Reasons for optimism this year

2012 proved to be a turning point for the Irish residential property market after five years of contracting prices, writes Marian Finnegan

“Notably, an analysis of sales in Sherry FitzGerald suggests that Cork City has enjoyed a greater than 40% uplift in transaction activity.”

Hindsight, as we all know is 20:20 vision. So today it is perhaps easy to say that the origins of the now infamous Irish property boom began as early as 21 years ago with the devaluation of the punt during the currency crisis of 1992. The ending of the property boom is also well documented as taking place in mid- to late-2006 when activity began to grind to a halt and prices began to fall.

So the next important landmark is undoubtedly ‘when did the property recession end?’

Calling the bottom or top of any market is incredibly difficult. The biggest challenge is that everyone is seeking the end of the Irish property recession and there isn’t one homogenous market, rather a minimum of 26-sub markets. As such, there is a greater likelihood that the Irish market will bottom out over a prolonged period with regions of tightest supply enjoying stability long before those where the market is saturated.

With all of those caveats, 2012 proved to be a turning point for the Irish residential property market after five consecutive years of contracting house prices. Notably, Dublin house prices rose for the first time since 2006, with the average price of a second-hand property in Dublin rising by 1.5% in the year. The pace of deflation in other locations has notably reduced during the 12-month period; the overall Irish housing market fell by 3.3% in 2012.

Since the peak of the market, capital values in Ireland have fallen by 56.6% in nominal or 62.1% in real terms.

The performance of the rest of the country varies on a county-by-county basis. However, other locations, particularly Cork, Galway, and Kildare have also witnessed a strong uplift in transactions and a tightening of supply. Since the peak of the market in 2006, capital values in Ireland have fallen by 56.6% in nominal or 62.1% in real terms.

The launch of Ireland’s first property price register has been a welcome first step towards providing greater clarity on the performance of the market. An analysis of all transactions in 2012 has revealed that 22,723 properties sold compared to 17,984 transactions in 2011. Approximately 35% of transactions in 2012 were in Dublin, reflecting a 39% increase on 2011 levels.

Approximately 2,477 sales were recorded in Cork on an annual basis, a 20% increase on 2011 levels. An analysis of sales in Sherry FitzGerald suggests that Cork City has enjoyed a greater than 40% uplift in transaction activity.

The Galway region also saw a rise of 11% in the year and the volume of properties sold in Kildare increased by 26%.

In addition, 191 properties were sold with a value of €1m-plus, accounting for 0.8% of total 2012 transactions.

A comparative analysis of property sold in the year and recorded on the property price register, combined with an analysis of mortgages drawn down, has revealed that 43% of sales are accounted for by cash sales. This is a continuation of a trend which emerged during the latter months of 2011.

The other important factor to consider in the stabilisation of the market is supply. Sherry FitzGerald Research undertakes a comprehensive census of all the second-hand houses and apartments available for sale in all 26-counties on a bi-annual basis. The latest data reveals that the total stock of available property for sale in the second hand market nationwide stood at 56,402 units, representing 3.1% of estimated private housing stock respectively.

Dublin with 6,030 units, has the lowest proportion for sale in the country and represents 1.3% of the estimated private housing stock in the Capital. In contrast, Cavan with 2,451 units has the highest proportion, representing 7.9% of the estimated private housing stock.

By subdividing out the cities from the county data in the regional centres, it is worth noting that only 1.8% of the private stock in Cork City and 1.6% of the private stock in Galway City is available for sale. Such figures, which are only marginally greater than the 1.3% recorded in Dublin, suggest that both these locations are also beginning to see a supply ‘pinch point,’ which could positively impact price performance in the short term.

So what does all this mean for the property market? Overall, it is apparent that the dynamic of the residential market shifted in 2012 and has begun to stabilise in the locations where supply is most constrained.

As 2013 rolls out, the most notable features of the market are likely to be tight supply of available properties coupled with a growing demand from first-time buyers who benefit from a three-year exemption from property tax, investors and other owner occupiers. This could generate a further uplift in prices.

*Marian Finnegan is an economist with estate agents Sherry FitzGerald