Irish Residential Market - Sherry FitzGerald Blog · the Dublin and Irish housing market. That said, this strength is largely emanating from the regional centres and the counties

Irish Residential MarketQ2 2013

Irish Residential MarketQ2 2013

JULY 2013

CONTENTS

Summary 2

Economic Update 3

Irish Established Housing Market 5

Supply Side Analysis 7

Future Housing Demand 8

Outlook for the Future 9

AUTHORSMarian FinneganChief Economist, DirectorResearch+353 (0) 1 237 6341marian.fi nnegan@sherryfi tz.ie

Siobhan MoloneyResearch Manager+353 (0) 1 237 6317siobhan.moloney@sherryfi tz.ie

Tanya DuffyResearch Assistant+353 (0) 1 237 6352tanya.duffy@sherryfi tz.ie

2 Sherry FitzGerald | Irish Residential Market Q2 2013

After six turbulent years, when Irish house prices fell by over 57% in nominal terms, the housing market has begun to stabilise. The latest results from the Sherry FitzGerald barometer of the national market reveals that Ireland enjoyed a second quarter of relative stability with overall prices rising in both the Dublin and Irish housing market. That said, this strength is largely emanating from the regional centres and the counties surrounding Dublin; specifi cally Kildare, Wicklow and Meath.

In the fi rst six months of 2013, Irish house prices have risen by 3.6% while Dublin prices have increased by 6.1%. When Dublin is excluded from the national fi gures, the year to date fi gures are still marginally positive at 0.6%.


Ireland remains subject to external instability as the international economy, in particular the Euro area, remains fragile. In addition to this, the implications of on-going fiscal austerity continue to weigh heavily on the wider economy. That said, some positive developments have been witnessed in recent months. Moderate improvements in employment have been observed, while progress has been made particularly in terms of the EU-IMF bailout.

Irish Residential MarketIrish Economy

Tax revenues up 3.4% in the year

The European Union’s finance ministers have confirmed a deal which will give Ireland more time to repay European loans from its EU-IMF bailout fund. Subsequently, this will extend the term of the average European loan from 12.5 years to 19.5 years. This applies to loans from the European Financial Stabilisation Mechanism (EFSM), from which Ireland has borrowed €21.7 billion. Consequently, Ireland will have a higher capacity to attain finance for repayments. That said, the overall cost of Ireland’s bailout will increase marginally; however the interest rates to be applied will be fixed so the increases will be minimal.

According to the latest Exchequer figures published by the Department of Finance, tax revenues in the six month period to the end of June totalled €17,599m; an increase of 3.4% on the same period in 2012. Notably, at the end of quarter one, tax revenues were €47m above target and tax receipts are now €166m ahead of official expectations at end of the six month

period. Consequently, the overall Exchequer deficit stood at €6,593m in the first six months of 2013, compared with a deficit of €9,443m in the first six months of 2012.

Despite the Irish economy’s relative resilience to external turbulence, the

latest preliminary figures from the Central Statistics Office (CSO) reveal that the Irish economy declined by 0.6% in the opening quarter of 2013. The decline was the third consecutive quarter of contraction in GDP. Simultaneously, the volume of GNP rose by 2.9% in the three month period compared with the previous quarter. Furthermore, on a year-on-year basis, GNP saw a rise of 6.1%.

Growth figures for 2012 have also been revised down to 0.2% from the previous estimate of 0.9%.

On a worrying note, exports of goods and services dropped by 3.2% in the quarter and 4.1% in the year. This represents the first annual decline since the final quarter of 2009 and reflects weak demand in export markets at present. In addition, imports recorded a decline of 1.0% on a quarterly basis.

Domestic demand continues to decline, with the majority of measures declining during the three month period. Personal consumption, accounting for approximately two thirds of domestic demand, fell 3.0% on a seasonally adjusted basis in the quarter and dropped 1.6% on a twelve month basis. In relation to the other components of domestic demand, capital investment fell by 7.4% in the quarter; moreover it was 19.8% lower in the year. Notably, investment figures are heavily influenced by the timing of purchases by aircraft leasing companies. On a more positive note, Government expenditure recorded a marginal increase, 0.3%, on a seasonally adjusted basis during quarter one.


