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Residential Report 2017 Savills World Research Savills World Research Ireland Offices Ireland
Savills World Research
April 2017
SAVILLS RESIDENTIAL IRELAND
Economic Overview
The Irish economy performed strongly in 2016 with 65,000 Brexit, the Apple ruling and the US election result have
additional new jobs created and output rising by 5.2%. This undoubtedly contributed to greater uncertainty. Nonetheless
momentum has continued into the opening months of 2017 with Ireland’s economic outlook remains broadly favourable and
the labour market performing especially well. Unemployment consensus forecasts point to continued expansion of around
has now fallen to 6.4% - its lowest level since mid-2008 – and 3.5% and 3.2% in 2017 and 2018 respectively – very strong
real aggregate disposable incomes have risen by 5.8% over the growth rates by historic and international standards.
last 12 months due to a combination of modest pay increases,
tax cuts and increased numbers at work.
Transactional Activity
In recent years we have repeatedly pointed to the illiquidity of There are several reasons for this. Firstly, housing construction
the Irish housing market. As shown in Figure 1, when compared remains very sluggish with fewer than 15,000 residential units
with neighbouring markets in the UK, Ireland has had far fewer built in 2016 – 65% below the 20-year average. Compounding
residential transactions per head of population. If anything this, over 6,200 (42%) of the units that were built were one-off
this situation became even more pronounced in 2016 with just dwellings which generally don’t come up for sale.
51,130 residential sales taking place – a 3.6% decline on 2015.
Traverslea House, Glenageary, Co. Dublin. Sold by Savills in April 2016.
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Ireland Residential April 2017
FIGURE 1
Housing Transactions Per Capita Ireland and UK
20
16
Transactions/1000
12
8
4
0
2014 2015 2016
England Scotland Wales Northern Ireland Ireland
Source: Savills Research based on CSO, ONS, HMRC
Changes to banking policy also help to explain sluggish of legacy loans was exhausted by mid-2015 and the negative
transactions. The now famous mortgage lending restrictions impact of more restrictive lending then started to emerge. As
were first floated in October 2014. Initially this caused a surge illustrated in Figure 2 transactions began falling year-on-year
in loan applications as intending home-buyers rushed to secure from July 2015 and remained sluggish until late 2016. This
finance before the tighter rules were implemented in February slowdown was sharper in Dublin where higher prices made the
2015. A mini-boom in housing transactions naturally followed as new lending rules more restrictive; Dublin sales declined by
these mortgage approvals were deployed. However the stock 6.7% in 2016 compared with 2.2% elsewhere in the country.
FIGURE 2
Annual Growth In Monthly Housing Transactions
100
80
60
% Change y/y
40
20
0
-20
-40
-60
Sep-15
Sep-16
Jan-17
Jan-15
Jan-16
Dec-16
Dec-15
Jun-15
Feb-15
Jun-16
Feb-16
Aug-16
Jul-15
Aug-15
Jul-16
Nov-15
Nov-16
Oct-15
Oct-16
Apr-15
May-15
Apr-16
May-16
Mar-15
Mar-16
Source: CSO Dublin Ex. Dublin
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Ireland Residential April 2017
However things changed dramatically towards the end of should continue to secure the units. And, at least until more
2016. Following the announcement of a Government Help-to- supply starts coming on-stream, those that were previously
Buy (HTB) scheme and the easing of mortgage restrictions,1 unable to compete may continue to find themselves outbid. The
lending activity rebounded with a 43.5% year-on-year increase short-term outcome in this scenario could be higher prices with
in mortgage approvals between November and February. In no material uplift in transactions.
principle, this should feed through to increased transactions,
and early signs are that this is the case; housing transactions Notwithstanding these misgivings, we believe the long-term
rose by 22.3% in January 2017 compared with January 2016. run-rate of housing market transactions has moved to a higher
Moreover, as shown in the shaded area of Figure 2, the uplift was level. Independent of other favourable trends in the economy,
much greater in Dublin (+68%) which suggests the affordability the combined impact of less restrictive mortgage lending and
barriers that had been holding back activity in this more Help-to-Buy should ultimately lead to increased affordability at
expensive market have been relieved by the policy changes. a price-point that is high enough to stimulate an increased flow
of new homes into the market.
