Mapping the future

The time may be ripe for residential investors to consider opportunities in regional cities and large towns.

ARE property buyers on course to repeat mistakes of the past? There are so many big questions to ask about the property market that, often times, the reality gets lost in a mire of statistical averages and irrelevant data.

When we break down what is actually quite a simple formula — supply and demand -—it is possible to measure every local market.

In fact, I would argue that this is the only way for intending property buyers to get a truly accurate picture of what is happening on the ground.

Of course, it is important to be mindful of the national marketplace and to know where we are in terms of market recovery; however, in a moving market it can be difficult to pinpoint our exaction location.

Due to significant regional variances, the only way that this can be done is by knowing every facet of the local market.

Dublins is starting into an intensive construction program, with thousands of homes expected to be delivered within 24 months.

Lessons have been learned and development in the immediate future is tasked with delivering family houses in areas that people want to live, at a price that they can afford.

In a recovering market, there is generally a balance that can be achieved. Unfortunately, this balance was not achieved in Dublin, where prices are rising at a rate of 15% per annum -— in real terms the increases can be up to 20%.

Recovery does not look like that outside of the capital. In many areas around the country, stabilisation of prices will be enough to kick-start the market and get transactions moving; however, for the regional cities, we will need to see prices rise to encourage further development. We do not need to see increases akin to what in happening in the Dublin market, as this is rapidly turning into a mini bubble situation, but rather marginal increases that restore buyer confidence, justifying construction of more suitable units.

Statistics become unhelpful in their broad application, when we are looking at the market fundamentals of supply and demand. On paper, we have more supply than we need. On the ground, first--time buyers are competing with each other and with cash investors for a very small pool of well-located houses or quality apartments.

It is somewhat ironic that recovery is happening is the same way as the crash did; it is proving to be quicker and more pronounced than expected. When an imperfect system breaks down so completely as we saw with the Irish property market, it is a wasted opportunity to pour resources into patching it up.

We have now, what might prove to be a unique opportunity to correct flaws and re-model the entire system, from planning to purchasing, and our government is too distracted to even try. We are seeing the same tired strategies rolled up, interspersed with words like “innovative”, “contemporary” or “future-proofing” but despite the buzz words, we are on course to replicate a ineffective system and repeat our past mistakes.

We see it in Dublin and, unfortunately, Galway city is on the same path. If political will and local authority influence were stronger, it might be possible to set a different course for recovery in Waterford, Limerick and maybe even Cork.

According to a recent Property Industry Ireland (PII) report, we are on track to provide 2,000 new units in Dublin by the end of 2014 but this will do little to satisfy the demand for up to 7,000 units. And this demand is expected to rise year on year. This means that the bubble scenario this is brewing in the capital, looks set to continue for a period of at least two years and possibly longer, depending upon the success of targeted planning initiatives.

Taking a look at the Cork market, there is evidence of supply - both existing and in early stages of construction - to meet demand up to approximately 1,000 residential units. While there are many proposed development sites in and around the Cork area, the schemes found by the PII to be 'viable' and most likely to deliver housing over the next twelve months are located in the Rochestown and Lehenaghmore areas, with Douglas and Blackrock looking likely also. Looking at Cork’s outer suburbs, most new homes will completed in the Carrigaline and Blarney areas.

Unfortunately, the situation here is similar to Dublin insofar as the existing supply is not of a suitable type of housing to meet the needs of the existing pool of intending buyers. This is particularly true in the city centre. Limerick county has sufficient stock levels and has areas of unsustainable oversupply.

The city continues to experience a low level of transactions, with deliverable units in 2014 likely to meet demand or close to it. In Limerick, recovery in the shorter term is likely to take the form of increased activity rather than increasing house prices.

Galway city and county are entirely at odds with each other. Sufficient supply exists in the county but this is not true of the city, where housing stock is in short supply with very little in the immediate pipeline.

Based on current planning permissions, less than 100 new units are likely to be deliverable throughout the remainder of 2014. Contrast this with forecasted demand of up to 500 houses and/or apartments this year and we can see the potential for a bubble in the city area for the next number of years.

So what do all of these figures mean when it comes to buying and selling property? The most important thing it means is that we are nearing the end of this “buyer’s market”.

Opportunities for below market value purchases still exist but are reducing week on week. While home-buyers are tied to their chosen areas, now might well be the time for residential investors to consider regional cities and large towns.

¦ Carol Tallon, founder of Buyers Broker Ltd, is the author of the Irish Property Buyers Guide 2014, published by Oak Tree Press, Cork.