With its economy in horrible shape, real estate prices in Ireland have dropped substantially and are expected to decline further. For investors, the current situation presents a unique opportunity to purchase real estate in Ireland at substantially reduced prices. See the following article from International Living for more on this.
The economy in Ireland is bad. Really bad. So bad, it’s set to create massive opportunity.
We’ve gone from labor shortages to unemployment pushing 14%. Emigration, the curse of generations until the 1990s, is back.
In short, the mother of all real estate and banking bubbles has imploded. The Irish government guaranteed the entire financial system’s liabilities. The extent of banking losses is breathtaking. Losses will be in the region of two to three years’ worth of the country’s total tax take.
Official statistics tell us that real estate prices have fallen by 40%. This is misleading. It hides the fact that there is no liquidity…no buyers whatsoever in many cases.
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To find a buyer you may have to drop prices by 70% or more. And if you do find a buyer, chances are the sale will fall through anyway. Financing is almost non-existent.
Let me give you an example of how bad things are. Earlier this year I met an old friend for lunch in a Dublin hotel. He just bought a new home in central Dublin. He paid $1 million. His neighbor paid $2.5 million for the same house a couple of years ago.
To clear unsold inventory of new apartments on the outer reaches of Dublin’s commuter belt, developers now need to cut prices to the $96,000 to $110,000 range. This is a fire sale. The list price on the same units would have been much higher—somewhere in the $274,000 to $356,000 range.
Before taking the plunge you need to understand the foundations that Ireland’s real estate market sits on.
In September 2008, fearing a run on the banks, the government guaranteed all deposits and liabilities of Irish banks. This put Irish taxpayers on the hook for every bad loan made and every bond issued.
After guaranteeing these loans, the government created a “bad bank” called NAMA (National Assets Management Agency). Years—maybe even decades—of inventory are now in NAMA’s hands. We have no idea what NAMA will do with it. Will NAMA offload at fire sale prices? Whatever it decides will have a dramatic impact on the market.
Foreclosures (or repossessions as they’re called in Ireland) are rare. The legal process for foreclosures is difficult. And the banks are worried about the bad publicity. But this situation may not last. This means that even more inventory could come on stream on top of excess supply. If it does, there will likely never be a level of demand that will meet current supply levels.
If your dream has always been to own an Irish cottage, now may be the time to start looking. You’ll find a deal. But keep in mind that the deals may get even better if Irish homeowners start to sell their weekend and holiday homes to raise cash.
There will be commercial and residential fire sales when NAMA decides what to do. There’ll be a lot of junk and there’ll be some great deals, too. Wait for those.
This article has been republished from International Living.