Dublin Property Market Increase Sparks Fear Of A New Bubble

The Irish people do not need any reminding of the devastating effect that a property bubble can have. Back in 2008 when the property market in Ireland imploded the Irish banks had to go cap-in-hand to the Government for support. ‘Back us or the ATMs will stop working’ was the blunt message offered to the Irish politicians of the time. They duly obliged by underwriting the deposits held by the banks, preventing any mass withdrawal of funds by the public and financial institutions.

Irish Property market has stabilized after massive crash

The problem with the bank guarantee was that, while it kept the ATMs operating it also underwrote the funds held by the massive institutional investors, including those in France and Germany. When the banks were eventually nationalized the bonds held by the European investors became payable by the Irish State. ‘Burn the Bondholders’ was one of the famous slogans used in the run up to the 2011 election. To date there has been little or no evidence of that happening with the EU/IMF/ECB troika protecting their own interests while drip-feeding enough finance into the Irish economy to keep the lights on.

The situation has stabilized since then but at some cost. Unemployment remains stubbornly above 14%. Job opportunities are limited with massive emigration the escape valve. Taxation has been greatly increased to the point where even those most enthusiastic in engaging austerity are suggesting that a financial stimulus and not more taxation is now what is required.

Against this backdrop the Irish property market has suffered one of the greatest collapses in modern history. Only Dubai has suffered a bigger recent loss as the value of houses and apartments plummeted by anywhere between 40% and 60% depending on the report that is cited. Banks of course, are now much more stringent in their lending policies, anxious to avoid the mistakes of the past. But it may be a case of ‘a short memory’ for some people.

It has long been suspected that the value of houses in Dublin has dropped too much, with no such reservations about the price falls in rural locations. Tiny little towns with half-built housing estates and a dwindling population are a recipe for further house price falls. But in Dublin there are enclaves and districts that have seen pretty hefty gains. A recent Myhome.ie report indicates that prices for property in the capital city are 26% above the national average price of 191,000 Euro (US$258,000).

Unfinished housing estate blight the Irish landscape

The same report indicates that nationally house prices fell by 7.8% over the last year, which is a lot better than the 14.3% recorded the previous year. But Dublin prices have soared by 10.6% over the last year according to the Central Statistics Office (CSO), the price increase fuelled mainly by a lack of housing stock.

Could it be that massive house and apartment building will again get under way in the city? This seems fanciful at the moment but there Are signs of new construction work being undertaken in Dublin. With the population of Ireland expected to grow by at least 10% over the next 15 years it is estimated that 20,000 new housing units are needed annually to keep pace with the demand. During the boom years upwards of 40,000 housing units were being constructed. This year the likely total will be about 6000.

Until the supply of houses increase in Dublin city it seems likely that prices will continue to rise. But any sudden shift in sentiment or a dramatic increase in supply (such a as a major spate of bank repossessions and then fire-sales) could yet see a repeat of the recent pain for Dublin house-owners.

A short memory indeed.

Calls For End To Austerity As Ireland Plunges Back Into Recession

Those commentators who have been critical of the overuse of austerity policies in Ireland are claiming that Ireland’s plunge back into recession is proof of their views.

A 'People Before Profit' March Protesting Irish Government Policies

Since 2008 the Irish economy has been battered by international forces beyond its control in addition to massive self-inflicted damage caused by a property market bubble and the near collapse of the Irish banking system.

The effects were far-reaching. Unemployment stands at 13.7%, public services have been slashed, bitter wrangling continues between the Government and its own employees in the Civil and Public services. Emigration has soared to Famine-era levels while those left behind have been burdened with extra taxes and levels of debt that will take decades to pay off.

Ireland re-entered recession in the final quarter of last year and with ‘negative growth’ prevailing it seems that the austerity and tax increases have dampened any possibility of a domestic recovery. The Property Tax did not help either. Demanded as a condition of loans granted to Ireland by the EU/IMF/ECB the Property Tax was almost gleefully imposed by the Fine Gael Government who clearly see it as an easy way to bring in finance. Political cover was provided by the European ‘troika’ who could be blamed for demanding its imposition – ‘it wasn’t us – its them!’ Job done.

Chart showing the financial effect on Ireland of the economic crash

The uncertainty caused by the Property Tax, the fear of its impact and the never-ending burden of yet more taxation certainly played a huge part in dragging the country down again.

Ireland is also more exposed to events outside its borders than most other countries. As an island nation the most basic raw materials must be imported, raising costs. Exports to Britain, Europe and beyond have to be expensively transported, raising costs. Any change in the value of the Sterling and US Dollar currencies can lay waste to the best laid of export plans in the space of a few hours, again raising costs.

Even bad weather can effect the Irish economy, especially domestic spending, further depressing a beaten-down population who retreat to their ‘mortgaged to the hilt’ apartments in semi-derelict half-built housing estates to ponder the future – ‘I wonder if Australia is still looking for electricians?’.

Maybe this is the bottom of the trough?

Domestic spending looks to be improving now that the Property Tax shock is pretty much out of the way. Anecdotal evidence of a recovery in both the construction market and the property market have been borne out by recent numbers. Major road projects are being undertaken for the first time since the economic crash in 2008, a sure sign that things are about to improve. The South County Dublin section of the Dublin property market has actually seen a 12% increase in prices in the first 6 months of 2013 according to Irish property website Daft.ie, with an overall rise of 5.3% in Dublin prices over the last year.

Hot stuff. And even the weather has improved!