While this is very positive, there is no cast-iron guarantee that
the recent uplift in January sales will be sustained. Firstly,
Who is buying?
purchases that might naturally have happened in late 2016 may
have been delayed until early 2017 to avail of HTB and easier
bank lending. This could mean we are witnessing a surge in
pent-up transactions that could rapidly unwind. Secondly, it has Figure 3 shows the distribution of housing transactions by buyer
to be recognised that the new Government interventions apply type between 2010-2016. Several clear trends can be observed.
equally to all qualifying FTBs. Those that were previously unable Firstly, there has been a sharp decline in the proportion of First-
to buy will use their additional resources to bid more. But, with Time-Buyer purchases. Secondly, there has been an offsetting
everyone competing for a limited number of units, people who increase in the proportion of investor purchases. Meanwhile,
were already in a position to buy may be forced to counter-bid movers within the market have accounted for a relatively stable
using the additional resources that they have received from the 45-49% of purchases since 2011. More detail on these trends
policy changes. Given their better starting position this group is provided below.
FIGURE 3
Housing Transactions 2010-2016 by Buyer Type
100
90
80
70
60
50
%
40
30
20
10
0
2010 2011 2012 2013 2014 2015 2016
FTB Investor Mover
Source: CSO
1
TB gives qualifying first time buyers of new homes a tax rebate of up to €20,000 which they can put towards their deposit. The revised mortgage
H
rules enable FTBs to finance the entire amount of their purchase at a 90% loan-to-value ratio compared with only the first €220,000 as was
previously the case.
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Ireland Residential April 2017
First Time Buyers (FTBs)
FTBs accounted for 10,116 purchases during 2016 – more or Digging deeper into the numbers, it is clear that affordability
less line-ball with the 2015 figure. In absolute terms the number is not the only reason for a reduced proportion of first time
of FTB purchases is no higher today than it was in 2010 and, buyers in recent years. To illustrate this point, FTBs represent
relative to overall transactions, the FTB share has actually a substantially bigger share of sales in Dublin (24.0% of 2016
halved from almost 41% in 2010 to 20% last year. Affordability transactions compared with 17.9% outside Dublin), even though
issues help to explain the declining proportion of FTBs within price-to-income ratios are highest in this location. We believe
the market. Average house prices have risen by 49.6% since that demographic factors may also be at play here. The 20-34
their trough. This has disproportionately impacted on first- year old age group, which is most likely to contain FTBs, has
timers who, by their nature, have less accumulated wealth to contracted by 291,000 since 2008 (see Figure 4). This decline
draw on for home purchase. Tighter mortgage lending has also has been particularly sharp outside Dublin (-26.7% compared
disproportionately impacted on FTBs as this group tends to be with -22.4% in the capital) which may help to explain why the
more highly geared. However, with disposable incomes edging Dublin market retains a higher proportion of FTBs despite higher
up, and with the benefits of easier mortgage lending and Help- average prices.
to-Buy now kicking-in, we expect affordability to present less of
a barrier to First-Time-Buyers going forward.
FIGURE 4
Number of Persons Aged 20-34 By Location
1,200
1,000
800
(000)
600
400
200
0
1998
2014
1996
1997
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2015
2016
Dublin Ex. Dublin
Source: CSO
Almost 3,800 FTBs bought homes in Dublin last year. come from family sources. Indeed, recent Central Bank research
Interestingly, 10% of Savills’ FTB clients purchased their homes indicates that more than one-fifth of Irish home buyers under the
entirely with cash in 2016. While some of these were mature age of 40 received family money ahead of their purchase, and
purchasers with savings and/or inheritance, and some were this is certainly consistent with the observations of residential
families relocating to Ireland with housing equity developed agents on the ground.2
abroad, much of the cash deployed by FTBs is likely to have
2
In value terms the average amount of the inheritance was €21,300 – approximately half the amount of the down-payment for a property. See Jane
Kelly and Reamonn Lydon (2017) Central Bank of Ireland Economic Letter Series Vol. 2017, No. 2.
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Ireland Residential April 2017
TABLE 1
Reflecting continued sluggish house-building, new homes
Average Purchase Price by Buyer-Type
accounted for just 7.8% of purchases last year. Given that
new homes are, on average, 6% more expensive it may
and Location, 2016
seem anomalous that FTBs were more likely to purchase All Buyer Types Movers % Difference
new-builds; 9.3% of FTB buys in 2016 were new homes
compared with 7.4% of non-FTB purchases. However National 241,060 280,203 16.2
agents consistently report that FTBs have a strong
preference for new builds. This reflects the quality of Cork 208,240 246,623 18.4
properties that are currently being constructed under new
building standards, and the expectation that new-builds Dublin 395,486 458,634 16.0
will require less maintenance and upkeep in the medium Market transactions only
term. First time buyers’ preference for new homes will
become even stronger in 2017 and beyond as Help-to-
Buy is only open to purchasers of newly built properties.
