Counting the cost

The slump in world markets continues to affect Irish people who splashed out in the boom, writes Diarmaid Condon

A view of the beach in the resort of Golden Sands, Bulgaria. Tourist markets on the coast and ski resorts in Bulgaria continue to struggle, but demand for high quality property in Sofia is remarkably resilient.

The Palm Jumeirah in Dubai. Prices are largely stagnant in Dubai, which was an Irish favourite in the boom years.

LIKE its domestic counterpart, the activity of the Irish abroad has been severely curtailed by happenings in our own and our nearest neighbours’ financial markets. We are not, suffice it to say, setting the world alight with headline purchases in the world’s most chic areas anymore. Indeed, you are more likely to read of trophy assets purchased by high flying Irish individuals and syndicates being sold at knockdown prices than to find our fellow countrymen gracing the pages of the press having snapped up bargains. Some Irish investors are being shown to have been a lot less “canny” than might have been suspected on first impressions.

During 2011 we have been treated to numerous stories of headline-grabbing investors like Derek Quinlan, Treasury Asset Management and Sean Quinn being forced to shed assets at a fraction of the values for which they were purchased.

This is quite ironic because with all that has happened in a range of property markets across the world over the past four years, there are opportunities to purchase at a price point that hasn’t been seen for up to two decades.

Unfortunately, the Irish bought much of their property portfolios during a boom time with a glut of cheap finance being pushed very heavily by banks wanting to voraciously expand their operations. The result obviously hasn’t been good for the banks, for which we will be paying for many generations to come. What is less easy to see is the private personal problems that have ensued for Irish property owners, both home and abroad, as the banks have equally voraciously begun to recall these loans, showing very little mercy while doing so.

So would it be correct to assume that the majority of the world’s property markets are in price freefall? Ours is more so than any other, but most markets aren’t setting the world alight at the moment. Looking around Europe you would certainly struggle to find a ‘booming’ market (not that booming markets are anything to aspire to, as we’ve learned to our cost).

An in depth discussion of all the markets across the world is beyond the scope of a short piece like this, but if you want to see some comparisons you could visit http://bit.ly/sz6X33, where you’ll find the Knight Frank Q3 2011 House Price Index. It’s not perfect, but as a method to compare the performance of a range of markets it’s certainly not a bad place to start.

The Jones Lang La Salle Global Real Estate Transparency Index for 2010 (http://bit.ly/smAKE3), which compares how countries allow locals and foreigners alike do business in the real estate markets in individual countries, is also worthy of some consideration.

If you visit the Knight Frank site you’ll notice the fairly grim heading “Global Property Market Stagnates”, which is, of course, taking the world market as a whole.

During the year up to Q3 2011, house prices fell in 54% of the countries monitored by the index and average price growth was zero. Very few property markets in which Irish investors are involved have much positive price growth associated with them, apart from Estonia, Slovenia, France, Turkey, Austria, Switzerland and Canada. Other countries showing very moderate, growth over the past year include Germany, Lithuania and Sweden.

Unsurprisingly, Ireland is propping up the table in 51st place with total estimated price drop over the past 12 months of 14.3%. It may, however, come as somewhat of a surprise to find we are in the company of Russia which has seen a 10.7% drop in prices over the past year. Others in negative territory include Cyprus, Bulgaria, Poland, Spain, the Czech Republic, Slovakia, Greece, the US and Portugal. It may also come as somewhat of a surprise that prices are largely stagnant in Dubai, as well as in Britain, both of which were Irish favourites in the boom years. Dubai, in particular, suffered very badly when it’s market belatedly went into price decline, so Irish investors there will be happy to see that plummeting values appear to have eased off somewhat.

On the Mediterranean, Porto Montenegro in Tivat, Montenegro, is the fastest selling project in the region. Like Bulgaria, Montenegro’s holiday home market relies on Russia’s fortunes. Demand is driven by those looking for berths for large yachts, of which there is somewhat of a shortage in Europe. Michael Fingleton’s ill-fated investment in the large abandoned Hotel Fjord on the beautiful Kotor Bay has made the country headline news once again in Ireland.

Neighbouring Croatia depends more on the British market and, as such, is struggling. The market now mainly revolves around Croats buying properties back from Irish and British owners. If joining the EU is still a good thing, which is debatable, then Croatia may benefit from its confirmed entry in 2013.

In Bulgaria, tourist markets on the coast and ski resorts continue to struggle, but demand for high quality property in Sofia is remarkably resilient.

In Hungary, reports are that rents are holding very stable in the better areas of Budapest but, like Ireland, the country is very much in the grip of austerity, and has been for longer than most. Properties in good quality areas with rental demand are, however, holding their value.

There’s no way to wrap up the US in a short piece, it is a conglomeration of markets ranging in fortunes. The north-east continues to perform reasonably well but fortunes are still waning as you head toward the southern coastlines.

Bargains are certainly to be had if you are in the market but, much like Ireland, finance is the chief stumbling block. Beware of really cheap ‘rental-ready’ products being sold at apparently ‘rock-bottom’ prices, particularly in places like Detroit. They are available for virtually nothing locally so the mark-up for the agents is huge and rental income can be difficult to come by.