| Even the most optimistic and upbeat property | | | | As an example I can summarise the exploits of one |
| developers in Ireland must now be accepting that the | | | | typical Irish property developer who, whilst remaining |
| sales values of new and refurbished properties | | | | nameless, is honest enough to quote a few facts and |
| returned in the residential market in 2006 and early | | | | figures. In 2003, after dabbling in a few small but |
| 2007 were unsustainable. It is hard to believe that | | | | successful self-build schemes, an opportunity |
| some of these practised entrepreneurs are a little | | | | presented itself to buy some land with imminent |
| shocked at the realisation that property prices cannot | | | | planning permission for residential homes. The land |
| rise and rise at rates far in excess of general | | | | alone would be a good investment as it was forecast |
| domestic inflation levels. | | | | to almost double in value in a matter of 2 or 3 years |
| As a nation, Ireland should be proud that it was able | | | | when surrounding plots were developed. So the land |
| to combat and overturn its historic residential housing | | | | is purchased and our investor is soon persuaded by |
| shortage within a single decade since the year 2000. | | | | local success stories to fund the building of a couple |
| This achievement was even more commendable | | | | of upmarket large family homes. |
| when one adds that the country also catered for | | | | By 2004 he can report that a total outlay of just |
| thousands of their own returning Irish emigrants plus | | | | over EUR500,000 per unit buys him a highly saleable |
| economic immigrants from fledgling eastern EU states | | | | asset worth EUR1 million when finally presented to |
| spurred on by tales of Celtic Tiger riches for all. The | | | | the market in early 2005. A fantastic profit margin |
| building boom needed extra foreign workers to | | | | which would have been difficult to match anywhere |
| complete the developers' ambitious plans in record | | | | in the property world. However, his financial advisors |
| time, and the workers in turn needed new homes to | | | | are quick to tell our developer that desirable high-end |
| live in, temporarily at least in many cases. | | | | property values are forecast to rise by around 40% |
| The speed of building was great for the developer. | | | | per annum for the foreseeable future. If he holds on |
| Mass production leads to the lowest possible site | | | | to his new developments for a year or so, maybe |
| costs and outgoings. The rapidly rising population of | | | | getting some short-term rent into the bargain, these |
| newcomers to the Irish state initially opted mainly for | | | | units costing half a million euros to build would zoom |
| short-term leasing of new homes. Rental incomes for | | | | into the EUR1.5 million plus category during 2007, |
| landlords and developers went into overdrive. In a | | | | making him a millionaire (in theory). He could now |
| booming economy, property values tend to get | | | | borrow even greater sums and expand his property |
| ascertained from the forecast rental capacity of a | | | | development empire. |
| housing or commercial unit rather than a calculation | | | | When 2007 arrived, our developer was delighted to |
| based upon the cost of the land plus "bricks & | | | | see similar-sized homes selling for as much as EUR2 |
| mortar". This scenario is fine if rent inflation stays in | | | | million. He borrowed even more money and |
| line with general price increases for the domestic | | | | developed more sites, dazzled by his accountant's |
| consumer. But Ireland's property market overheated | | | | reports of unexpected wealth. Almost undetected at |
| and got out of sync with the general economy. | | | | first, the boom then faltered. A few sellers in the |
| By 2004 & 2005, new house buyers had to | | | | market needed quick cash and sold their assets at a |
| accept valuations driven upwards by comparisons to | | | | little less than previous peak values. A trickle of |
| potential rental income from equivalent tenants. The | | | | cut-price offers became the market-place norm. Our |
| banks and mortgage brokers were happy to lend | | | | "millionaire" developer had never actually sold a |
| large sums for the purchases of property which | | | | property in the boom years. His stock had to be |
| seemed certain to have ever-increasing capital value. | | | | re-valued at realistic 2008 rates, tax bills paid off and |
| With big mortgages readily available, house sales in | | | | big loans repayments were eating away at his bank |
| prime urban areas were closed at prices now an | | | | balance. He had no option but to dispose of a few |
| incredible three times higher than market rates of the | | | | units ...... and quickly. |
| late 1990's. House prices in the outlying rural locations | | | | Not long ago, our developer and multiple property |
| followed suit. | | | | owner had been a typical key player in hiking up and |
| A national growth market was well established and | | | | relying on house valuations in a market of high |
| builders large and small invested in development sites | | | | demand. Now he is instrumental in seeking a much |
| nationwide. The banks could freely lend to developers | | | | fairer price for his commodity. After a couple of |
| knowing that regular sales kept the cash circulating, | | | | sales, he is still a comfortably wealthy man. But he |
| and house-buyers were content to take on high | | | | cannot afford any more investment in an uncertain |
| mortgage repayments in the knowledge that their | | | | market. So there will less building completions for a |
| investment was sound (according to the lenders and | | | | few years as he and his fellow boom-time |
| their own economic commentators). | | | | developers cool off and invest in other places. When |
| In hindsight, it is obvious that the "boom" had to end | | | | new home demand is high enough again in Ireland, |
| somewhere. When saturation point is reached in | | | | the cycle will begin once more, only this time the |
| terms of supplying the housing demand, sales | | | | pace of development will not be so hectic. Steady |
| naturally decrease. Then extra sales are forced or | | | | growth will lead to a much more stable and secure |
| encouraged by offering discounted sale prices. Before | | | | Irish housing market in years to come. |
| you know it (as first seen in Ireland last year) the | | | | Residential building output in Ireland has fallen by one |
| market value for a commonly available property type | | | | third in the last 12 months. That figure demonstrates |
| falls for the first time in years. Most buyers are not | | | | how "over-developed" the property market had |
| fools, and the next wave of sales is influenced by | | | | become, driven on by over-zealous financial |
| the demands of customers seeking out improved | | | | investment. The market simply overheated in a fairly |
| bargain offers. The developers should not be | | | | unique set of circumstances, so the corresponding |
| shocked to realise that just as they were happy to | | | | cooling-off period will probably take a little longer than |
| support the rapid escalation of property prices (whilst | | | | we all hoped. House sale price reductions have |
| lining their pockets) they are now the primary | | | | lessened on my website in the second half of 2008, |
| instigators of house price reductions and the | | | | so there is evidence that stability has commenced in |
| much-needed re-stabilisation of the property market | | | | the Irish property market. A sustained period of |
| in general. They certainly cannot blame the | | | | stable, sensibly priced Irish homes will help everyone |
| consumers and lenders who bought into their grand | | | | in the longer term. |
| schemes in previous years. | | | | |