The Sunday Business PostJanuary 3, 2016 Property 31

Ireland’s property market is outperforming many of its global counterparts

on the continued rising rents in Kilkenny city,” said Ella Dunphy of DNG Ella Dunphy.

“A two-bedroom rental apartment in Kilkenny city is now achieving close to €850 per month in some areas, which is higher than 2007/2008 levels, which is ul-timately brought about by lack of supply. There is a severe shortage of large ‘turn-key’ four/five bed detached homes in Kilkenny city and its suburbs.

“We have seen a price jump of over 15 per cent for this type of property and have also seen purchasers paying between €25,000 and €35,000 per acre to acquire agricul-

tural land that could potentially be used for a residence, even though there would be no guarantee of planning permission,” said Dunphy.

This time last year, the agent saw more than five times the current amount of rental properties available in Kilkenny, and during the housing market peak (circa 2007), there could have been more than 120 properties on the market at any one time in the city.

In Dublin, Owen Reilly, who established his estate agency in Dublin’s Docklands in 2008 and handles properties throughout South Dublin, said: “I am optimistic about 2016; I believe the market is now in a phase beyond recovery and has reached a wel-come state of equilibrium.

“To generate increased activity this year, we have to find a solution to the gridlock that hinders construction of new homes for first-time buyers.

“That, in turn, is hindering the middle market to trade up and the upper end to trade down. All over Dublin city and the Docklands, developers have planning per-missions but construction is slow to start and, in most cases, commercial elements of schemes will be provided in advance of residential.

“The supply problem aside, I expect in-creased sales activity during the first half of the year that will be motivated by banks offering some flexibility on lending regu-lations up to set quotas. To capture this, a number of our clients will sell early in 2016.”

While Reilly believes prices in general have aligned with values, he expects price growth in areas where there is an imbal-ance in supply/demand such as Dublin city

centre and Docklands and prime areas of North and South Dublin.

“2016 could be the first ‘normal’ year in the Dublin property market in a generation, with price growth of 3 to 5 per cent,” he said.

Last year proved to be an exceptionally busy one in the commercial sector, which followed on from a record performance in 2014, according to Enda Luddy, managing director of CBRE Ireland.

“2015 had many ingredients, that com-bined were supportive of strong commercial real estate activity including a consider-able weight of Irish and overseas capital chasing investment opportunities, strong occupational activity across all sectors, a supportive economic backdrop, strong job creation, rental growth, yield compression, muted development activity and very low interest rates,” he said.

“Although some of these components will change over the course of the next 12 months and the outlook is constantly evolving, CBRE Ireland is confident that 2016 will be another good year for the Irish commercial property market.”

Interestingly, Luddy noted a notable shift in the investor profile in 2015with more long-term institutional investors seeking exposure to the Irish commercial real es-tate sector than was the case in 2014 when private equity investors, retail funds and domestic Reits dominated.

“Encouragingly, a significant proportion of the long-term institutional buyers ac-quiring assets in the Irish market during 2015 were Irish,” he said.

And on the retail front, Dublin’s prime retail streets are set to become key places of interest this year, according to new research from BNP Paribas Real Estate.

“Rental growth will drive investor ap-petite for opportunities on Grafton Street, Henry Street and Mary Street this year, while new and existing occupiers are on the lookout to maximise the potential that can be leveraged from the current buoyant consumer market conditions,” said Joan Henry, BNP’s head of research in Ireland.

Funds own some 54 per cent of the build-ings on Grafton Street, Henry Street and Mary Street, with four Irish funds owning some 41 per cent of the buildings on both streets, streets that boast an occupancy level of 97 per cent.

According to Henry, rental growth is like-ly to gather pace this year, with €6,000 per square metre per annum in sight for Grafton Street and €4,000 achievable for Henry Street.

Supply constraints are having an impact on the market

I believe the market is now in a phase beyond recovery and has reached a welcome state of equilibrium

Accord-ing to the Q3 Knight Frank Global House P r i c e

Index, which compares resi-dential market performance across the globe, Ireland is in a very healthy state when viewed in an international context. Ireland is one of the world’s housing mar-kets which, having seen a significant decline in prices post 2008, is now recording some of the strongest global rates of growth.

For instance, Ireland, Hungary and Estonia re-corded annual growth of 9.5 per cent, 9.1 per cent and 8.1 per cent respectively, yet both Ireland and Hungary still remain some way off their pre-crisis peaks.

Overall, Ireland has polled a strong ninth place globally for growth over the past year, with indications that it is be-ginning to accelerate again – the country ranked fifth in the world for the third quar-ter only after posting growth of 4.5 per cent growth over

the period. This indicates that positive momentum appears to have been build-ing in the latter half of 2015 which has the potential to carry into 2016.