Movers
Movers in the market were on the buy-side of just over
24,000 residential transactions in 2016. This represents
47% of total sales - more or less in-line with recent years.
Movers in the market paid, on average, 16.2% more for
their properties and, as shown in Table 1, this premium
was relatively consistent across locations. This is
unsurprising because, having already been homeowners, The Rectory, Glandore, West Cork. Sold by Savills in March 2017.
many of these buyers have accumulated housing equity
and less binding budgets.
Movers in the market generally fall into two categories
– traders-up and traders-down. Within Savills’ sales the
split between these groups was approximately one-third
traders-down and two thirds traders-up. The profile of
these groups is quite different. On average traders-up
paid €611,531 compared with the €466,785 paid by those
trading down – a 31% differential. This is in line with
expectations; traders-down tend to buy smaller, cheaper
properties which reduce the maintenance burden and
enable them to release housing equity. They are typically
focused on village locations which offer a range of social
and commercial amenities – shops, pubs, post offices, Palermo, Killiney, Co. Dublin. Available through Savills for €4m.
etc.. In common with other buyer types downsizers put a
premium on proximity to public transport. However, the
attraction for them is not necessarily an easier commute
but rather the ability to access the free travel scheme for
pensioners. Perhaps surprisingly, given their age profile,
we are finding that traders-down embrace technology
and modern interior design. More predictably they also
put a premium on storage space and security, and have
a preference for surface rather than underground car
parking.
3 Seaview Terrace, Dublin 4. Available through Savills for €3.25m.
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Ireland Residential April 2017
Traders-up are typically seeking houses rather than apartments. these buyers tend to be focused on value-added features such
In the past these buyers may have been prepared to take as gardens and south and west-facing orientations.
several small steps up the ladder, but today’s up-sizers are
generally seeking to make one big jump into a home for life. There is a pronounced difference between how traders-down and
In some cases this may be because circumstances over the traders-up are financing their purchases. By definition traders
last decade have resulted in them arriving later on the first rung down are selling more expensive properties to buy cheaper
of the housing ladder. It may also reflect house price inflation ones; Savills’ sales show a €345,129 difference between the
expectations – some buyers are taking a view that prices will rise average selling price of those trading down (€811,914) and their
faster than their ability to accumulate savings and are therefore average buying price (€466,785) in 2016. In many cases this
stretching themselves to buy the most expensive properties enables traders-down to clear any outstanding mortgage debt
they can in today’s market. Traders-up are generally seeking and buy the new property outright with cash. Consistent with
homes in established locations with a range of good schools this 77% of traders-down bought their new properties entirely
and amenities to cater for the needs of growing families. These with cash. In contrast only one fifth of those who were trading-
include good public transport links for commuting to work and up did so with the remainder relying on mortgage finance.
school. Having typically been owners of smaller homes before
Investors
Investors accounted for just over one third of residential average price of just over €241,000. In Dublin this was also the
purchases in 2016. CSO data show that small buy-to-let case - the average price paid by private investors was €334,388
investors purchased 10,822 properties last year, with corporate compared with €395,486 across the market generally. This gap
investors buying a further 6,177 units. On average small-scale reflects the fact that investors often target smaller, cheaper
investors paid €172,771 – considerably less than the national apartments which tend to deliver higher yields and can be more
cost effective to maintain.
Lansdowne Place, Dublin 4. Coming to the market in 2017.
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Ireland Residential April 2017
Investors continue to be drawn to residential property by the rental growth in a chronically undersupplied market has driven
income returns. As shown in Figure 5a net investment yields up rents faster than house prices; Average rents in Dublin rose
on residential property are a multiple of the returns that are by 9% last year, compared with house price inflation of 5.8%.
available on banking deposits. Interestingly, as illustrated in
Figure 5b, residential yields in many parts of Dublin are similar to A strong trend in the market is that investors are blending the
or higher than those in some regional locations. This is contrary financial decision to invest in bricks-and-mortar with the long-
to expectations as investors would normally be expected to pay term accommodation needs of their families. Agents report that
higher prices (leading, all else equal, to lower yields) in prime many investors are buying investments with long-term plans to
markets where the perceived risk of voids is lower. The reason eventually downsize into these properties or to provide homes
why Dublin yields remain anomalously high today is that strong for their children when they come of age.
