IAVI says house price floor ‘close’

13 Jan 2010

A new report has indicated that the average house fell in value by an average of around 20% last year. The figures come from the Irish Auctioneers & Valuers Institute’s survey of its members.

The survey found that in Dublin, property values were down by an average of 20.1% and in the rest of Leinster values declined by an average of 21.5%. In Munster, property values declined 19.2% on average while in Connacht/Donegal the average drop was 19.3%.

IAVI president Aine Myler said the results were in line with its expectations for 2009 and consistent with the IAVI’s belief that average residential property values would decline by 40-50% from peak levels. ‘The survey results indicate that the market floor is close, if we have not reached it already,’ Ms Myler said.

AdvertisementShe said IAVI members had reported signs that the housing market was beginning to stabilise in certain locations, with ‘a sizeable majority’ in Dublin seeing a pick-up in activity in the final quarter of 2009. Ms Myler said that, overall, there were signs that 2010 would be ‘a little better’ than 2009.

She repeated the institute’s call for a National Property Price Register to give consumers access to real-time, transparent and accurate market information. ‘This information is readily available and just requires the political will for its establishment,’ Ms Myler said.

She said that, while the IAVI was pleased that it had been proposed in the recent Programme for Government, it needed to be addresses as quickly as possible.

THE Dublin commercial-property market has received a number of fillips in recent days, with strong prices and rents for prime properties. AIB has pulled the sale of its Grafton St branch which would have generated more than €28m.

The price would reflect a yield of around 5.8pc which reflects a value of about 9pc more than that achieved by Marks and Spencer when it sold the Tomy Hilfigger shop across the street last ye

At least three of the offers were above the €25m to €26.5m price guided by the agents, CB Richard Ellis, and most of the offers were from UK investors. However, AIB resisted the temptation to accept the highest offer of around €28m.

Meanwhile, Real Estate Opportunities, the publicly quoted firm led by Johnny Ronan and Richard Barrett, has negotiated increases of around 12pc on the rents from three tenants at its Central Park development in Leopardstown, Co. Dublin. The largest of these rents is the €7.2m per annum now being paid by Vodafone for its 263,000sq.ft of offices.

The new rent of almost €295 per sq.m. is backdated to October 2006 and is well above the €187 per sq.m. being achieved on average for new suburban Dublin offices.

The second tenant is Tullow Oil plc, which agreed a 12.8pc rent increase for its 24,000sq.ft of offices at Central Park.

Ulster Bank is also believed to be close to doing deals for around 12 of the 49 First Active branches that it is currently marketing through DTZ Sherry FitzGerald.

Meanwhile, the overseas investors, F&C Reit Asset Management and Area Property Partners, are understood to be close to completing the purchase of the Liffey Valley shopping centre from Aviva and Grosvenor in a deal believed to be worth about €350m.

This deal will not include the 120 acres of development land at Liffey Valley which is owned by Barkhill, the joint venture between O’Callaghan Properties and Grosvenor.

South Dublin Co. Council recently gave the green light for 450,000sq.ft of retail space on 60 of these acres.

Nevertheless, a majority of Irish estate agents are forecasting that commercial rents and prices will continue to fall in 2010, according to the annual survey from the Irish Auctioneers and Valuers Institute. (See commercial-property section of today’s Irish Independent).

AIB’s decision to pull the sale of its Grafton Street branch came as a surprise, considering that the bank appears to be under pressure to generate and conserve capital in order to alleviate its balance-sheet bad debts. A spokesman for the bank said it was considered inappropriate to sell this particular branch at this point in time.

However, sources close to the bank have indicated that it has no plans to stop selling other properties and is willing to accept offers that it considers to be good value.Prior to the recent change of management, AIB had generated hundreds of millions of euro from the sale of both its prime Dublin offices, as well as branches.

In all, it has completed sale-and-leaseback deals on about 50 of its 186 branches, north and south of the border.

At the time of the market peak, the sales were part of a strategy for generating capital which could then be lent on to the bank’s clients. This was when there was a strong demand for funds to buy all types of properties.

Simultaneously, investors paid strong prices for bank properties because the bank was also offering attractive sale-and-leaseback deals.

Not alone were the rents attractive and came with upward-only rent reviews but the risk was low because of the blue-chip nature of the tenants.

14 Jan 2010

The fall in house prices left many homeowners in negative equity, but this need not necessarily prevent you from trading up, says John Cradden

IT’S the topic no one wants to talk about, but this elephant has no plans to leave the room. Negative equity happens when the value of your property on the open market amounts to less than the sum of your mortgage.

If you bought a house within the past five years, you are likely to be in negative equity to some degree.

The average household is sitting on negative equity estimated at €43,000, according to Irish Independent calculations based on a recent report by Goodbody Stockbrokers.

