Recovery in both the residential property and investment markets is validated with two recent reports. The IPD/SCSI analysis shows Irish returns continuing to set international headlines, with investor activity moving to provincial Irish cities, with a strong rebound in Cork City’s retail performance in particular noted.
And, a separate Lisney Cork residential property index shows growth of 1.7% in the second quarter of this year over the first quarter, when 1,016 individual properties were transacted at median values of €176,000. That’s up a strong 23% on the figures from the same quarter in 2015.
According to agents Lisney’s analysis, the upward trend continued in the first half of this year. However, supply concerns continued as just 2,473 second-hand residential units were available for sale in Cork, and rents continue to rise, up 8.3% in the year to March (rents in Cork now stand at 11.8% below boom-time peak levels).
“New homes activity remains significantly behind required levels,” says Trish Stokes of Lisney, who notes 43 new housing developments in train in Cork.
A breakdown of Cork sales (excluding bulk/multi-unit sales) shows 83% of sales in the first quarter of this year were at sub-€300,000 levels, while 18% of properties sold for less than €100,000.
Just 15, or 2%, of properties in Cork were sold for over €700,000 in the opening three months of 2016 — this is close to national averages of 3% of individual sales making over €700,000, and 77% of units nationally fetching less than €300,000.
The volume of sales in Cork in the first quarter, at 1,016, was down 10% on the comparable 2015 quarter, at 1,130, when median prices stood at €142,850.
Draw-down of new mortgages by the end of the first quarter was 4,664, down 9% on Q1 2015, and 53% of sales were mortgage funded, and 47% purchased fully with cash.
Looking to future home supply (owner occupancy still comprises 70% of tenure) Lisney researcher Aoife Brennan welcomed the Government’s action plan on housing and said that “available land with planning permissions is not an issue. The issue is with funding and inadequate services infrastructure.”
Meanwhile, on the broader Irish investment and returns front, the IPD/SCSI Ireland Quarterly Property Index reports that strong income prospects have lifted total returns across the Irish investment market.
The Irish index tracks the performance of 434 property investments with a total capital value of €7.9bn as of June 2016.
Although much discussion at the launch of the report revolved around the Brexit effect, this seismic event would not yet be apparent in the figures.
Evidence suggests, however, that UK property prices have begun to dip appreciably and it was generally felt that there may well be short-term gains for the Irish property market. The potential longer term effects, however, remain shrouded in uncertainty.
The index recorded a 3.1% total return in property during the second quarter, a modest increase from the 2.9% figure in the first quarter but a significant fall from the 4.2% recorded over the same period last year.
This still leaves the Irish property market as the top performing in the world over the past two years. Values and rents continue to strengthen, albeit at a slower pace.
Irish property continues to outperform other asset classes in the first quarter: Its 2.9% total return was better than equities at -0.2%, bonds at 0.9%, and well ahead of the inflation rate of 0.4%.
MSCI vice-president Colm Lauder said: “Provincial markets, which entered the recovery cycle after the capital, have grabbed investors’ interest. Total returns for the provincial retail segment, which is dominated by Cork City, were the strongest on offer in the second quarter as rents finally began to recover.”
Total return in Cork’s retail sector for the second quarter was 8.1%, its strong-est in over a decade. This is composed of capital growth of 6% coupled with income returns at 2%. Rents, which are still volatile, were up 5.9% in the last quarter.
Mr Lauder said the Cork investment market is still in an early stage of recovery, with values rising from a low base.
As a result, percentage changes can be dramatic from valuation to valuation, especially as transactions pick up. Despite this, he said investors are still quite cautious about Cork, demanding higher income returns to compensate for what is perceived as additional risk.
Average yields for Cork retail stand at 6.8%, with Dublin at 4.3%, highlighting the value on offer in Cork, but acknowledging the higher risk profile.
The top performing sector overall is industrial property with a total return of 5%, comprised of 1.8% income and 3.2% capital growth. Office investments recorded a total return of 3.1%, with Dublin averaging 5.5%, returns.
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