So despite the economic woes there does appear to be grounds for optimism. This is year five of the greatest economic crash in the history of the country. Being well positioned to catch a ride on the global economic upturn that will inevitably come must surely be the current Government’s major priority, as well as its best bet for being re-elected.

by Michael Green
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Lose Your Cable TV If You Want a Mortgage Write-Down

The issue of mortgage write-downs or ‘debt forgiveness’ has been a very thorny one in Ireland ever since the Irish banks effectively collapsed and were taken into state ownership. Thousands of home-owners lost their jobs at about the same time as the value of their property plunged. They found themselves in negative equity, preventing them from selling their now-devalued property and trapping them in apartment blocks and rural housing estates in a vicious circle that is hard to escape.

The realization that a certain level of mortgage write-downs would have to be granted was greeted with a mixture of despair by those who actually managed somehow to pay their mortgage and with an opportunistic ‘nod and a wink’ by those who are trying to ‘game the system’. There is anecdotal evidence that a certain number of home-owners are deliberately not paying their mortgage in anticipation of a deal being struck in the future. This is preventing write-downs being offered to the most deserving of cases, stalling the property market, trapping people in homes they cannot afford.

It is estimated that as many as 100,000 Irish mortgages are now in arrears of at least three months. It is inevitable that deals will have to be done with some if not many of these cases. The banks are unsurprisingly being very cagey. Where home-owners in arrears present themselves to the bank they are being offered longer terms, mortgage holidays, interest-only payments, split mortgages, etc., in an effort to give them some breathing space. For some, even these measures will not be enough.

The new Personal Insolvency Service has laid out a number of concessions that they expect from those desperate for a deal including:

* getting rid of a second car and even trading down to a lesser model of car
* an end to taking foreign holidays
* removal of certain Cable TV services including sports and movies packages
* removal of children from private schools
* ending of private health insurance
* any other obvious ‘unnecessary’ expense

The Personal Insolvency Service is part of the Government’s overhaul of the outdated bankruptcy laws in Ireland. Irish banks are expected to use the new rules and restrictions laid out by the Service in dealing with people seeking mortgage write-downs.

It is likely that these new measures may be tested in the Courts. The spectre of desperate families choosing between private education for their children and private health insurance over keeping their family in their home is likely to be loom large in the national consciousness and soon.

It is a battle that will likely get ever more bitter as the stark reality of a bank-imposed ‘austerity lifestyle’ hits home.

by Michael Green
Home Page

Unfinished ‘Ghost Estates’ a Huge Problem in Ireland

The property boom that gripped Ireland during the 1990′s and the early part of the new century had a dreadful far-reaching effect when property prices crashed. The leading banks in Ireland had to go cap-in-hand to the Government for a bail-out which in turn bankrupted the economy and resulted in extensive loans being required from the EU/IMF ECB troika.

On a wider perspective the property crash decimated the economy but also caused a lot of problems on a micro level too. Many Irish couples bought starter apartments in the hope that they could move to a bigger house when their family grew. Now stuck in negative equity there are thousands of families who simply cannot afford to move from their unsuitable apartments and are trapped, waiting on the property market to improve before they can sell up and move on.

Worse again is the situation of those families who bought houses and apartments in building schemes and housing estates only for the builder to go bust half way through the build. Now they are surrounded by dozens of unfinished properties and are living in virtual building sites which attract vandalism and anti-social behaviour.

A new report from the Irish Government Department of the Environment has revealed that there are now 1770 unfinished housing developments dotted around the country. Of these 1100 are in a very bad state and are even commercially unviable. While the larger cities have their share of such property developments it is in the midlands and border Counties where the problem is even more obvious. Once quaint towns and villages are now blighted by the remnants of the ‘Celtic Tiger’ era of building mania.

It is clear that several of the 1770 housing schemes will have to be completely demolished and returned to a ‘green field’ state, perhaps providing some employment for the now unemployed construction staff who helped to build them in the first place.

Internet usage in Ireland to boost Irish economy by up to 6 Billion Euro

A report commissioned by media group UPC has revealed that as much as 6 Billion Euro could be contributed to the Irish economy by 2016, thanks to an increase in ecommerce activity. 2012 is expected to see spending of 3.7 Billion Euro, rising to 5.7 Billion Euro by 2016. This figure would constitute 7% of all consumer spending in Ireland. The report found that Irish adults who shop online spend an average of 116 Euro monthly. 80% of Irish adults now use the internet regularly, up from 50% in 2007. 45% of Irish consumers have made on online purchase in the last year, up from 36% in 2010 and matching the EU average.

This number compares poorly though with the UK where 71% of consumers made purchases in the previous year. A significant difference between the two markets is that as many as 1 in 5 UK consumers buy their groceries online while in Ireland the figure is 1 in 20. The UK is now the worlds second biggest internet market in terms of sales value and is surely a market that Irish export businesses should be focusing on.

The ‘State of the Net’ publication by the Irish Internet Association has mirrored these findings detailing that there has been an increase of 20% in business marketing budgets being spent on promoting online businesses in Ireland. This compares with an overall 4% decline across other marketing media with newspapers suffering badly. 70% of Irish businesses now have a Facebook presence, 61% are on Twitter while 44% have their own Youtube channel.

It has not all been good news for Irish internet businesses though. The Irish Times newspaper recently sold its ireland.com domain name to Tourism Ireland for 495,000 Euro – quite a return on the 3000 Irish punts they reportedly paid for it in the 1990′s. Sounds great except that the same Irish Times paid 50 Million euro for myhome.ie at the very height of the property hysteria in Ireland, only to see its value plummet when the property market crashed. The Irish Times was one of the first sites in Ireland to offer paid content with subscribers paying an annual fee to access content not available to unregistered users.

As a result of the deal the 15,000 ireland.com customers and email account holders have been unceremoniously ditched. Lets hope they backed up their email.