FIGURE 5 (a)
Average Residential Property Yields by Location - National
8
7
6
5
4
%
3
2
1
0
Galway Co
Limerick Co
Galway City
Roscommon
Limerick City
Cork Co
Cork City
Cavan
Waterford Co
Donegal
Waterford City
Laois
Kilkenny
Monaghan
Tipperary
Sligo
Westmeath
Clare
Longford
Kildare
Carlow
Kerry
National
Wexford
Wicklow
Offaly
Louth
Leitrim
Mayo
Meath
Net Yield Gross Yield 2 Yr + Deposit Rate 10-Yr Government Bond Yield
Source: Daft.ie, CBI, Investing.com
FIGURE 5 (b)
Average Residential Property Yields by Location - Dublin
10
9
8
7
6
5
%
4
3
2
1
0
South Co Dublin
North Co Dublin
West Dublin
Dublin 6W
Dublin 10
Dublin 22
Dublin 24
Dublin 17
Dublin 11
Dublin 12
Dublin 15
Dublin 20
Dublin 13
Dublin 18
Dublin 16
Dublin 14
Dublin 5
Dublin 8
Dublin 1
Dublin 2
Dublin 7
Dublin 9
Dublin 3
Dublin 4
Dublin 6
Net Yield Gross Yield 2 Yr + Deposit Rate 10-Yr Government Bond Yield
Source: Daft.ie, CBI, Investing.com
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Ireland Residential April 2017
Lansdowne Lodge, Dublin 4. Available through Savills for €4.5m.
Last December the Government introduced rent controls in yield slippage will be from a high starting point relative to returns
designated Rent Pressure Zones (RPZs). Initially Dublin and on other assets. Secondly, it must be remembered that investors
Cork were designated but the RPZ list has since been extended also benefit from the capital growth associated with house price
to 19 areas. Properties within these areas are now generally inflation. While it is still very early days, investor sales remained
limited to rent increases of no more than 4% per annum for the strong in January with a 168% year-on-year increase in Dublin
next three years. However there are exceptions. Properties that and 6.5% growth elsewhere.
have not been rented in the last two years are exempt – a factor
which may cause investors to favour new builds and previously The costs of owning and running a rental property have increased
owner-occupied properties. Properties that have undergone significantly in recent years due a raft of regulatory changes.
substantial refurbishment can also be excluded. These have driven a wedge between gross and net yields making
it harder for heavily geared investors with substantial financing
Despite these changes our view is that the investment rationale costs to compete. Reflecting this, 89% of all the non-corporate
remains positive for cash financed investors. While rental growth investors who bought properties through Savills in 2016 were
in RPZs is likely to be outstripped by house price inflation, any entirely cash funded.
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Ireland Residential April 2017
Who is selling? On average new homes sold for 6% more than second-hand
properties in 2016. This may reflect a number of factors. Firstly
improved regulation has led to a quantum leap in the standard
New Homes
of properties now being produced by the construction industry.
Inevitably this has driven up build-costs and prices. Secondly,
in recent years at least, the gap between sales prices and
As outlined above, sluggish construction activity has acted as a development costs has been greatest in expensive locations,
handbrake on housing transaction levels in recent years. Official meaning that building has generally been concentrated in these
estimates suggest that just under 15,000 housing units were built higher priced areas – a factor which feeds into higher average new
across Ireland in 2016, with just over 4,200 of these in Dublin. home prices. Finally, in many locations it remains challenging to
However recent research suggests that these figures, which are construct apartments due to the costs of basement car parking
based on connections to the electricity grid, could significantly and the higher peak-debt levels required to fund such schemes.
overstate the true number of newly completed properties and, Therefore traditional family housing has had a heavy weighting
consistent with this theory, just under 4,000 new properties were within the output mix and, on average, these properties tend to
sold last year (7.8% of total residential sales). be bigger and more expensive.
