Price of houses to 'increase by 12%'

HOUSE price inflation will continue this year, with the average price of a house nationally expected to grow by 12% to €270,000, which is 38% greater than in England and Wales.

The influential Irish Property Review, compiled by Bank of Ireland chief economist Dan McLaughlin, predicts Dublin prices will increase by 14% by December, bringing the average house price in the city to €363,000.

In contrast, prices in England and Wales stagnated for the third month in August.

The average cost of an English or Welsh home was unchanged at €195,387 according to property Web site Hometrack, which collects data from about 3,500 estate agents. Hometrack left its forecast for 2003 house-price inflation unchanged at 3%.

Mr McLaughlin, in his review, also examined the buy-to-let sector and suggests that the risks associated with investment property might be overstated.

Yesterday, he revised upwards his forecast for national second-hand house prices in 2003 from 8% to 12%.

Up to 60,000 houses are expected to be completed this year but an inadequate supply in Dublin is fuelling prices rises, in the capital and outside, Mr McLaughlin believes. "House building in the capital rose by over 30% last year, but this still resulted in only 12,600 completions, or some 22% of the total increase in supply nationally. With 30% of the Republic's population living in Dublin, the figures imply a need for even greater supply in the capital," he said.

Mr McLaughlin said demand this year will be about 50,000, but said there is a substantial volume of unmet demand accumulated since the mid-1990s, which he estimates at over 20,000.

In the buy-to-let sector Mr McLaughlin calculates that rents are broadly unchanged from last year, but may have softened in the suburbs of Dublin.

Mr McLaughlin said the argument that the buy to-let market is oversupplied resulting in weaker prices misses one point: the investor is acquiring equity.

He gives the example of a two-bedroomed apartment in Dublin costing €320,000 as demonstrating the potential of this market.

"The gross monthly cost of servicing a 25-year mortgage would be €1,600 against a rent of say €1,200. So the owner is paying a net €400 per month for the mortgage, which would pay for a €80,000 loan. In other words, the investor is acquiring a €320,000 property for €80,000."