Investment Opportunities In The Depressed Ireland Real Estate Market

In Ireland, the economic boom and skyrocketing home values of the 1990’s are a fading memory. The current global recession has devastated the Irish housing market, and has …

In Ireland, the economic boom and skyrocketing home values of the 1990’s are a fading memory. The current global recession has devastated the Irish housing market, and has lead to plummeting home prices. The depressed prices could present investors with opportunities to profit, though, if they look in the right places. See the following article from Pathfinder International for more on this.

In the 1980s, Ireland was a relatively poor country with a struggling economy and a real estate market that had never really got started. Then the 1990s brought the Celtic Tiger, with economic growth rates of up to 11%, skyrocketing property prices and Europe’s highest cost of living.

Now in today’s world recession, Ireland has come full-circle. Economic growth is negative, unemployment is rising, and property prices have fallen sharply. Developers in particular are under pressure, as banks are calling in their debts. Many properties are ending up in the hands of court-appointed receivers.

I left Ireland in the late 1980s, heading for better economic prospects in the UK. The Economist magazine cover said it all in 1988, when it called Ireland the “Poorest of the Rich”. The average house price at this time was about €50,000.

The same magazine cover less than ten years later, in 1997, told a rags-to-riches tale: “The Celtic Tiger: Europe’s Shining Light”. By the end of 1997, the average home price had jumped to over €93,000.

And by the peak of the market in 2007, the average price had soared even higher to €311,000. Anyone buying (and, of course, selling) at the right time, profited handsomely. Other less-fortunate buyers were priced out of the market, even for modest countryside homes.

But by September 2009, average prices were down to €232,500 (off 25% from the peak)…and falling.

I watched this cycle personally in late 2005, when I temporarily relocated back to Ireland from the UK, and moved into one of these “average” houses. That is, of average size, finishings, build quality and location…just like thousands of other “average” houses across Ireland.

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It was valued at €220,000…and in less than two years the asking price had climbed to about €330,000.

Now fast-forward to late 2009, and that house is worth only €199,000 fully furnished. And that’s if you can find a buyer…a buyer who can get financing under the banks’ new tightened lending criteria.

The economy has slowed, and large numbers of migrant workers, previously employed in the burgeoning construction and hospitality sectors, are leaving Ireland for their home countries. This has lowered demand for rental properties, leaving lower returns and high inventories. Rent prices fell by up to 30% in the last year.

All this is bad news for many homeowners, but it has thrown up some interesting opportunities. Owning a home in Ireland—a dream of many—is actually within reach again.

But you need to be selective about what you buy…many properties with reduced price tags look enticing, but they still don’t make financial sense.

There are many homes for sale. Some sellers are still looking for high prices—unwilling or unable to concede that the market has changed. For others, the issue is finding buyers who can still obtain a decent level of financing. Unemployment is 12% and rising.

And the developer’s market is not stable yet. One site purchased by a developer for €460 million at the height of the boom is today valued at €60 million. Many developers are bust. Lending to builders and developers comprises roughly 28% of all bank lending, and the banking system is on shaky ground. The banks are calling in loans, and many developers can’t afford to pay. Their properties often end up being sold by a receiver.

For example, an upscale housing development of 14 houses only sold one property on launch in late 2007, with prices starting at €1.2 million. Then the developer cut prices by up to 30% in mid-2008, but only sold two more. That still wasn’t enough, and the properties ended up with a receiver who slashed prices by more than 50% in September, 2009. The remaining units sold, but at prices starting at €599,000…half of the original price. These houses had high-end finishings: porcelain and marble floor tiles, under floor heating, central vacuum, and expensive handcrafted kitchens.

At those prices, I think these properties had hit rock bottom and were a good value.

Another such property attracted the attention of colleague Ronan McMahon. It included 14 houses, a 10,000 square-foot country mansion, 47 acres, fishing rights and outbuildings. The property was in the hands of a receiver, and was open to offers. The guide price was €1 million. Subsequent interest from a number of potential buyers has pushed the price closer to €2 million. But that’s still a long way short of the property valuation at the time of the boom, when the 14 houses alone were valued at €7 million.

This also is a gorgeous property, attractive to the horsey set or someone thinking of using the property for corporate use. At a price of €2 million, it’s a great value.

Both these property examples are high end. They are also the type of property that you should think about buying in Ireland today—a unique property with intrinsic value, that longer-term, will hold its value.

Now’s the time to consider a dream cottage on the coast or a country manor, that you simply couldn’t afford before now.

On the other hand, there’s still a glut of “average” houses on the market. A recent report for the Ministry of the Environment estimated that there was an oversupply of 136,000 residential units. One website alone lists just under 40,000 properties from €150,000-€200,000. So I’d use caution here, and not buy an “average” house that has no special or unique qualities, unless you plan long-term relocation in Ireland.

There are too many of these “average”  houses, and I don’t think the market for this type of property has bottomed out yet. For these, I’d hold off to see what 2010 brings.

This article has been republished from Pathfinder International. You can also view this article at Pathfinder International, a site discussing international real estate opportunities.


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