This pick-up in activity could be a reflection of the time that prospective buy-ers needed to raise a higher deposit due to the Central Bank mortgage restrictions introduced at the beginning of last year.

However, contrary to popular perception, the deposit element of the new regulations isn’t what is holding back the first-time buyer market as the regu-lations contain significant leeway for them.

For example, a first-time buyer purchasing a house for €300,000 faces a de-posit of 12.7 per cent rather than the 20 per cent which is often misquoted. More importantly, it is the limit-ing of the amount borrowed to 3.5 times income that is turning out to be much more of a constraint for first-time buyers given that they tend to be in the early stages of their earning potential, which can be expected to grow over time.

If consideration is being given to relaxing elements of the restrictions in 2016, then tweaking this specific aspect may prove to be the fruitful element to adjust.

On the other hand, the

upper-end of the market, particularly within the €750,000 to €2.5 mil-lion bracket is performing strongly and it doesn’t ap-pear to be as credit con-strained as other market segments with cash pur-chasers still dominating. We recently sold three prime townhouses along One Per-cy Lane for in excess of €1 million which attracted ex-ceptional interest.

We expect similarly strong interest for two other prime properties we have just launched to the market, namely 4 Elgin Mews along Clyde Lane and 64 Shrews-bury Square.

Interestingly, the very up-per-end of the market for properties in excess of €2.5 million has seen a relative slowdown in activity, per-haps due to the fact that this segment of the market was very active in 2013 and 2014, which may have resulted in a lot of demand being al-ready fulfilled.

So, the Irish residential market is performing well within a global context, however, it is unusually fragmented at the moment with various value rang-es operating at differing speeds, a trend we expect to continue into 2016.

Rena O’Kelly is the director of residential property at Knight Frank

The property market witnessed many changes in 2015, among them the withdrawal of the

Capital Gains Tax (CGT) bene-fit and the introduction of the Central Bank lending rules.

The beginning of 2015 saw

healthy activity levels as con-tracts that were signed pre December 31, 2014, before the CGT benefit deadline closed, were finalised and there was an urgency to purchase by those who had pre-Central Bank lending rule approvals. But by the summer, most of these had either purchased or were on new rule approvals.

It is clear that while pur-chasers have the desire to buy, the new rules have made it difficult for many to do so. Likewise, stock levels in urban areas continue to be tight, and this has created a challenge as potential vendors

hold off offering their prop-erty for sale, as they feel that they will be unable to buy a subsequent property. The greatest challenge for many purchasers is meeting the deposit requirement.

Chartered surveyors in other parts of the country have reported that supply constraints are having an im-pact on the market too, albeit this is mainly confined to city suburbs. While the industry forecast double-digit price growth in 2015 based on the previous two years, it was evident that values stabilised in certain urban locations,

particularly in Dublin, with the regions recording price growth of around 9 per cent in some locations.

In recent years the number of private landlords has fall-en, and although residential rents are close to their peak of 2007, the cost of owning a property has increased with higher taxes, USC on rental income, Local Property Tax and the potential liability of water costs. Many landlords have left the market and oth-ers are still leaving. This is one of the principal reasons for rents increasing. Restricting rent increases to every two

years will only postpone rent hikes, but ultimately supply is the real issue. This must be addressed by the government.

Residential construction activity is beginning to pick up in some locations around Dublin in particular. These houses will begin to come on stream in the next 12 months or so and will hopefully go some way in addressing the supply/demand imbalance in the market place.

Clients are concerned about the availability and cost of development finance and, when coupled with unnec-essary planning delays, this

makes it increasingly difficult for developers to respond to market demand in a reason-able timeframe.

The Society of Chartered Surveyors Ireland recently published results on plan-ning permissions and com-mencements of residential estates of over 25 units and is concerned that figures on granted planning permis-sions in Q3 2015 accounted for just 13 residential schemes in the Dublin region. The total number of units across the 13 schemes was 852 and this represents a decrease of 59 per cent when compared to

the second quarter of 2015.House prices in Dublin have

stabilised, but we are likely to see single-digit growth of between 5 to 6 per cent in Dublin in 2016. Much of this growth is dependent on sup-ply constraints continuing in the short term.

Property prices outside of Dublin are expected to grow at a higher rate, in some larger rural towns, possibly by up to 10 per cent.

John O’Sullivan is chair of the Residential Agency Surveying Professional Group of the So-ciety of Chartered Surveyors

Irish housing market showing strong global rates of growth

Rena O’Kelly

65 Shrewsbury Square, Dublin 4: a prime property

4 Elgin Mews, Dublin 4: newly released to the market

John O’Sullivan

People want to buy, but new rules make it harder

A computer-generated

image of the Cherrywood

site in south Dublin, where

it is planned that more than

30,000 people will live and work

Enda Luddy, managing director of CBRE Ireland