Irish Economy

Employment rises by 1.1% in the year to Q1 2013

Figure 1

Consumer Sentiment Index – May 2013

Source: KBC Ireland/ESRI

Encouragingly, the latest data from the Quarterly National Household Survey (QNHS) for the first quarter of 2013 reveals some positive trends. Notably, employment levels have increased by 20,500 or 1.1% in the twelve months to the end of March. Additionally, seasonally-adjusted employment increased by 7,700

in quarter one. This represents the second successive quarter of employment growth. Furthermore, employment was higher in eight of the fourteen economic sectors over the year. The total number of persons out of work decreased during the twelve month

period by 29,900 or 9.3%. Moreover, the seasonally adjusted unemployment rate fell over the first quarter of the year from 14.1% to 13.7%.

On a seasonally adjusted basis, the number of people signing on the Live Register fell by 2,500 in June. This brings the total persons on the Live Register to 422,900.

According to the latest figures from the CSO, consumer prices fell marginally by 0.1% in the month of May which resulted in the annual inflation rate edging down to 0.4%. This is the lowest annual inflation rate since August 2010. The most notable increases recorded in the year were educational costs, which increased by 4.8%. Alcohol and tobacco prices have increased by 4.3%.

There was a marginal increase in consumer sentiment in May as the KBC Bank Ireland/ESRI Consumer Sentiment Index edged upwards to 61.2 from its April reading of 58.9. The 3-month moving average was broadly unchanged, increasing from 59.4 to 60.0. Consumers remain concerned about Irish economic prospects and therefore less inclined to make major purchases.


Figure 2

Sherry FitzGerald All Ireland Barometer of Second-hand House Prices

Irish Residential MarketIrish Established Housing Market

The stability in the housing market which emerged in Dublin in 2012 is gradually spreading to the other regional centres. This is reflected in the latest results from the Sherry FitzGerald barometer of house prices. Overall Irish house prices have risen by 3.6% in the year to date while Dublin prices have increased by 6.1 %.

Notably, Dublin house prices rose 3.0% in the second quarter of 2013 and 6.1% in the year to date; while Irish house prices rose 1.8% in the second quarter of 2013 and 3.6% in the year to date. When Dublin is excluded from the national figures, the quarterly figure reveals growth of 0.3% while the year to date figure is 0.6%.

Overall the Dublin market has increased by 10.9% over the last twelve months, while the Irish market has increased by 5.2% during in the same period.

That said, the Irish housing market is a function of a myriad of sub-markets which are not all enjoying the same performance trends. The

property price register does provide us with details on the performance on a county by county basis. While overall activity increased by over 37% during 2012, some locations such as Sligo, Roscommon, Longford, Wexford and Dublin, enjoyed an uplift in transactions of greater than 50% during the year.

Such figures suggest that 1.4% of the private housing stock transacted during 2012. This is still substantially below normal activity levels by either historical or international standards. Notably, on a county by county basis, the strongest performance was in Dublin with approximately 1.8% of the Dublin housing market transacting during 2012. The lowest proportionate activity occurred in Monaghan where 0.8% of private housing stock transacted. The regional centres outside Dublin saw activity

