Dublin property prices falling by €4,500 a month

[thegeneral]

This is an interesting email I was forwarded by a friend 2 days ago in response to the RTE programme. I think its interesting. I should say I do not work for the company that did it, nor does anyone I know, I am just doing this for debate. I expect some of you may have seen this email given the nature of your work in economics but doubt all have.

PRESS RELEASE

April 17th 2007


‘FUTURE SHOCK – PROPERTY CRASH’ PROGAMME IRRESPONSIBLE JOURNALISM SAY CBRE

Property consultants CB Richard Ellis today dismissed last nights Future Shock – Property Crash’ programme, which explored the possibility of a housing market crash in Ireland over the next few years, as ‘irresponsible journalism’. Whilst the housing market is to some extent outside the core remit of CB Richard Ellis, who focus specifically on commercial property, they feel it is necessary to comment on last nights programme on the basis that such unbalanced negative speculation could ultimately unnecessarily create imbalance in the Irish economy and property market overall. According to the property consultants, no-one is denying that there has been a notable change in the performance of the Irish housing market in the first quarter of 2007, compared to the extraordinary market conditions witnessed this time last year but the biggest threat to housing market performance is actually confidence. They believe that airing sensationalist programmes like this focussing on ‘what if’ scenarios’ will actually serve to further fuel negative sentiment rather than facilitating the welcome soft landing that has been emerging in recent months.

CB Richard Ellis says that it had been expected that a combination of higher interest rates and increased supply would ease demand to some extent in the first half of 2007 and that this would inevitably result in an easing in the pace of price appreciation. However, they say that no-one anticipated the negative impact that recent political interference and unfounded negative commentary in the media in recent weeks would have on sentiment and confidence levels. They say that we are now in a situation where all the fundamentals that have been supporting the Irish housing market for the last decade are still intact but the pace of buying activity has essentially halved as a result of nervousness and uncertainty. On this basis, the company take particular issue with the unfounded doomsday scenarios presented in last nights programme which they feel will only fuel this negativity further.

For many years, the independent research team at CB Richard Ellis, Ireland have been dismissing many of the sensationalist reports that have predicted the demise of the Irish housing market, particularly those like last nights programme that use examples of boom-bust scenarios that have occurred in other economies. According to Marie Hunt, Director of Research at CB Richard Ellis “The property market is in simple terms a sub-set of economic activity and the fundamentals that have been driving the Irish housing market for many years now are completely unique and cannot be compared to other economies. No other country can boast the levels of economic growth that have been witnessed in Ireland in the last decade; no other country has generated the level of employment generation that Ireland has seen; no other country has seen the phenomenal population growth and levels of immigration that Ireland has witnessed and no other economy can match the decline in the average household size that has materialised in Ireland in recent years. It is simply technically incorrect to assume that that Irish house prices will decline significantly simply on the basis that this has occurred in other economies where the fundamentals were so different. It is also irresponsible to suggest that the ‘negative equity’ scenario that occurred in the late 1980’s in the UK could occur in Ireland considering that Irish lending institutions are working under the remit of the Central Bank and continue to stress-test potential borrowers to 2% above ECB rates. The sensationalist approach of last nights programme is in our view irresponsible as property is a very important issue and ultimately the general public will take the sentiments expressed last night on board when deciding whether or not to make what will essentially be the biggest financial decision of their lifetime. Would-be first time buyers who have heeded equally dramatic and incorrect predictions in the past have lost out significantly as they ‘sat on the fence’ and watched prices escalate because of the underlying fundamentals in Ireland. All we ask is that the media consider these fundamentals and adopt a balanced, informed and considered approach when dealing with such an important issue”.

CB Richard Ellis agree that it now appears that we will have to adjust to somewhat lower economic growth in Ireland over the coming years and the natural result is that property market performance will in turn decline. However, they say that we should not be entertaining negative speculation and unfounded worst-case doom and gloom scenarios when all that is being experienced is a levelling in the extraordinary pace of growth we previously experienced. They say that last nights programme should be dismissed as fiction and that a soft landing for the Irish housing market is still possible and is the most likely scenario.

ENDS
For further information, please contact

Marie Hunt
Director of Research
CB Richard Ellis
1 Burlington Road
Dublin 4
Ireland

Tel + 353 1 6185543
Mob + 353 87 2727115
E-mail marie.hunt@cbre.com

My main issue with the programme was the treating of the experience of the UK on Black Wednesday as anyway comparable evidence to what might happen in Ireland given our current demographics in particular and the fundamentals in the economy at present. Using Japan is equally spurious.

[Anorakphobia]

Why is using Japan spurious?

If memory serves me correctly, the crash in Japan was caused by an overinflated property and stock market?

For Marie and her soft landing followers, the Nikkei was at 39,000 in 1989, it is now at 17,000 18 years later.
Ah but sure those Japs wouldn't be half as clever as us Paddies, that sort of thing couldn't happen here.

[hmmm]

I expect some of you may have seen this email given the nature of your work in economics but doubt all have.

