Dublin House prices: 100 times their rental income!

[BarryW]

I spotted this report earlier. Its a report by Davy Stockbrokers which has found that property prices in Dublin are heading towards 100 times their rental income

Contrary to public perception, residential rents in Dublin are not rising to any great extent, yet property prices are still rising at a huge rate.

On the basis of the figures it seems that the buy-to-let market is completely untenable, and anyone intending to do so should have their heads checked - which is something that most estate agents whould have done, considering that they all think that buy-to-let is an infinitely sound investment to make at the moment

[JCSkinner]

So, what's the average value to rental income ratio around the world, then?

[Maximus]

I spotted this report earlier. Its a report by Davy Stockbrokers which has found that property prices in Dublin are heading towards 100 times their rental income

Contrary to public perception, residential rents in Dublin are not rising to any great extent, yet property prices are still rising at a huge rate.

On the basis of the figures it seems that the buy-to-let market is completely untenable, and anyone intending to do so should have their heads checked - which is something that most estate agents whould have done, considering that they all think that buy-to-let is an infinitely sound investment to make at the moment

More gloom and doom from our Blueshirt friends….

[Libero]

Yes, those buying investment properties to let clearly need a refresher course in, well, sanity. They are - whether they admit it or not - relying on further capital gain to make any return on their investment. Indeed, they need capital gain to cover the interest on their capital repayments and things like maintenance costs.

And the more and more that an asset class appreciates in price then, (other things being equal) the less likely it is to keep appreciating.

Also, I've noticed that the reasons put forward for future capital gain are almost always of the type that should already be appreciated by investors and priced into the market. Not that estate agents will tell you this as they and their playskool "economists" harp on about SSIAs and immigration and restrictive planning.

It's a bit different for residential buyers though. They just want somewhere to live and draw utility from that. Problem is, new entrants are now paying more of a mortgage to live somewhere crap than they would in rent to live somewhere far nicer. They can keep repeating the mantra about rent money being wasted money and look to property as a pension fund, but that won't be much comfort if prices come down 20-40%.

[cyberianpan]

Rather than 100 certainly 40 is a credible multiple now


I find this very confusing becase it points towards the only reason to buy property being the expected future increase in capital value ... this this "expected increase" fuels current prices which rise and give us the "expected increase" .... something about this feels very, very odd.

Markets & humans are meant to be a lot more random & this seems to be nearly a closed system ...

PanaMana

[Libero]

Markets & humans are meant to be a lot more random & this seems to be nearly a closed system ...

[zakalwe]

just did a quick recalc on a family house in foxrock/deansgrange.

turns out that the ratio is 42.

someone has really ************************ed up in their calculations!

also done a recalc on a 2 bed (starter home) in booterstown and got a ratio of 37!

could someone back this claim up with an example? from my calculations a place that rents for E1000 a month (E12,000 per annum) can be sold for E1,200,000. Whoever thinks that needs their head examined!

[Libero]

You should read the Davy Stockbrokers' report linked to at the start of this thread. It's quite good.

It outlines the quants of how P/Es are heading towards 100.

Here's more proof of a bubble, as if market participants are ready to listen:
The evidence summarised in Table 1 refutes the theory that supply shortages are leading to rocketing prices in “desirable
areas”. If that was the case, residential rents would be rising rapidly, but they are not. On a countrywide basis, private rents
increased just 4% year-on-year in the latest quarter and were unchanged over a five-year period. Since April 2001, house
prices are up 52% on average nationwide but rents are down 2%! The average P/E in Ireland on second-hand houses using
net yields—11/12ths of annual gross rent—from official Central Statistics Office figures is now 40x, up from 26x five years
ago and 13x ten years ago.
The proposition that scarcity of land close to the city-centre makes residential property a low-risk investment is not supported
by evidence from other countries. The same argument was made in Japan in the late 1980s, as property soared in value.
Residential land prices in Tokyo are down almost 60% since March 1990; there has been a year-on-year decline in every year
since.

Investors must be extremely bullish about rental growth in order to justify the sort of record valuations ascribed to residential
property in central Dublin. To us, this looks like boundless optimism. Supply in Dublin is set to remain plentiful for the next
couple of years as we continue to build houses at a rate four times quicker than the European average. Meanwhile, interest
rates will rise by at least one percentage point over the next year, pushing investors’ break-even point lower and lower. The
amount of cash sloshing around due to SSIAs and tax cuts, and the current buoyancy of the housing market, suggest that
valuations will become even more stretched over the next 18 months. But the fundamentals suggest that it will be an
adjustment in prices, rather than rents, that will eventually bring valuations down to more realistic levels.

[morryah]

So, what's the average value to rental income ratio around the world, then?

Even going back to basics, you should be able to earn your investment back in 8 years.

montly rent *12*8 should approximate investment.

an apartment rented at 1k monthly should be worth just under 100k.

Apartments are treble that and a bad investment based on income yield.

Thus value of other 2/3 is expected capital yield i.e. confidence.

[nuj]

Between the writing and the publication of the Davy report (a day or two), the "risk-free" 10-year government bond yield they mention, against which most investments are evaluated, has risen from 3.50% to 3.75%, rendering their argument even more potent.

But cheer up, TK, it's probably just a Lab/Green/FG conspiracy.

Earnings multiples of 40 are completely unsustainable for any extended period, and most especially when interest rates are rising.