How far overpriced is property when you comapre to other options?

[MortgageBroker]

We did a report in conjunction with Propertyweek.ie to see what price a property would have to be in order to match a deposit. The idea being that if you are going to consider taking any risk it should at least match or beat something that is considered 'riskless'. Link is below [i don't know how to put wording into the link, it says Irish Mortgage Brokers | , but that's the link to the blog where it's at]


Irish Mortgage Brokers | Mortgage Brokers Dublin


The report focuses on 'target prices', to justify today's price what kind of rent would you need to be getting? Based on the actual rent today what would the property have to sell at in order to match deposits? and lastly, if rental prices dropped, using the same methodology what prices would property have to sell at.

Covers Dublin, Cork, and Galway.

[zakalwe1]

1. good report. no shyte about it, just facts.

2. asking prices are conservatively estimated at about 5-15% above selling prices at the moment. it is quite likely that your estimates underreport the true situation.

3. you are correct to ignore depreciation as investment property, under irish and international accounting standards, are valued at fair value or "marked to market".

4. if you wanted to augment the sophistication of this model you could include a variable for capital allowances. investors tend to have higher presence in tax relief schemes and you should work out the average present value of the tax relief and set it against the asking price (tho purchase price would be more accurate). this would increase the pure yield on the property beyond your levels.

anyway, as i said earlier, very good report. much to discuss in it. mind if i circulate it?

[MortgageBroker]

1. good report. no shyte about it, just facts.

2. asking prices are conservatively estimated at about 5-15% above selling prices at the moment. it is quite likely that your estimates underreport the true situation.

3. you are correct to ignore depreciation as investment property, under irish and international accounting standards, are valued at fair value or "marked to market".

4. if you wanted to augment the sophistication of this model you could include a variable for capital allowances. investors tend to have higher presence in tax relief schemes and you should work out the average present value of the tax relief and set it against the asking price (tho purchase price would be more accurate). this would increase the pure yield on the property beyond your levels.

anyway, as i said earlier, very good report. much to discuss in it. mind if i circulate it?

Thanks for the feedback! send it around to whoever you want to send it to, its there for public use.

on Point 2: Agree totally but 'agreed' prices are impossible to get in the irish market, the data protection commissioner gave direction to propertyweek (who were one of the few places that collated that info for the valuers that use the system) that they were to desist, maybe we could look for the general percentage difference in Q2 & 3 of 08' and apply that to 09'? Although perhaps in 08' there was still some seller denial versus actual settlement price which would skew 09' if that margin has dropped... it's hard to get right! lol.

But on point 4: if the cashflow is negative the PV would result in capital reduction wouldn't it? which is basically the end position (versus capital starting point) shown? on the asking price versus yield all I can do - and this is partly assumption i suppose - is to say that the likelihood of price drops versus asking prices is equally reflected in lease asking prices, many are settling at different levels than advertised and certainly in the 'already let' market most landlords are dropping prices which isn't reflected out because it never gets advertised.

Thanks a million for the pointers though! Will help to make this report better over time, we plan to do it once a quarter.

[seabhcan]

The average house lost 1000 euro a week in value in 2008, and is probably continuing in that direction in 2009.

So long as you are paying less that 1000 a week in rent, you are saving money by not owning property. Personnally, I'm nearly 40k better off having rented in 2008, which is more than 100% of my income.

Nice report though. Useful.

[adrem]

We did a report in conjunction with Propertyweek.ie to see what price a property would have to be in order to match a deposit. The idea being that if you are going to consider taking any risk it should at least match or beat something that is considered 'riskless'. Link is below [i don't know how to put wording into the link, it says Irish Mortgage Brokers | , but that's the link to the blog where it's at]


Irish Mortgage Brokers | Mortgage Brokers Dublin


The report focuses on 'target prices', to justify today's price what kind of rent would you need to be getting? Based on the actual rent today what would the property have to sell at in order to match deposits? and lastly, if rental prices dropped, using the same methodology what prices would property have to sell at.

Covers Dublin, Cork, and Galway.

Good clear report in many ways . . . but . . . I don't understand the numbers Karl. Can you run the numbers as they would have applied in 2001 or 2002 please?

[Question R24U]

On that basis, the target for a 2 bed apt in Dublin is €210K before it is worthwhile investing (rents remaining static, which they are not).
The average is currently €349K.
It is dropping at a rate of 12% p.a.

So best case scenario, is 4 years more of property drops of 12% +- p.a.

For residential buyers, the average negative equity will be 100%, paid €400k, property worth €200k, mortgage for 35 years at average 3.6% interest, the total repayments will be €630,000 (€1,500 per month). Or basically, €430,000 (€1,023 per month) for nothing.

And that's the best case scenario.

[an asal]

Very interesting article re property returnes. The thing that comes to mind is it may be a great oppertunity for first time buyers. If the ECB drop the rate from 1.5 to 1% this week. These rates can not drop much more, unless there is a complete wipe out,
ergo these rates will start going up again. House prices are down ( some good value to be had). Now would be a good time for starters to go for it. Old story get in at the bottom of the Market.

[Question R24U]

Very interesting article re property returnes. The thing that comes to mind is it may be a great oppertunity for first time buyers. If the ECB drop the rate from 1.5 to 1% this week. These rates can not drop much more, unless there is a complete wipe out,
ergo these rates will start going up again. House prices are down ( some good value to be had). Now would be a good time for starters to go for it. Old story get in at the bottom of the Market.

And on what basis do you say that are we at the bottom?
Average last year 400k
12% drop for year to March to circa €349
3% fall so far this year (it's May btw)

[lifelibertyandproperty]

New FSA regulations won't prevent the next crash - MoneyWeek

Using the logic that the ability to borrow is the main driver in house prices and the max mortgage available will be (and should be) 3 times salary, which is E30,000 or so and falling then the national average house price should be 3 times industrial wage so E90,000. I know vested interests, banks, estate agents, mortgage brokers, developers will howl protest but combine this with 17% unemployment and the Irish property bust has a long long long way to go! Check out the wikipedia page (i know i know) on housing bubbles below and look through the charts provided for historical perspective and the references used and the dates, ie the economist in june 2005 stating that the US housing bubble was the biggest in history as a % of gdp. very interesting stuff.

Real estate bubble - Wikipedia, the free encyclopedia

good post btw.

[Cael]

On that basis, the target for a 2 bed apt in Dublin is €210K before it is worthwhile investing (rents remaining static, which they are not).
The average is currently €349K.
It is dropping at a rate of 12% p.a.

So best case scenario, is 4 years more of property drops of 12% +- p.a.

For residential buyers, the average negative equity will be 100%, paid €400k, property worth €200k, mortgage for 35 years at average 3.6% interest, the total repayments will be €630,000 (€1,500 per month). Or basically, €430,000 (€1,023 per month) for nothing.

And that's the best case scenario.

If I was in that position I'd just throw the keys back to the bank.