Don't see what a report from a property company has to do with economics.

Property consultants CB Richard Ellis

For many years, the independent research team at CB Richard Ellis

Riiight. In other news, independent researchers at a Bulgarian property developer have discovered that Bulgarian property is a great investment.

[Akrasia]

My main issue with the programme was the treating of the experience of the UK on Black Wednesday as anyway comparable evidence to what might happen in Ireland given our current demographics in particular and the fundamentals in the economy at present. Using Japan is equally spurious.

The program mentioned 40 bubbles that resulted in 40 crashes, not just Japan and the U.K. The researchers could not find a single instance where a building boom of anywhere near the scale that Ireland experienced ended in a soft landing.

Can you find one?

The RTE program is available to watch here for anyone who missed it.
http://www.rte.ie/tv/futureshock/

[Libero]

they feel it is necessary to comment on last nights programme on the basis that such unbalanced negative speculation could ultimately unnecessarily create imbalance in the Irish economy and property market overall

So unbalanced negative speculation causes imbalance in the Irish economy and property market? Accepted.
But what about unbalanced positive speculation? What do CBRE have to say about that? Don't they think it exists and that it's been par for the course for the last decade or so? (Property p0rn as David McWilliams calls it.)

the biggest threat to housing market performance is actually confidence

This is basically an admission that the market isn't built on decent fundamentals. If it was, all the Cassandras in the world couldn't talk it down.

They believe that airing sensationalist programmes like this focussing on ‘what if’ scenarios’ will actually serve to further fuel negative sentiment rather than facilitating the welcome soft landing that has been emerging in recent months.

So journalists, programme-makers and commissioners of programmes have a duty to facilitate CBRE's chosen economic outcome?

What infantile rubbish.

However, they say that no-one anticipated the negative impact that recent political interference and unfounded negative commentary in the media in recent weeks would have on sentiment and confidence levels. They say that we are now in a situation where all the fundamentals that have been supporting the Irish housing market for the last decade are still intact but the pace of buying activity has essentially halved as a result of nervousness and uncertainty.

Poor her. Poor CBRE. I will make sure to think of their frail emotions next time I open my mouth, lest I surprise them and upset their predictions.

“The property market is in simple terms a sub-set of economic activity and the fundamentals that have been driving the Irish housing market for many years now are completely unique and cannot be compared to other economies. No other country can boast the levels of economic growth that have been witnessed in Ireland in the last decade; no other country has generated the level of employment generation that Ireland has seen; no other country has seen the phenomenal population growth and levels of immigration that Ireland has witnessed and no other economy can match the decline in the average household size that has materialised in Ireland in recent years. It is simply technically incorrect to assume that that Irish house prices will decline significantly simply on the basis that this has occurred in other economies where the fundamentals were so different.

The South Sea company was unique, the developments leading to the stock market boom in the late 1990s were astonishing and unique. But that didn't stop investors overvaluing the real economic value that had been added and (importantly) extrapolating it forward. "It's different this time!" is the catch-cry of the person about to lose a lot of money when they caught up in sentiment and easy credit.
The idea that rising property prices cannot be overvalued because of real fundamentals is lunatic. There are real fundamentals behind all pre-bust booms, just as there are starry-eyed muppets saying it's different this time.

Incidentally, what does Ms. Hunt think of residential property investors piling into assets that yield 3 percentage points below the cost of borrowing and maintainence? What would she say to one of her commercial clients who showed interest in a similar arrangement? Or would answering that be unfounded negative scaremongering that upsets her predictions?

It is also irresponsible to suggest that the ‘negative equity’ scenario that occurred in the late 1980’s in the UK could occur in Ireland considering that Irish lending institutions are working under the remit of the Central Bank and continue to stress-test potential borrowers to 2% above ECB rates.

WTF? Did prudential regulation not exist in the UK in the late 1980s? Sure, there wasn't Basle II, but UK banks were stress-testing away during that period. Incidentally, for somebody quoting Central Bank supervision as evidence of banking prudence, she's very quiet about what the Central Bank has actually had to say on the subject of Irish banks' lending to property. Or perhaps they too were being unfounded.

[EvotingMachine0197]

1) Tenancy laws have been strengthened by the Private Residential Tenancy Board.
The vast majority of landlord are not registered with the PRTB. And most tenant do not now of them. Some of those unregistered landlords are TD's who now of it as well!

This surprises me quite a bit. Isn't it now a statutory requirment under the updated Residential Tenancies Act ?

Which TD's , any names?

[Norfolk Enchants]

1) Tenancy laws have been strengthened by the Private Residential Tenancy Board.
The vast majority of landlord are not registered with the PRTB. And most tenant do not now of them. Some of those unregistered landlords are TD's who now of it as well!

This surprises me quite a bit. Isn't it now a statutory requirment under the updated Residential Tenancies Act ?

Which TD's , any names?

If the tenancies are not registered they cannot get a tax deduction for mortgage interest against the income.

But then, this would only be of concern to those reporting the rental income!!

