Lettings market key in 2016

It is imperative to stop the loss of essential rental accommodation, says estate agent Sheila O’Flynn.

The past year, 2015, has proven to be a buoyant year for the Irish economy, but despite this buoyancy the performance of the residential property market is still quite volatile.

Following a strong uplift in sales in 2014, levels have improved again in 2015. In the first nine months of the year a total of 34,200 transactions were recorded. Excluding multi-family/portfolio sales, approximately 32,100 residential units transacted, up 21% compared with the corresponding period in 2014. Cork had just over 3,500 transactions in the period, up 25% on 2014.

This increase in transaction activity has led to a reduction in the quantum of available property for sale. A Sherry FitzGerald bi-annual analysis of available second-hand private stock shows 32,400 residential units advertised for sale, representing 1.7% of the total private second-hand housing stock in Ireland. Supply in Cork fell by 19% year-on-year, remaining particularly tight in the city with just 1.0% of second-hand private stock on the market.

Price growth moderated significantly in 2015; however the regional centres outside Dublin continued to experience relatively strong price growth, and the Cork market may have grown in value by almost 10% during 2015 (it was 17.9% in ’14.)

However, a worrying mismatch between the volume of vendors selling buy to let properties and the quantum of investors purchasing properties still persists. An analysis of sales through Sherry FitzGerald offices in the period 2011-2015 shows an estimated loss of over 40,000 rental properties from the market. In essence, for every one new investor coming into the market, two are leaving.

Combining this depletion in available rental property with the growth in demand has generated strong rental value inflation. Anecdotally, the pressure on rents in Cork city in particular is even greater in certain locations than the published figures. As such the biggest challenge for the Cork market for 2016 is one of supply of available property to buy and to rent.

Construction activity remains moderate, and disappointingly the rate of increase seems to be slowing down. A total of 10,052 completions were registered during the first 10 months of the year. This compares to an annual demand for 20-25,000 units. In Cork there were 1,088 completions during the first ten months of the year, up 21% from the same period in 2014, but well below market needs.

The reduction in the supply of available rental accommodation is also worrying and does beg the question why are so many people selling their rental properties if rents are rising?

The answer probably lies in the depth of price deflation since the crisis began. As prices recover such landlords are taking the opportunity to cut their losses, often encouraged to do so by banks. New investors buying rental accommodation are scarce too, not least due to the memory of the past ten years. More importantly there is the cost of holding rental accommodation, exacerbated by the decision to include USC and PRSI charges on rental income. Furthermore tax relief is limited to 75%, and finance available for investors is costly.

Legislation in relation to REIT and QAIFs has helped international investors to buy large scale multi-family assets in a tax efficient manner, but this has not or will not solve the national or indeed Cork rental crisis. As we approach another year with a frightening story around homelessness, it is imperative to stop the loss of essential rental accommodation.

Rental property is vital in our housing market, if it is not going to be provided by the State then private investors need to fill this vacuum. At the moment Government policy is penalising, rather than incentivising, investors.

A functioning lettings market is only one element of a functioning housing market; it is definitely one of the most pressing issues for the Irish market in 2016.

* Sheila O’Flynn is MD of Sherry FitzGerald, Cork


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