FIGURE 6
Quarterly New Home Completions By Location (3 Month Moving Average)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Jan-12
Sep-10
Sep-12
Sep-11
Sep-13
Sep-14
Sep-15
Jan-10
Sep-16
Jan-11
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
May-10
May-12
May-11
May-13
May-14
May-15
May-16
Total 3mma Dublin 3mma
Source: D/ECLG
savills.ie/research 10Ireland Residential April 2017
As shown in Figure 6, new home completions have been edging will be able to afford properties at a price point that makes
up consistently for the last four years – albeit from a very low construction viable. Equally, given that the new homes market
base in 2013. While construction inflation remains an ongoing is significantly more reliant on mortgage finance than the second
challenge for residential development, last autumn’s policy hand market,3 the relaxation of mortgage restrictions has given
changes have the potential to be a watershed for the industry. developers’ confidence in the market’s ability to absorb new
Help-to-buy has given developers the confidence that people housing development.
27 Ailesbury Road, Dublin 4. Available through Savills for €5.95m.
It is still, clearly, too early to see this reflected in housing and by 43.1% in Dublin. Overall, our expectation is that housing
completions. However the leading indicator of housing completions for 2017 will be around 18,500 (a 24% increase on
commencements rose by two-thirds year-on-year in Q4 2016, 2016 completions) with over 5,500 of these in Dublin.
Nendrum, Foxrock, Dublin 18. Available through Savills for €2.25m.
3
In an analysis of Savills’ 2016 sales 67% of new homes were bought with the assistance of mortgage credit compared with 54% of second hand
homes.
savills.ie/research 11Ireland Residential April 2017
Investors
While a strong stream of investment continues to flow into the some can absorb these in the knowledge that they are holding
residential market, there is also an outflow of investors. As appreciating assets, others are unable to do so and are selling
outlined above, the costs of owning and running an investment out of the market. Interestingly however, sharply increasing
property have risen in recent years due to improved standards rents have led to a gradual reduction in the number of investors
and regulation. This has put one particular group of investors selling-out. As shown in Figure 7 investors have fallen from
under pressure – small-scale operators who bought with large 24.8% of Savills’ sellers in 2014 to 11.6% in 2016. With interest
mortgages at boom-time prices. Financing costs mean that rates expected to remain low until late 2018 at the earliest, we
some of these investors are suffering negative cash flows. While expect this situation to contine (see adjoining text box).
FIGURE 7
Investors as a Proportion of Savills Sales
25
20
% of Total Sales
15
10
5
0
2013 2014 2015 2016
Source: Savills Research
Easton Lodge, Monkstown, Co. Dublin. Sold by Savills in 18 Kenilworth Square, Dublin 6. Sold by Savills in February 2017.
October 2016.
savills.ie/research 12Ireland Residential April 2017
Changing Ownership in Ireland’s Private Rented Sector
By combining data from CSO, Daft.ie and the Central Bank ie average gross rental yields are currently 6.3% and this
we can gain insights into the changing profile of residential obviously compares favourably with average deposit rates
investors. This helps us to better understand the outlook of 1.08%. In contrast, given the increased costs of running
for the private rented sector (PRS). a residential investment property, it has become harder for
Estimates based on QNHS and Daft.ie data show there were heavily mortgaged investors to earn positive cash-flows
306,902 privately rented properties as of December 2016.* from BTL investments. It seems most geared investors
Central Bank statistics show that 130,710 Buy-to-Let (BTL) who can service their mortgages have opted to hang in
mortgages were in place at the same time. Integrating there. At times some may have had to supplement their
these numbers suggests that 42.6% of Ireland’s PRS units rental incomes with additional cash to cover mortgage
are funded with mortgage debt while the remaining 57.4% repayments. However the motivation for hanging-on is that
are wholly owned by investors. housing assets are appreciating and, as rents increase, the
However these ratios have shifted dramatically over time. cash flows will gradually become more positive. In contrast
Reflecting an influx of cash investors in recent years, the investors who have been unable to keep up their mortgage
number of PRS properties that are owned outright by repayments have opted, or been forced, to divest.
investors has risen by 5.5% since Q2 2012. Conversely Looking ahead, we expect interest rates to remain low until
the number of leveraged investments has fallen by nearly late 2018 at the earliest. Even with rental growth caps, this
20,000 units, causing the share of mortgage-financed means yields should remain attractive relative to deposits.
properties to fall from 47.3% to 42.6% of units in the sector. Therefore we do not see many investors who own their
Within the overall decline in leveraged investments we properties outright (currently 57.4% of supply) leaving.
