Irish respond to lure of UK market

IRISH investors ploughed over €1 billion into commercial property in the UK in the past year, but we also put hundreds of million euro into our neighbour's housing and apartment markets.

Despite cautionary notes of UK prices reaching the top of a cycle (growth averaged over 20% in 2002, to a national house price average of €212,000 - about on a price par with the Irish national house price average of €200,000-plus), those who invest outside of the inflated property hotspots in the South East are likely to see better returns than are available in many Irish buys.

Irish buyers, dubbed the New Arabs, are being lured by prospects of capital appreciation such as was seen in this country in the late 1990s, but knowledge of locations which are secure and/or on the rise is essential.

The cuter Irish buyers have being going solo to the UK for the last five years or more and for those who don't have the time to trudge from street to street and estate agent to agent, a network of firms (estate agency, accountants and brokers) has sprung up to locate the best buys and syndicates of buyers have emerged as an Irish investment phenomenon.

An inner circle of wealthy individuals had traditionally been able to access high quality information.

Now, a recently formed company, Alchemy Investments, is among the new services bringing top-quality advice and options further down the line to smaller investors.

Founded by Cork man James Carroll, it has a small research-based network of professionals sourcing property options, primarily in the North East where entry level is lower and prospects for growth good.

Alchemy held two property fairs prior to Christmas, in Dublin and Cork, and had inquiries on about €70 million worth of property, much of it headed to the new homes sector where Alchemy has a link forged with leading UK builders, Crosbie Homes, among other firms and plcs.

About 15% of inquiries were from people wanting to spend on properties worth over €100,000, the vast majority were for properties valued between €100,000 and €200,000, and typically investors would need between €15,000 and €20,000 to fund theses buys, with bank borrowing making up the balance.

Again, the profile of would-be buyers indicates that most had previous property investments in this country and were looking for a better yield: Carroll, who describes Alchemy's investment approach as "banking, in a property wrapper," says yields of 7% to 10% are achievable.

His advice is to buy prime location where possible (he is also starting to bring on New York properties, with new apartments in Manhattan being checked out for Irish investors.)

The lure of UK investment includes the convenience of a common language, familiarity with cities where growth is likely to be strong, and low stamp duty rates - 1% for residential buys, compared with up to 9% for Irish investments.

The pre-Christmas budget here pushing commercial property stamp duty rates to as much as 9% is expected to increase the flows of Irish cash to Britain.

Both the Irish and British markets have a strong tradition of private home ownership, but the rental market in both is growing as a percentage.

According to FPD Savills, demand for rented property in the UK has increased by 50% since 1988, leaving private rented property accounting for 11% of the housing stock and this is likely to rise to as much as 20% in the next 20 years.

Trends towards a European-style rental culture are beginning to show in the UK. Shorter employment contracts, a desire for greater mobility and flexibility in work commitments, and the establishment of alternative lifestyles to the traditional family unit are all contributing to a greater demand for rental properties, especially in the 20 to 35 year age range.

Although there are warnings sounded about the UK market slowing down with price drops a possibility, Carroll says this fear is really only relevant in the overheated South East boom in the UK house market shows few signs of abating with the annual pace of price inflation accelerating to over 20% in recent months.

Bank of Ireland economist Dan McLaughlin says despite concerns about the sustainability of market values, "the UK has undergone a regime shift in recent years, moving to a much lower interest rate environment thanks to the credibility and record of the Monetary Policy Committee (MPC) meeting its inflation target."

Like Ireland, low interest rates and affordability have held up prices.

Warnings of sharp price falls in the Irish housing market were misplaced and are likely to be wrong in the UK, says McLaughlin.

"Indeed further price gains are likely in the UK housing market, as affordability is still not uncomfortable and, unlike Ireland, supply is very unresponsive to excess demand. Equilibrium may well be restored in the next few years via higher interest rates and a gradual deceleration in house price inflation, rather than through a nationwide fall in nominal house prices," says the bank's economist.