[Coles]

they feel it is necessary to comment on last nights programme on the basis that such unbalanced negative speculation could ultimately unnecessarily create imbalance in the Irish economy and property market overall

So unbalanced negative speculation causes imbalance in the Irish economy and property market? Accepted.
But what about unbalanced positive speculation? What do CBRE have to say about that? Don't they think it exists and that it's been par for the course for the last decade or so? (Property p0rn as David McWilliams calls it.)

the biggest threat to housing market performance is actually confidence

This is basically an admission that the market isn't built on decent fundamentals. If it was, all the Cassandras in the world couldn't talk it down.

They believe that airing sensationalist programmes like this focussing on ‘what if’ scenarios’ will actually serve to further fuel negative sentiment rather than facilitating the welcome soft landing that has been emerging in recent months.

So journalists, programme-makers and commissioners of programmes have a duty to facilitate CBRE's chosen economic outcome?

What infantile rubbish.

However, they say that no-one anticipated the negative impact that recent political interference and unfounded negative commentary in the media in recent weeks would have on sentiment and confidence levels. They say that we are now in a situation where all the fundamentals that have been supporting the Irish housing market for the last decade are still intact but the pace of buying activity has essentially halved as a result of nervousness and uncertainty.

Poor her. Poor CBRE. I will make sure to think of their frail emotions next time I open my mouth, lest I surprise them and upset their predictions.

“The property market is in simple terms a sub-set of economic activity and the fundamentals that have been driving the Irish housing market for many years now are completely unique and cannot be compared to other economies. No other country can boast the levels of economic growth that have been witnessed in Ireland in the last decade; no other country has generated the level of employment generation that Ireland has seen; no other country has seen the phenomenal population growth and levels of immigration that Ireland has witnessed and no other economy can match the decline in the average household size that has materialised in Ireland in recent years. It is simply technically incorrect to assume that that Irish house prices will decline significantly simply on the basis that this has occurred in other economies where the fundamentals were so different.

The South Sea company was unique, the developments leading to the stock market boom in the late 1990s were astonishing and unique. But that didn't stop investors overvaluing the real economic value that had been added and (importantly) extrapolating it forward. "It's different this time!" is the catch-cry of the person about to lose a lot of money when they caught up in sentiment and easy credit.
The idea that rising property prices cannot be overvalued because of real fundamentals is lunatic. There are real fundamentals behind all pre-bust booms, just as there are starry-eyed muppets saying it's different this time.

Incidentally, what does Ms. Hunt think of residential property investors piling into assets that yield 3 percentage points below the cost of borrowing and maintainence? What would she say to one of her commercial clients who showed interest in a similar arrangement? Or would answering that be unfounded negative scaremongering that upsets her predictions?

It is also irresponsible to suggest that the ‘negative equity’ scenario that occurred in the late 1980’s in the UK could occur in Ireland considering that Irish lending institutions are working under the remit of the Central Bank and continue to stress-test potential borrowers to 2% above ECB rates.

WTF? Did prudential regulation not exist in the UK in the late 1980s? Sure, there wasn't Basle II, but UK banks were stress-testing away during that period. Incidentally, for somebody quoting Central Bank supervision as evidence of banking prudence, she's very quiet about what the Central Bank has actually had to say on the subject of Irish banks' lending to property. Or perhaps they too were being unfounded.

Good post Libero.
The argument for a 'soft landing' is a tissue of lies. All this ************************e of 'talking ourselves into a crash' is a desperate attempt to shift the blame for the disaster that is the Irish Property Market.

[ibis]

Maybe not. but i think the rael question is, Are we haeding for a property crash? why? and what will this laed too?

That's very consistent mis-spelling. Why the "ae" mixup? The words are, respectively, "real", "heading", and "lead". Is it your keyboard?

[erigena]

11) Is there any chance that given this new current economic forecast, will we engage in a re-think of our economic strategy eg less State ownership, reduction in number of public sector workers, removal of guarantee of State pensions for new public sector workers, greater investment in indigenous entrepreneurs (particular non-US exporters), a new approach to current government spending (including accountability for waste), improving competitiveness, forcing unemployed (6months +) to work, restrictions on personal credit etc (any other suggestions welcome)?
Answer: Will we F*&K (as the Bailey brothers might say).

Property developers and other inward investors in Ireland have enjoyed lavish investment and tax breaks in recent years - Bertie Ahern is, as has been observed on another thread, more or less bought and paid for by these guys.

....and a few others besides in the music “industry” (two daughters touched by artistic genius) and elsewhere. Great post, Miriam; I think the record shows that you were the first to note the amount of vacant properties.

As discussed above, the issue is not when or how the crash, but how to reconstruct something vaguely related to standard human traditions of civilised life after it. To expect it to look like Ireland as we care about it (to the extent that we all post here) may be a bridge too far. The EU can't bail us out this time (and en route cement in place the incompetents who got us into this situation); the sums involved are too large.

A modest proposal; we try and move this thread in that direction, or in time-honoured Irish fashion, start an Eire nua thread.