see markedly different trends in the number of properties Equally we do not envisage geared investors who are able
financed by performing and non-performing mortgages. to cover their mortgages (34.4% of current PRS supply)
Between Q2 2012 and Q4 2016 the number of residential divesting in large numbers. Those who bought between
investments funded by performing buy-to-let loans fell by 2012-2014 are locked-in until at least 2019 by the 7-year
8.6%. However the number funded with non-performing Capital Gains Tax holding period, while those who may
loans fell much more sharply – by 27.4%. previously have struggled will be enjoying more positive
Several inferences can be drawn. There has been no cash flows and capital growth. This only leaves investors
mass exodus of investors from the PRS. However, the with mortgage arrears (8.2% of current PRS supply) as
balance between cash and mortgaged investors has likely to exit. On this basis, our view is that the gross
shifted dramatically. Cash buyers continue to be attracted outflow from the sector will continue to slow – at least until
into the sector by income returns. According to Daft. we enter the next monetary tightening cycle post 2018.
FIGURE 8
Changing Composition of Ownership in Ireland’s PRS (Q2 2012 - Q4 2016)
10
5
0
-5
% Change
-10
-15
-20
-25
-30
Owned Outright Performing Mortgages Non-Performing Mortgages
Source: Savills Research, CBI, CSO, Daft.ie
*T
he detailed methodology used to determine the number of units in the Private Rented Sector (PRS) can be read in Savills (October 2016)
A Rent Forecasting Model for the Private Rented Sector in Ireland.
savills.ie/research 13Ireland Residential April 2017
Movers spacious apartments with storage and surface car parking
etc.. In recent years Savills has brought several high-quality
As shown in Figure 9 traders-down have accounted for a apartment schemes to the market that have ticked these boxes
declining proportion of sellers in recent years. This is perhaps e.g. Embassy Court and 31-33 Merrion Road in Ballsbridge.
surprising as there has been a 29.3% increase in the number Our experience is that there has been strong demand and these
of people aged 65 and above since 2008 - the group who are schemes have sold out quickly. Savills data show a €345,129
often assumed to be ideal candidates for downsizing. There are differential between the average selling and buying price of
several possible explanations for this paradox. On one hand, the traders down in the market. This enabled almost 80% of those
high cost of both owner occupied and rented accommodation trading down to repurchase with cash.
in a rapidly growing economy has forced many young adults to
remain in the family home for longer. Potentially this means that
older couples or individuals who may want to downsize have
been unable to do so. Expectations of house price growth may
also be preventing owners of more valuable properties from
selling their appreciating assets. Finally, it is possible that the
quality of the existing trade-down housing stock has not been
sufficiently attractive to induce people to voluntarily downsize.
And, as levels of financial distress have eased in the economy,
fewer people are being compelled to trade-down. However
this is not to say that strong demand does not exist for the
right type of product. As outlined above, downsizers typically
put a premium on several critical factors; established village
locations close to amenities and public transport links, modern, 31-33 Merrion Road, Dublin 4. Sold by Savills in 2016.
FIGURE 9
Traders-Down as a Proportion of Savills Sales
14
12
10
% of Total Sales
8
6
4
2
0
2013 2014 2015 2016
Source: Savills Research
There was a 29.2% increase in the number of clients who sold and HTB should encourage more first time buyers back to the
through Savills in order to trade-up last year. This is unsurprising market. Because the latter only applies to new builds the gap
as buyers are generally more willing to extend their commitment between new and second hand prices may widen. However, the
to property assets in a rising market. The average selling price reality is that it will take time for new supply to come on stream
of those trading up was €403,694. Traditionally FTBs have and this will present opportunities for traders-up to sell their
provided the selling opportunities for those who are seeking to second-hand market properties to FTBs – particularly those
upsize. As outlined above FTB activity has been quite subdued who will benefit from easier mortgage lending but who have not
in recent years. Looking ahead, more relaxed lending rules paid enough tax to qualify for the maximum HTB rebate.
savills.ie/research 14Ireland Residential April 2017
Pricing were constructed in 2016 – and, as outlined above, this estimate
may be an overstatement. As a result a housing market that
Property prices are ultimately driven by the balance between was already undersupplied has become even tighter in the last
housing supply and demand. At a most basic level demand 12 months.
depends on population growth. Ireland’s population has been
growing strongly in recent years and expanded by 47,000 With too few units being built to meet the increased demand
persons (1%) in 2016. Leaving aside any building required to from population growth, the thin overhang of vacant properties
replace dilapidated units, this implies a need for around 17,200 has been further reduced, leading to increased competition for
additional dwellings just to accommodate population growth. the scarce properties that remain available. The net result has
However, official estimates indicate that only 14,932 properties been competitive bidding leading to price inflation.
