5% to 6% rise in property prices over next few years

THE property market is no longer a one-way bet, according to IIB Bank, who nevertheless, predict a general increase in property prices of between 5% and 6% each year over the next two to three years.

In a note circulated to mortgage intermediaries to coincide with IIB Homeloans sponsorship of RTÉ's About the House, IIB says the property market continues to be shaped by the outlook for the economy as a whole.

IIB Bank chief economist Austin Hughes said: "There is a strong likelihood that economic growth and increases in living standards will continue to be among the strongest in the EU for the next four to five years. However, the rate of economic growth is likely to be significantly weaker than the exceptionally rapid and ultimately unsustainable pace seen during the recent boom. The controlled nature of the slowdown for the economy as a whole argues that the factors underpinning the rapid growth of previous years were solid and lasting. It can be argued that the arrival of the slowdown will provide a much-needed 'cooling down' period for many sectors of the economy," he explained.

Mr Hughes says a "cooler" economic climate is likely to have notable impact on the property market in the years ahead. The extraordinary buoyancy of this sector during the economic boom period owed much to the shift to a permanently lower interest rate environment inside EMU and a sharp reduction in corporate and personal taxation. "The boost to growth in property sector activity from these factors was essentially once-off in nature and has been fully absorbed. That said, the likelihood is that interest rates will remain relatively low and a significant turnaround in taxation policy seems unlikely. As a result, these factors will remain positive influences on the level of activity in the sector if not on its rate of growth. Critically, they should limit the prospect of a sharp deterioration in activity in this sector in coming years. Other economic factors are also likely to remain broadly supportive," he said. Mr Hughes believes Ireland's demographic profile will continue to underpin housing demand.

"As we expect economy-wide inflation to remain in the 3%-4%t area for some years to come and wage increases to continue at a somewhat faster pace, it would be surprising if property price inflation fell much below 5% 6%."