Source: Sherry FitzGerald Research

Dublin house prices up 3% in the second quarter

Figure 4

County by County Analysis of Market Activity

Louth

Monaghan

Dublin

Meath

Cavan

Westmeath

Kildare

Laois

Carlow

Wicklow

WexfordKilkenny

Waterford

CorkKerry

Limerick

Offaly

Clare

Galway

MayoRoscommon

Sligo

Longford

Leitrim

Donegal

Tipperary

County % of Housing Stock Versus Sales

%8.1 nilbuDWicklow 1.6%Wexford 1.5%

%4.1 eradliK%4.1 sioaL%4.1 htuoL%3.1 kroC

Longford 1.3%Waterford 1.3%Kilkenny 1.2%Westmeath 1.2%

%2.1 htaeMRoscommon 1.2%

%2.1 ogilS%2.1 wolraC%2.1 mirtieL%1.1 yawlaG

Limerick 1.1%%1.1 eralC%1.1 yrreK%0.1 ylaffO%0.1 navaC

Tipperary 1.0%%9.0 oyaM

Donegal 0.9%Monaghan 0.8%

%4.1 etatS

Louth

Monaghan

Dublin

Meath

Cavan

Westmeath

Kildare

Laois

Carlow

Wicklow

WexfordKilkenny

Waterford

CorkKerry

Limerick

Offaly

Clare

Galway

MayoRoscommon

Sligo

Longford

Leitrim

Donegal

Tipperary

Activity > 1.75%

Activity > 1.5%

Activity 1.4%

Activity 1.3%

Activity 1.2%

Activity 1.1%

Activity 1.0%

Activity < 1.0 %


Dublin 1.8%Wicklow 1.6%Wexford 1.5%Kildare 1.4%Laois 1.4%Louth 1.4%Cork 1.3%Longford 1.3%Waterford 1.3%Kilkenny 1.2%Westmeath 1.2%Meath 1.2%Roscommon 1.2%Sligo 1.2%Carlow 1.2%Leitrim 1.2%Galway 1.1%Limerick 1.1%Clare 1.1%Kerry 1.1%Offaly 1.0%Cavan 1.0%Tipperary 1.0%Mayo 0.9%Donegal 0.9%Monaghan 0.8% State 1.4%

Louth

Monaghan

Dublin

Meath

Cavan

Westmeath

Kildare

Laois

Carlow

Wicklow

WexfordKilkenny

Waterford

CorkKerry

Limerick

Offaly

Clare

Galway

MayoRoscommon

Sligo

Longford

Leitrim

Donegal

Tipperary

Activity > 1.75%

Activity > 1.5%

Activity 1.4%

Activity 1.3%

Activity 1.2%

Activity 1.1%

Activity 1.0%

Activity < 1.0 %



Source: Sherry FitzGerald Research/CSO/PPR


Irish Established Housing Market

Louth

Monaghan

Dublin

Meath

Cavan

Westmeath

Kildare

Laois

Carlow

Wicklow

WexfordKilkenny

Waterford

CorkKerry

Limerick

Offaly

Clare

Galway

MayoRoscommon

Sligo

Longford

Leitrim

Donegal

Tipperary

Activity > 1.75%

Activity > 1.5%

Activity 1.4%

Activity 1.3%

Activity 1.2%

Activity 1.1%

Activity 1.0%

Activity < 1.0 %



levels of between 1.0% and 1.2%.

A further analysis of transaction activity reveals that the market is largely dominated by owner occupiers, 77%. That said, notably, the proportion of investors in the market place has increased to 13% in the year to date. Cash remains a driving force with latest available figures revealing that 44% of the properties transacted in the opening quarter were bought outright with cash alone. Cash purchasers include owner occupiers re-entering the market having sold their family homes some time ago, investors interested in achieving a strong yield and non residents interested in attaining some of the value in the Irish market.

In considering the performance of the lettings market, it is worth noting that 31% of vendors who sold their property through Sherry FitzGerald Group were selling investment properties while 13% of purchasers were investors. This suggests a depletion of investment product and therefore upward pressure on rents.

First time buyers remain an active cohort in the market accounting for one in five of the properties traded in the six month period; this compares to 29% in the same period in 2012. The reduction in first time buyer activity in 2013 probably reflects the heightened activity by this cohort in the closing months of 2012.

Figure 3

Vendor Analysis, year to date 2013



According to the latest figures from the Department of the Environment, 2,997 housing completions were recorded for the first five months of 2013. This represents a 9% decline when compared with the same period of 2012. It should be noted that completions would not be deemed to be a leading indicator of future supply.

Supply Side Analysis


Figure 5

Housing Statistics 2013

On a more positive note, the level of both registrations and commencements have increased. Both commencement notices and registrations are deemed a useful measure to future building levels. A total of 526 new house registrations have been confirmed for the first five months of the year, which represents an 88% increase in the volume recorded for the comparable period last year. Furthermore, just 627 new house registrations were recorded for 2012 in total. In addition to this, a total of 965 commencement announcements have been recorded for the first three months of the year; revealing a 20% increase on the comparable 2012 results.