FIGURE 10
Annual Growth Residential Prices
30
25
20
15
10
% Change y/y
5
0
-5
-10
-15
-20
-25
-30
Sep-08
Sep-13
Jan-07
Jan-12
Jan-17
Dec-09
Dec-14
Jun-07
Jun-12
Feb-09
Feb-14
Aug-16
Jul-09
Aug-11
Jul-14
Nov-07
Nov-12
Oct-10
Oct-15
Apr-13
Apr-08
May-10
May-15
Mar-11
Mar-16
National Ex. Dublin Dublin
Source: CSO
Official CSO statistics show that house prices rose by 7.9% in buyers’ firepower; New data show that the average loan
2016 compared with 4.6% in 2015. However more timely data approval for FTBs has risen from €189,536 in 2016 to €202,810
from property portals MyHome.ie and Daft.ie suggest that house in the opening two months of this year, while a 3.7% surge was
price inflation has continued to accelerate in Q1 2017 with the recorded in February alone. Given the undersupplied market
estimated growth rate rising to between 9% and 9.4% in the 12 and a relatively fixed stock of available properties in the short-
months to March. run, this injection of additional bidding power was bound to
drive up values, and that is what is now happening. However, in
Our analysis has always been that Help-to-Buy and the the longer-run, assuming development costs remain contained,
relaxation of mortgage rules would add to house price inflation, increased prices should help to make more housing schemes
and this is now being borne out in practice. As described above viable to build. Eventually the resulting additional supply should
HTB can add up to €20,000 to a qualifying buyer’s budget. dampen the strong inflation that will occur in the meantime.
Changes to the macro prudential regime are also adding to
savills.ie/research 15Ireland Residential April 2017
Interestingly, despite the fact that Dublin’s population (+1.4% Looking to the remainder of 2017, we envisage a more even
in 2016) has been growing faster than that in other parts of the pattern of house price inflation across the country than was
country (+0.8%) prices rose more quickly outside the capital in evident in 2015 and 2016, with Dublin prices rising on a par with
2016 (see Figure 10). This is due to lower average prices in those in the regions. We are adhering to our December forecast
regional locations. For one thing, a lower base price means that that overall house price inflation for 2017 will be 8%-12% in
any absolute price increase represents a larger percentage rise. all locations. Looking further ahead, we note that housing
Moreover, lower absolute prices mean the affordability barriers commencement notices have reacted positively to public
that impacted on Dublin in 2016 were not as binding outside the policy changes, rising by two-thirds year-on-year in Q4 2016,
capital, leaving more headroom for inflation. However, things and by a further 12.3% in January. This feeds into expected
appear to have changed since the turn of the year. Latest data completions of around 18,500 units this year (+24%) and 22,000
from MyHome.ie indicate that asking prices in Dublin are now in 2018 (+19% year-on-year) – numbers which should meet or
once again rising faster than those outside the capital with even marginally exceed the housing requirement implied by
growth of 6% in Q1 compared with a national average of 5.5%. expected population growth. Under these assumptions house
A reasonable interpretation is that HTB and easier bank lending price inflation could be expected to begin easing back slightly
have had a more dramatic impact in Dublin where affordability from the second half of 2018.
barriers were previously most binding.
Earls Well, Waterfall, Co Cork. Savills sold four houses in 2016, with a further twelve to be released in 2017.
FIGURE 11
Annual Housing Completions by Location
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
2017 (f)
2018 (f)
1987
1993
1999
2005
2011
1986
1988
1989
1990
1991
1992
1994
1995
1996
1997
1998
2000
2001
2002
2003
2004
2006
2007
2008
2009
2010
2012
2013
2014
2015
2016
Ex. Dublin Dublin
Source: Savills Research, D/ECLG
savills.ie/research 16Ireland Residential April 2017
Cork Market
• In line with elsewhere in the country Cork saw fewer transactions in 2016 than in 2015. However, prices
continued to rise. The average price of a residential property across the City and County areas was €208,240
in 2016 - 7.9% up on the 2015 figure.
