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Some signs of stability in rental market
07 March 2010
What next for the rental sector?
It has been a tenant’s market for some time, with landlords having to endure falling rents and oversupply of properties in many areas.
But investors will be relieved by the tentative signs of stability emerging in the market.
Rents across the country rose for the first time in more than two years in January, with a report by Daft.ie registering a 1 per cent rise. Over the course of 2009 rents fell by just over 15 per cent, following on from a 12 per cent fall in 2008.
Niall Clarke, lettings manager of Lowe & Associates, one of the largest letting agencies in Dublin, said despite falling house prices people were continuing to rent rather than buy. ‘‘January and February have been very busy for rentals across the city. Six months ago it was very much a tenant’s market.
A lot of the rental market was made up of residential properties that weren’t selling. Now there aren’t as many of those properties coming to the rental market," said Clarke.
But Clarke said he would be ‘‘reluctant’’ to predict a rise in rents for the rest of the year.
‘‘In some areas rents have gone up slightly, but it depends on the property and the location," he said. Overall, Clarke said he believed the market would be stable for the rest of the year.
The combination of a tightening of supply, a fall-off in the buy-to-let investor and resilient demand has stabilised rents, said Eileen Sheehy, managing director of Sherry FitzGerald Lettings.
Sheehy said she had noticed an upsurge in demand for rentals in the docklands area.
‘‘Rents for two-bedroom apartments in the IFSC have increased by more than 15 per cent since last autumn, with current rents now at an average of €1,400 per month. Comparable two-beds in the south city centre are achieving €1,300 per month," she said.
Jonathan Fenn of Space Property Consultants said that in some areas of the market, rents had bottomed out. Areas such as Dublin 1 had recently seen a surge of activity, he said:
‘‘The opening of the Luas red line extension proved to have a strong effect on the lettings of apartments in Dublin 1, in schemes such as Castleforbes Square."
Eileen Sheehy said that although the market had strengthened in recent months, tenants had remained vigilant and were shopping around for good value, with landlords responding accordingly. ‘‘Properties in need of refurbishment or not accessible to public transport are no longer attractive to tenants," she said.
An oversupply of properties put downward pressure on rents over the past two years, with the number of properties available to rent rising from around 5,000 in January 2007 to 23,000 in August 2009.
Last month, Daft recorded that the stock of rental properties had fallen to 19,000, a drop of 20 per cent. But, in spite of that, oversupply remains a problem in many areas of the country.
‘‘The rental market overall is still soft," said economic consultant Paul Murgatroyd.
‘‘There’s a plentiful supply of apartments, but hopefully rents are stabilising. But the government hasn’t created any jobs so there’s not going to be any sustained uptake in the market."
For tenants, the trend of renting rather than buying is likely to continue, with mortgages becoming increasingly difficult to gain and uncertainty remaining over economic stability and job security.
‘‘If you can’t get the finance, or you don’t have the urge to buy, then renting is a very viable option. If you want value, renting is the way to go," said Niall Clarke.
‘‘I’ve just rented a period house in Rathgar for €2,250 a month to people in their mid30s.They’re paying €550 each for a room, so why wouldn’t they rent? The mentality has changed since the boom, that urgency to buy is no longer there. Younger people are happier to rent until their personal circumstances dictate that they need or want to buy."
Agents agree that one and two-bed apartments are easiest to let, with three-beds harder to shift. Areas in Dublin that continue to be popular with rent e r s include Ranelagh, Rathmines, Stillorgan, Sandyford, Drumcondra, Stoneybatter and the docklands, as well as Dublin 4 and 6.
Average rents in Dublin city now range from €800 to €1,200 per month for a one-bed apartment, between €1,150 and €1,600 for a two-bed, and from €1,350 to €1,800 for a three-bed.
Lease lengths remain at a standard 12months,but agents have reported an increase in tenants requesting break clauses in or around the six-month mark.
Anecdotally, lower rents are being agreed between some tenants who are already living in the unit and their landlords, as landlords attempt to avoid their property falling empty. Such price reductions are not recorded, because the property is not advertised.
Where units are advertised, tenants are continuing to haggle on price, but not to the same extent as they did in the past. ‘‘Tenants aren’t haggling as much as they were six months ago - previously they might have sought, say, a €150 reduction in rent, whereas now they might only suggest €50 reduction," said Renagh MacDonald of Hooke & MacDonald.
Jonathan Fenn agreed that ‘‘all tenants have a go’’ at negotiating the rent downwards. ‘‘If the landlord is anxious, then sometimes they drop the rent a minuscule amount to secure the tenant, but if there is a lot of interest in the property they don’t bother," he said.
Although property prices are now about half of what they were at the peak of the market, the buy-to-let investment sector remains at a standstill, with no incentives available for potential investors.
Last year, the government reduced the tax reliefs for new and existing investment mortgages, and taxes were introduced on properties other than the family home.
Added to that is the fact that mortgage interest rates are set to rise over the coming months. Frank Conway of the Irish Mortgage Corporation said that while rising rents would fuel the argument for buying investment properties, the frail state of the market will continue to deter even those who can gain finance.
‘‘The downturn has separated the amateur investor from the professional, and only professional investors will return to the market," he said.
‘‘Investors will want to see convincing evidence that the property market is on the rebound before they will consider returning."
Any move will be hindered by a lack of credit. ‘‘Banks have shied away from lending to investors, except in very strong cases," said Conway. ‘‘They are looking for larger deposits and charging higher interest rates. Typically, deposits of 20 to 25 per cent are required and interest rates would be at least 4.5 per cent, compared to less than 3 per cent for standard variable loans."
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