southside led the way as usual with Dalkey, Dun Laoghaire, Killiney, Rathgar, Sandymount and Ballsbridge being particularly popular. On the northside, areas such as Clontarf, Sutton, Castleknock, Howth and Malahide have been the main movers.

There are a number of reasons why these areas are proving so popular and they are partly historic. Locations such as Ballsbridge, Sandymount, Clontarf and Sutton have been popular for many years and it appears they will remain so for the foreseeable future.

In more recent times, Dalkey has made headlines as a "home for the stars", with some notable sales of houses to people like Grand Prix driver Damon Hill and musician Enya down the coast in Killiney. Obviously, the DART is also a major influencing factor in attracting commuters to these areas as well.

Other areas, too, are showing above average increases and these tend to be adjacent to what might be termed the "hot" locations. With the general scarcity of property in the Dublin 4 area, Dublin 6 and 14 have become a lot more popular with Dundrum, Churchtown, Rathmines and Rathgar all showing increases ahead of the average. Similar trends have been witnessed in other areas around Dublin.

The influence of the Celtic Tiger cannot be understated. With the increase in the number of high-tech industries operating from locations such as the Sandyford Industrial Estate, Blanchardstown, the CityWest Business Park and East Point Business Park, properties in those areas have also seen major price rises.

Investors are also playing a very much increased role in the market and roughly 20 per cent of all residences are being bought for investment purposes at present. With the reduction in Capital Gains Tax to 20 per cent, this figure may well rise in 1998.

THE large number of investors in the market has also contributed to the price rises. Many investors are young professionals who see residential property as offering better returns on capital than many other sectors. In fact, many investors are now building portfolios of residential property as an alternative to a pension scheme.

At the higher end of the market, landlords are expanding their portfolios to meet increased demand for rental properties. Residential properties of all types are proving popular with investors, from inner-city apartments to large residences in the more popular suburbs. With the rising student population and the scarcity of homes available for first-time buyers, the rental property market will remain strong for the foreseeable future.

This is not to say that first-time buyers are being priced out of the market, however. While national pay agreements are restricting annual pay rises, there is strong evidence that actual pay levels are rising much faster than these limits, particularly in industries such as healthcare, electronics, financial services and software. This has resulted in a situation where, despite price increases of up to 30 per cent in the period, mortgage repayments as a percentage of net income for first-time buyers have risen just 3 per cent from 24 per cent in 1996 to 27 per cent now. This clearly shows that residential property remains affordable.

Although Dublin house prices are jumping almost month by month, there is some good value to be had in the market for firsttime buyers. Many are now house-hunting away from the traditional prime suburbs, and lookin to neighbourhoods like Ringsend and Irishtown on the southside, and North Strand, north of the Liffey.

The £100,000 average house price will buy an artisan cottage or a former local authority house in these mature inner city suburbs. The large number of new homes built in west Dublin and north Kildare over the past number of years which are now coming back on to the market means that there is less pressure on the housing supply in those areas, again leading to good value. With increasing numbers of young professionals buying such homes, these areas are very much Dublin's up-and-coming locations.

FOR the future, there are no signs of a let-up in the market nor any evidence of overheating. During 1998, Gunne would expect increases to average out at about 12 per cent in the Dublin area. This slower rate of increase will be mainly due to the fact that prices of many properties are approaching the maximum level which people can afford and the market will reflect that.

We would expect price increases to be closer to the rate of inflation in the longer term.

This, however, does not take into account the number of returning emigrants who bought about 10 per cent of the houses purchased in 1997. A rapid increase in their numbers will be reflected by stronger price rises. Other factors which could push the increases above the 12 per cent level in the coming year are the number of new industries attracted to the Dublin area by the IDA and larger than expected increases in employment generally.

There will be no fall-off in demand for residential property for at least another decade. The ESRI forecasts that demand for homes will run at 32,000 a year for the next two years and at 28,000 a year for the five years after that. This equates to a requirement for 268,000 new homes over the period. This demand is being fuelled by returning emigrants, the growth in the number of investors in the market, and the number of people purchasing homes who are choosing not to sell their existing residence and letting it out instead.

Unless urgent steps are taken to increase the amount of serviced residentially zoned land in the Dublin area, new home construction is unlikely to keep pace with demand and the residential property market will remain buoyant, with demand outrunning supply for many years to come, although not with the spectacular rates of growth witnessed over the past two years.

Frank Doonan is Managing Director - Residential, Gunne Estate Agents.