The opening quarter of 2013 saw the volume of planning permission granted increase by 24.7%, when compared with the previous three month period. Planning permissions were granted for a total of 2,308 dwellings; of which the volume of houses totalled 1,860 and apartments 448. Furthermore, one-off houses accounted for 33.5% of all new dwellings units granted.


In attempting to look at the future of the market, it is important to do so within the parameters of population growth. The latest Population and Labour Force Projections 2016-2046, provide an interesting base to review the likely demographic pattern over the next 15-20 years.

Future Housing Demand

These projections were provided for a number of different scenarios based on various assumptions about fertility, mortality and net migration. Having reviewed all options, a low fertility, low migration option seems an appropriate approach given current market conditions. This approach assumes the total fertility rate will decrease from 2.1 to 1.8 by 2026 and then stabilise at this level until the end of the projection period. The assumption would mean that Ireland would remain close to the top of the EU fertility table, while also allowing a decrease to take place from the current peak.

Migration is assumed to be a negative influence on population growth initially, becoming positive in 2018, before reaching an annual flow of + 10,000 by 2021.

This combination leads to a population forecast of 4.686 million by 2016, 4.875 million by 2021 and 5.042 million by 2026.

In order to translate this population forecast into demand for residential units, one needs to take account of changing household sizes and the need to replace obsolete stock. Allowing for falling household sizes and a modest replacement of obsolete stock suggests a potential demand for over 450,000 residential units in the 15 year period 2012 to 2026.

This translates into an average annual demand for 22,500 units in the five year period to end 2016, rising to 33,500 units per annum in the subsequent five years and finally 34,500 units per annum in the final five year period to end 2026. In other word an average annual

requirement for approximately 30,000 units.

It should be noted that this represents a greater than threefold increase on current annual construction activity levels, but is still well below peak levels or indeed below the long run average.

This scenario does assume that the European economic environment will strengthen and that Irelands will benefit as a consequence. It also assumes that the banking system will provide debt finance, working capital to house builders or indeed private equity providers to build what is demanded. As such, in turn, the banking system would have the digestive capacity to provide mortgages for such dwellings. It also assumes that the planning system is somewhat simplified and that the current prescriptive rigidity by some local authorities would be relaxed in the context of allowing certain dwelling types.

If, in contrast, the economic environment in Europe and Ireland were to remain weak and the financial sector were to fail to respond adequately; housing supply in the 15 year period could fall back to approximately 300,000 versus 450,000 dwellings.

Population forecast to increase to 5.042m by 2026


Outlook for the Future

Looking to the year ahead, it is largely expected that investor demand will continue to improve as investors attempt to benefit from the capital gains tax incentive in place until the year end.

That said, the owner occupier market is also expected to remain strong as we are currently noticing a significant uplift in enquires from households trading down, who now feel that the market is strong enough to allow them to sell effectively and facilitate this move.

This is generating an increase in enquiries for smaller homes and apartments, all of which will benefit from the natural flow of properties through the market.

All in all it is anticipated that 2013 is to be a year of heightened activity and greater market stability.

This report should not be relied upon as a basis for entering transactionswithout seeking specific, qualified, professional advice. It is intended as a general guide only. This report has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While reasonable care has been taken in the preparation of the report, neither Sherry FitzGerald nor any of directors, employees or affiliates guarantees the accuracy or completeness of the information contained in the report. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. No warranty or representation, express or implied, is or will be provided by Sherry FitzGerald, its directors, employees or affiliates, all of whom expressly disclaim any and all liability for the contents of, or omissions from, this document, the information or opinions on which it is based. Information contained in this report should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to Sherry FitzGerald.

About Sherry FitzGeraldFounded in 1982, Sherry FitzGerald has grown to become Ireland’s largest property advisory firm with over 90 branches throughout Ireland. The Group’s services include Residential and Commercial sales, Financial Services, Lettings and Investments. Sherry FitzGerald is also the exclusive Irish affiliate of Christie’s Great Estates, offering an unrivalled international dimension for buyers and sellers of luxury properties.

For further information please visit www.sherryfitz.ie

© 2013

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Irish Residential Market - Sherry FitzGerald Blog · the Dublin and Irish housing market. That said, this strength is largely emanating from the regional centres and the counties