• imilar to the previous year the largest share of buyers in Cork were movers in the market who accounted for
S
44% of purchases in 2016.
• Investors (both household and institutional) accounted for 36% of purchases (compared with 28% in Dublin).
Moreover while investors accounted for a smaller share of sales in Dublin compared with 2015, their share
increased in Cork.
• FTBs made up the balance of purchases, accounting for 20% of the market in 2016.
• ew homes accounted for 9% of total sales. Within this institutions bought over 40% of new homes. Movers
N
were the biggest buyer group within the household cohort and were responsible for 26% of the new homes
purchases last year.
• avills Cork saw robust demand in 2016 with bidding becoming more competitive due to the lack of new
S
supply in the market and the uncertainty around the construction of new homes.
• here was also increased interest from buyers in the UK, Australia and Dublin which also contributed to
T
upward pressure on prices.
• he most competitive price point for buyers is in the sub €400,000 category where asking prices were
T
exceeded by c.30% on average last year. As an example Savills sold Frankfield Villas in Cork city for 36%
over the asking price. While FTB volumes remained steady between 2015 and 2016, public policy changes
will see FTB activity pick up in 2017.
• our houses in Earls Well, Waterfall Co. Cork were sold by Savills in 2016 attracting strong interest. A further
F
twelve houses in this development are to be released this year. Also due to be released by Savills in 2017 are
20 detached houses in Hazel Hill in Douglas and the third phase of Convent Garden in Kinsale. Savills has
already sold twenty nine new builds in the latter development over the first two phases.
savills.ie/research 17Ireland Residential April 2017
Outlook
• espite a strong economy Ireland’s housing market remained illiquid in 2016 because of sluggish new
D
building activity and affordability barriers.
• owever early signs are that policy measures introduced late last year are already leading to an unfreezing of
H
construction activity and housing transactions.
• irst time buyer activity has been subdued in recent years. However this buyer group is set to benefit most
F
from recent policy changes and, despite an ongoing decline in the number of 20-34 year olds, is likely to
increase its share of the market.
• otwithstanding recent legislation to limit rent increases to 4% per annum in some areas, investor activity
N
remains strong. This reflects high yields and the opportunities for capital gain. Many investors are buying
properties that serve a dual-purpose; for now they are high yielding investments, but in the future they will
provide trade-down homes for the investors themselves, or starter homes for their adult children.
• e believe the gross outflow of investors selling has probably peaked for now. Many current investors
W
are locked in by Capital Gains Tax incentives. Meanwhile continued low interest rates and rent and capital
growth opportunities provide a motivation to hold.
• Help-to-buy and easier mortgage lending are already beginning to contribute to stronger house price growth.
• he Dublin market, where affordability was previously a bigger barrier, will experience a stronger uplift from
T
these changes.
• e expect 8%-12% house price inflation across all areas in 2017, with slightly softer inflation in 2018
W
assuming supply comes on-stream in response to higher prices in 2017.
savills.ie/research 18Ireland Residential April 2017
Savills Research
Please contact us for further information
John McCartney David Browne Catherine McAuliffe
Director Director Director
Director of Research Head of New Homes Cork Residential
+353 (0) 1 618 1427 + 353 (0) 1 618 1347 + 353 (0) 21 490 6117
john.mccartney@savills.ie david.browne@savills.ie catherine.mcauliffe@savills.ie
Jim Gallagher Barry Connolly Ben Lillington Lester
Associate Director, Branch Manager Associate Director, Branch Manager Associate, Branch Manager
Residential North Dublin City Residential Residential Blackrock
+353 (0) 1 853 0630 +353 (0) 1 663 4300 +353 (0) 1 288 5013
jim.gallagher@savills.ie barry.connolly@savills.ie ben.lillingtonlester@savills.ie
Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth.
It is a company that leads rather than follows, and now has over 180 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. A
unique combination of sector knowledge and entrepreneurial flair give clients access to real estate expertise of the highest calibre. We are regarded as an innovative-thinking
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service offering and a premium brand. This bulletin is for general informative purposes only. Whilst every effort has been made to ensure its accuracy, Savills accepts no
liability whatsoever for any direct or consequential loss arising from its use. All references to space and floor areas are approximate and apply to the greater Dublin area. The
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