Property market ‘faces no danger of crash’

THERE is no danger of a crash in the property market, but it may be in for a soft landing, according to the latest forecast by the country’s leading bank.

However, the report by AIB warned of a fall in rental income this year, with many investors experiencing a reduction of up to €200 a month.

Despite growing concern that many people are struggling to meet mortgage repayments, AIB economist John Beggs says the case for a crash has been overstated. Central Bank figures show that €56 billion is currently outstanding in mortgage debt.

Mr Beggs said while the market remains vulnerable to any withdrawal by investors, demographic trends and inward migration continue to underpin strong demand.

While admitting that house prices have rocketed, he said the massive rise must be seen in the context of unprecedented economic growth.

The report concludes that “despite regular speculation about the risk of a crash, the Irish housing market, at present, exhibits none of the signs of a bubble about to burst, certainly from the demand side”.

The upbeat outlook contrasts with a report from Davy Stockbrokers, which warned the cost of servicing a mortgage is escalating and predicted that the percentage of income needed to pay off personal debt would continue to soar to record highs by the end of the year.

The report by AIB, which provides mortgages for 20% of home owners, points to a slowdown in the rate of price increase to a more modest 7% by the year end from the current level of over 13%. The average price of a house is almost €30,000 more than it was last year.

The average price paid for a house in February this year was €237,179 compared to €209,321 in 2003.

AIB warns there are growing signs that investor confidence in the market is waning.

It says lower rental income has become a growing concern for some investors.

However, it said there was still no evidence that investors are leaving the market in any significant way.

However, it was an issue that needs to be closely monitored.

“The market remains vulnerable to any withdrawal by investors” who accounted for about 30% of the new homes and apartments bought during the course of last year.

On the broader front, AIB maintained that the economy was moving back onto a firmer footing following a downturn after the end of the so-called Celtic Tiger boom.

The bank said two factors were critical to the outlook for the economy: the sustainability of the global recovery and the prospects for the Irish labour market. It concluded there were improving grounds for optimism on both fronts.