Student accommodation and social housing are booming, but what's the prognosis for the wider market?
Pat Falvey, Director at Lisney Sotheby's International Realty, Cork
THE past year has seen several significant external forces threaten the Irish and international property markets. A complex combination of global geopolitical and macroeconomic factors, stimulated by the war in Ukraine has seen rapid inflation coupled with a worrying rise in the cost of energy and utility costs. The advent of interest rate hikes for the first time since 2011 has further rocked consumer confidence, in a mid-year barrage of negativity.
Initially, this was sensationalised by media talk of a pending property crash. Needless to say, the market shuddered in response and for a brief moment in time the market appeared to be following media suggestions. We braced ourselves and experienced a grinding halt in offers, followed by an avalanche of withdrawals by prospective purchasers. Incredibly, this was very short lived.
What has followed in the proceeding months has been a sense of urgency amongst vendors who were up until now sitting on the fence, capitalising on steady appreciation throughout the upward curve of the last growth period. This urgency has created a temporary flurry of activity amongst exiting landlords and investors, which has seen an increase in supply of second-hand homes by almost 62% throughout the year, from the market's historic supply low in January 2022, here in Cork. Whilst this increase may be viewed by many as a possible positive influence in the regulation of market values, the fact is that this is still nowhere near enough supply to create the desired regulatory impact on values.
In the weeks and months that have followed the mid-year slump, we have seen a steady return of confidence to the Irish property market, which has been undoubtedly fueled by the unchanged underlying fundamentals associated with the market. Simple economics has prevailed in the form of exponential demand, over short-supply, providing a return to growth in values and confidence amongst buyers here in the South of Ireland. However, this demand, confidence and knock-on growth in values has been contained to a select sector of the market. As always, the age-old adage of location, location, location, is ever present, along with two new major drivers in the form of energy efficiency and turn-key condition.
On the ground, a clear hesitance is being experienced towards dwellings that require improvement in either energy efficiency or construction-related investment. Principally, this is due to the increase and uncertainty surrounding the cost of construction, in particular materials such as timber and insulation, as well as labour. Not to mention the increase in running costs associated with older and less energy efficient properties.
As we close out 2022, we reflect on what has been a turbulent year, which has seen a mix of unrest and negativity, quickly followed by a return to positivity and stabilisation within the market.
As interest rates continue to tighten affordability for many purchasers, in particular First Time Buyers, we see the importance of government intervention in the form of buyer incentives such as the First Home Scheme (FHS) and Help to Buy (HTB), which have been successful in counteracting the impact on interest rate increases for those looking to take their first step on the ladder. It is clear to see the market demands are now far more discerning when compared with times past, as buyers remain selective and show strong preference towards new homes or turn-key opportunities.
It would be hard to discuss 2022 without mentioning the post-Covid impact of Irish ex-pats opting to avail of remote working opportunities available globally. It would appear that cashing-in on well performing overseas assets and/or homes to up stick’s for the homeland, is something which is now very common. Financial rewards from exiting markets in the US, Canada, Asia, UK and Australia have seen a windfall of liquidity in the upper end of the market fueling highly competitive bidding processes and values being achieved for assets in the higher end of the market, which remains dramatically undersupplied also.
In many cases, we have experienced upwards of 70-80% of all enquiries coming from overseas buyers. This is extremely potent in the Country Homes market where US buyers now flock to Ireland to avail of the strength of the Dollar against the Euro as they hedge their bets not only on the well-performing market here in Ireland, but the inevitable gain through the Dollar/Euro exchange rate.
Furthermore, many high-net-worth US and overseas buyers have expressed the attraction of having a European safe haven, in the event of further Geopolitical unrest. Ireland has proven a very popular choice for many US buyers throughout 2022, given its Neutral status and given the strong roots which exist between both countries. It is clear to see that this trend is very likely to continue and grow throughout the year ahead.
As we look towards 2023, there are a host of looming concerns that will undoubtedly ensure another challenging and volatile year for those looking at the prospect of home ownership. As alluded to earlier, the new homes sector has now hit the point of being critical to ensure the future stability of the Irish property market. Unfortunately, it is clear to see for those within the industry that the new homes sector is being tainted by a worrying imbalance between housing output in favour of servicing the social and student housing demands of the country, verses the build for market demands which exist on the ground.
Yes, government can have a well-deserved pat on the back for their efforts in resolving one part of the housing crisis, however the stark and concerning reality is that they are not doing anywhere near enough to supply the demands of the greater market, hence fueling the imbalance in supply and demand amongst those dependent on mortgages.
A delinquent planning process, lack of essential services in key locations, coupled with the increasing cost of construction and inability to access development funding with pillar banks will mean that many developers will opt to pull up the handbrake on output to the domestic market in 2023, in favour of the safety that now exists in social housing supply.
The prospect of breaking fresh ground for build for market output is now all too much for many well established and reputable developers and this needs to be identified and tackled immediately.
Yes, it will prove unpopular amongst the voters for government to be seen to incentivise developers with the aid of tax incentives and stimulus packages tailored towards build for market housing. However, without such measures we will see a compound effect that will see the supply crisis and property price inflation hit a point of no return for government.
It is evident that 2023 will face its own challenges, however it is clear to see that one can only predict moderate growth in the residential markets here in Ireland, assuming no further economic or geopolitical curveballs occur, at home or abroad.
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