It was estimated that 116,000 households were in negative equity at the end of 2009, rising to nearly 200,000 by the end of this year, according to the Economic and Social Research Institute.

However, this is a conservative estimate based on prices falling by 24pc from their peak in 2007. If house prices end up falling by 50pc, this figure would rise to 350,000.

It is generally expected that when the National Asset Management Agency is established and house prices start to recover, they will do so only very slowly and steadily. But this means that thousands of us may be stuck in negative equity for quite a number of years. This may not be an issue for you if you plan on staying where you are for the foreseeable future.

You may also have just enough of your mortgage paid off that it will not prevent you from trading up in the short to medium term. However, if your LTV (loan to value ratio) is still above 70pc or so, the financial challenge of trading up takes on a new dimension.

Kevin McNerney, director of the Mortgage Finance Company, says most first-time buyers borrowed between 90pc and 100pc of the purchase price.

“This leaves people in a position whereby, even if they wanted to sell the property and rent something for a few years, they would need to come up with a large lump sum to hand over to the mortgage provider, just to clear their mortgage debt.” He estimates that if someone wanted to trade up, they would also have to come up with an additional lump sum ranging from 8pc to 20pc of the purchase price of the new property.

“If they buy a second-hand house they will need to have money for their stamp-duty also.”

But what if you definitely need to move at some stage within the next five years? Is there anything you can do to prevent negative equity from scuppering your plans?

Depending on your circumstances, the ultimate answer may be no, but at the same time there seems to be little point in just waiting and hoping.

“If someone feels that they will need to trade up their property within the next three to five years, then the only option available really is to start putting additional money aside each month to enable them to have a lump sum set aside for when the time comes,” says Mr McNerney.

For those who may need to move in three years’ time, Patricia Foskin, of Waterford-based mortgage brokers Foskin Mortgage & Finance, suggests fixing mortgage rates now for the next three years. Depending on the lender, three-year fixed rates start from 3.19pc.

“This way they can avail of the current low rates for the next three years and save as much as possible by opening a regular savings account, where there are rates available of up to 4pc at the moment,” she says.

Karl Deeter, operations manager at Irish Mortgage Brokers, says: “I think that it really comes down to what you can afford. If you can repay a little extra on your mortgage, now is a great time because with rates so low you will eat into capital in a more rapid fashion.” For those on a cheap tracker mortgage, Mr Deeter suggests putting surplus funds into a high-interest savings account, so that you have the flexibility to decide what to do with it, whether as a down payment against another property or to pay off a lump sum on your existing mortgage.

However, he warns that whatever you do, it is vital that your credit score stays good as missing even a single mortgage payment could create more difficulties, particularly as banks become much more conservative about their lending.

“People need to find a way to avoid damage from the downturn as much as they need to find ways to get themselves lined up for any future move,” he said. He also recommends overpaying your mortgage, but warns that those on fixed rates will not be allowed by their lenders to overpay, or will have to pay a penalty for doing so that will negate the overpayments in the first place.

You should also assume that property prices will not increase when determining how much you need to put by in order to clear the negative equity portion of your loan and also raise a deposit for a new property.

“This will help you to work out how much you need to be putting aside every month,” says Mr McNerney

18 Jan 2010

CONSUMERS will no longer be able to “cherry pick” lower mortgages rates, a top financial expert said today.
Oliver Gilvarry of Dolmen stockbrokers said lending institutions are to “move at pretty much the same time” when applying expected mortgage rate hikes.
“So the ability to cherry pick to a lower mortgage rate won’t be there at all,” he added.
Mr Gilvarry pointed out that many borrowers never even received the full benefit of the interest rate reductions from the European Central Bank (ECB).
“We can see with the foreign-owned banks here that have been operating mortgages — a number of them never passed on a lot of the rate cuts that were given through from the ECB last year, so you don’t have that option either,” he said.
It emerged today that almost 70,000 Permanent TSB mortgage customers face a rate hike of as much as 0.5pc over the coming weeks — adding €15 a month to average monthly repayments.
The bank already added 0.5pc to its standard variable rate last July, bringing it to 3.19pc.
Other banks, including AIB and Bank of Ireland, were thought to have been preparing to hike their rates at the time but held back following criticism of Permanent TSB.
Kevin Murphy, head of the bank’s parent group, Irish Life & Permanent, indicated last November that the lender would be looking at its interest rates again in January.
It is believed the hike is now on the verge of being implemented.
The bank’s remaining 120,000 home borrowers, who have either fixed-rate or tracker mortgages, which move in line with ECB rates, will not be affected by the move.
Earlier this month, Karl Deeter of Irish Mortgage Brokers warned lenders will push up standard variable rates by as much as 1pc this year, and another 0.5pc next year.