Sunday, February 01, 2009By Diarmaid Condon
Britain has long been a favourite for Irish property investors. In fact , it has been so popular that there has been a tendency not to treat it as an overseas destination at all, such is the level of comfort exhibited by Irish investors there. This probably explains why Britain, of all markets worldwide, is still showing some signs of attracting Irish investors, despite the protracted economic downturn.
For people involved in development in Britain, this isn’t as positive a trend as it may sound, unless they are prepared to list their units at significantly reduced prices.
Amateur investors who will buy property at whatever price it is listed have been wiped from the market, and what remains is a core of hard-nosed bargain hunters.
Consequently, current Irish interest in the British market is very limited in scope, and basically consists of investors looking for bargains from distressed sellers. As well as continuing property price slides, the euro has been on a particularly strong run against sterling, and is currently standing at around 94p to the euro - meaning that Irish investors are now getting almost 30 per cent more for their money in Britain than was the case just a year ago.
The flipside of this scenario is that, like the US dollar last year (which has gone from $1.58 per €1 last April to $1.29 now), it is predicted that this strength of the euro against sterling could be very short lived, so investors are taking advantage on two fronts.
First, the currency is enabling far cheaper purchases, which may well increase in value if sterling recovers as expected. Secondly, the British market is currently in freefall, throwing up a lot of distressed product. This is adding to the attraction for Irish investors, who simply can’t pass up a real bargain.
British property website Rightmove claims to have seen a strong surge in buyer interest over the last few weeks, with the number of enquiries to agents more than doubling in the first weeks of 2009, compared with the same period last year.
The website estimates that prices are now within 10 per cent of the bottom of the market, and it claims that last month’s price decline of 1.9 per cent is ‘‘consistent with the market bottoming out in the latter part of 2009’’.
The site says that there is a ‘‘chronic lack of new supply both in the resale and new homes markets, which is at odds with both the 1990s UK housing downturn and the current experience of high unsold inventories in the US’’.
‘‘The reticence of discretionary sellers to come to market, and the relatively low number of forced sellers, have seen new listing numbers plummet. Add to this the collapse in the supply of new homes from developers and a massive shift of unsold stock to the letting market, and the result is a dramatic reduction in the oversupply that has been present since early 2008.”
The site estimates that there are 1,000 fewer developments currently being marketed, compared with this time last year. This has, however, meant that the letting market is now starting to experience similar oversupply, from which the sales market appears to be emerging.
With repossessions almost doubling and tens of thousands of homeowners facing negative equity, the British Property Federation (BPF) has called for a professional, branded rental sector, incentivising landlords to provide homes to rent over the long-term. It is also calling for changes in stamp duty and a return to the direct payment of local housing allowance (LHA) to landlords, to help encourage more of them into the market.
According to Miles Shipside, of Rightmove, 2009 could be the year of the property de a l. ‘ ‘The market has plumbed the depths, with agents reporting sales being achieved at a discount of around 25 per cent from peak boom prices,” he said.
‘‘Even though growing unemployment and an increased number of amateur landlords failing to let will add to the amount of forced sales, the reduction in the number of properties coming to market appears to be aligning supply and demand more quickly than in previous downturns.”
While the lowest base rates in history (currently at 1.5 per cent) have not fully fed through to British mortgage rates, those who can raise finance can now buy a lot more property for the same monthly repayments. This is stimulating interest from investors who are looking for a better home for their cash, while other asset classes are giving poor returns.
According to Eilis FitzGerald, of Irish property portal OverseasCafe.com, the site was receiving considerable traffic from people looking for information on the British market. She said there had been more than 50 solid enquiries for information on repossessed British property listings since the beginning of January.
‘‘Investors are looking hard for deals, with most people only considering property that is being sold for at least 40 to 60 per cent be low peak market values,” she said. ‘‘Those investors remaining in the market are seasoned campaigners who avidly hunt bargains and haggle mercilessly, so this environment suits them perfectly.”
While the British residential market continues to limp along, its commercial equivalent is also struggling. Returns from commercial property were down by 5.3 per cent at the end of 2008,with total capital value falls at over 27 per cent for the year. The overall peak-to-trough decline since July 2007 now stands at 35.5 per cent. According to Ian Cullen, of Investment Property Databank (IPD),vacancy rates climbed steadily over 2008, moving up to 8.5 per cent in retail and 14.6 per cent in the industrial sector.
The retail sector suffered particularly badly over the final quarter of 2008, as severe trading conditions forced several high-profile retailers into administration.
Seamus Keating, an Irish agent selling in Britain, said that funding was a crucial issue, giving investors with cash a distinct advantage. ‘‘Lending options shrunk rapidly in 2008,” he said. ‘‘The withdrawal of KBC from the UK buy to let market last summer was a particularly big blow for Irish investors.”
According to Keating, investors who funded British purchases using what initially appeared to be cheap euro borrowings were suffering, as sterling’s retreat has eaten into their rental returns. With sterling interest rates having sunk lower than their euro equivalent, these investors are now suffering on the double.
As for predicting the market going forward, Liam Bailey, of Knight Frank, said: ‘‘The reality is that forecasting has become a game of luck - the ability to forecast sentiment, the Libor and base rate spread, or the next government intervention, is impossible with any degree of accuracy.”
