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Irish house prices expected to continue rising in 2015

International property advisor Savills expects that house prices will continue to rise in 2015 due to an overall shortage of supply relative to demand. However, because compounding price growth over the last two years has raised baseline prices, the percentage rate of growth will be more moderate than before. 

The Irish Central Bank’s new mortgage rules will channel demand into the rented sector leading to further rental growth, according to John McCartney, director of research at Savills Dublin.

He pointed out that this, and falling deposit yields due to quantitative easing, will attract investors despite the expiry of Capital Gains Tax Incentives last December. ‘By increasing the down payment that is needed to qualify for a mortgage, the Central Bank rules will inevitably lead to first time buyers spending longer in rented accommodation,’ he said.

‘This guarantees a stable platform of demand which will undoubtedly encourage landlords to invest.  At the same time, investors will be driven into property by low returns on cash deposits, and these are being further depressed by quantitative easing,’ he added.

He explained that while these factors will continue to attract large institutional investment into ‘multi-family’ residential blocks, they will also lead to continued buying activity by smaller retail investors. 

However, according to Graham Murray, director of residential at Savills, the profile of these investors is changing dramatically. ‘We are really seeing a changing of the guard. On one hand, the recovery in house prices has provided the opportunity for many of the accidental boom time investors to exit the market and, reflecting this, investors were our second biggest seller group last year,’ he said.

‘At the same time, there is a new breed of more professional, yield driven landlords flooding into the market. In fact this new generation of investors represented our biggest single group of buyers last year,’ he added.

Contrary to the popular opinion, Savills believes that the Central Bank mortgage rules will do nothing to reduce the rate of house price growth and will only result in a change in the mix of buyers. 

‘By diverting demand into the rented sector the new rules will lead to stronger rental growth. In time this will attract investors who will compete with everybody else to buy properties. Therefore the new measures will do nothing to soften house price growth by curtailing demand. They will simply increase the ratio of investors to first time buyers,’ said McCartney.

Elsewhere in the report, Savills notes that declining affordability in Dublin, combined with demographic trends, will lead to increased demand and sharper house price growth in the commuter counties of Wicklow, Kildare and Meath.

‘Prices outside Dublin have been rising at an accelerating rate for the last nine months. This is set to continue as demand is attracted into the commuter counties by more affordable prices and a greater supply of traditional family housing,’ added McCartney.

Murray pointed out that there has been a significant increase in the number of enquiries for Irish property from UK buyers. ‘Over the past year, we have seen good demand from international buyers, primarily from the UK, for family homes at the middle to upper end of the market in well serviced suburban locations along the coast and close to Dublin city centre,’ he said.

‘Many of these buyers are expats living in the UK now looking to take advantage of the value in the market in anticipation for their return home. In most cases, they are looking for homes in locations near to where they grew up so they can be close to family and friends again. This is a trend we expect to see feature quite prominently in 2015,’ he concluded.

 

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