A study, by S&P Global Ratings, has revealed that housing prices in Ireland were up by 12% in June 2018 when compared to the previous year. This is the fastest pace of growth in the European house market.
They predict that in 2019 Ireland will begin a “soft landing”, as they put it, with price increases of 8%, and they predict that the cost of buying will continue to increase for a further three years or at least until supply catches up with demand.
According to daft.ie, Dublin is the most expensive city and South County the area with the highest average selling price, at € 603,000. South Dublin City sells at an average of € 412,000 and North Dublin City at €342,000. The least expensive areas in Ireland are Roscommon, Sligo, Longford and Leitrim with average selling prices ranging from €132,000 to €139,000.
Most construction is currently concentrated in Dublin, where availability has increased from 2800 houses for sale at the end of 2016 to over 4800 at the end of 2018. This increase in availability has spread to Leinster, outside Dublin. The rest of the country has seen stabilization after many years of decline in availability.
As the supply increases, so the prices have started slowing down. This is not the case outside Dublin, where there is still a shortage of new homes.
Ireland is a member of the EU, one of the poorest countries in Europe in the 1980s, which then experienced rapid growth in the period 1995-2007. The “Celtic Tiger”, as it became known saw rapid expansion in its construction industry, and attracted many multinationals because of its low corporate taxes. The growth in construction was financed by rapid growth in bank lending, at an increased risk. The global credit crunch of 2007/08 hit the country badly. By 2013 housing prices had dropped by over 50%, contributing to the recession and negative economic growths of -1.7% in 2008 and -7.1% in 2009.
Ireland has made a complete recovery since then and its projected GDP for 2019 is at 4.7% (IMF). Employment continues to grow and unemployment levels are currently at 5.1% with 0.4% inflation. Lending rates for mortgages are low but so is net mortgage lending which is still at low levels since the financial crisis, but banks have cautiously started increasing their lending. The Central Bank has warned of the future risks involved if the banks overextend loans again.
Even though construction has recovered considerably, investors are holding back. The current rate of home completions grows at 30% annually, at which rate the supply is estimated to meet the demand by 2021, gradually easing the pressure on house prices. Over the course of 2018, 18,000 new homes were built, which is up from 15,000 in 2017. The downside to these numbers is that most of these new developments are estate housing developments and rural houses, while Ireland actually needs more urban apartments.
The S&P report emphasized that institutional investors, both domestic and international, bought 20% of the residential properties sold in 2018, helping push up house prices.
Concerns have been voiced by various economists about the risks faced by Ireland from the fallout from Brexit in March this year. Besides affecting the property market, with a slower price growth, Brexit would affect the impact of the economy as a whole, as cross border trade of goods and services with Northern Ireland will change.
Rental properties are in short supply in Ireland, and small apartments in Dublin 1 offer excellent rental yields. Dublin also offers the best returns for all home sizes, when compared to other areas. Smaller apartments yield the best returns. Larger homes give smaller yields, except in Dublin1.
According to the Q3 report of 2018, Daft.ie reported average rental increases of 11.3.The average nationwide rent was €1,334, higher by € 304 from the previous peak in 2008.
In Dublin, the increase was 10.9% that is 36% higher than their previous peak in 2008. These trends continue across the whole of Ireland with increases of: 20.3% in Limerick, 19.7% in Waterford, 19.7% in Galway and 13.7% in Cork.
Outside these main five cities, rents rose by an average of 10.6%. Only 3,214 properties were available to rent nationwide. That figure is 4.5% lower than the previous year, and Dublin saw a small increase in availability by 6.4%.
Taxes and costs
Rental income is taxed by 20% on the gross amount, which is withheld by the tenant. On filing a tax return, the taxpayer may claim deductions for property related expenses.
Capital gains tax is levied at a flat rate of 33% of the selling price, less the acquisition costs, adjusted for inflation, and improvement costs.
Inheritance is also taxed at a flat rate of 33%, after certain non taxable amounts are deducted.
Residents are taxed on their worldwide income, with numerous tax credits and deductions available under special circumstances.
Ireland has moderate buying costs that range from 4.94% t0 13,205% of the property price. This includes a 1% stamp duty, registration fee, and legal fee of up to 1.5% plus 25% VAT.
Tenant protection laws in Ireland are strong, but fair. Free rent negotiations are allowed, but must not exceed the open market rate. The rent can only be adjusted once a year. Rent disputes are overseen by the Private Residential Tenancy Board (PRTB).
Rental leases are effective for four years; the landlord can terminate within the first six months without needing to specify grounds but after that period, he can only terminate if there is a just cause.
S&P Global, expect the economy of Ireland to slow, but it will continue to grow at a moderately solid rate over the next three years, as it reaches the end of its recovery cycle. They predict that this will also reflect in their labor market with recruitments from abroad to fill the gaps, especially in construction. Furthermore, job creation will continue to be stimulated, as the multinationals continue bringing their businesses or expand their existing ones. Some financial services are expected to relocate from London to Dublin. The current upward pressure on wages will continue, consequently pushing up housing prices, especially in Dublin.
It is highly unlikely housing prices could turn negative, even if there is a no-deal Brexit in March 2019 and also if UK investors reduce their investments in the housing market. Foreign investors have been showing a keen interest in the property market for a number of years.