The Crash Of The Irish Property Market
Cheeky In Ireland—Recession Busting On The Emerald Isle
June 17, 2009
Waterford, Ireland
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Dear Overseas Opportunity Letter Reader,
"Everything you've read about the state of the Irish property market is true," writes Overseas Retirement Letter Editor-in-Chief Lynn Mulvihill from her native Waterford.
"But it's maybe only half the story.
"Yes, the market has been turned on its heels. A survey of Irish homebuilders in Spring 2009 showed that 76% of those surveyed are currently not building; 53% expect it will be at least a year before they recommence construction; 36% are expecting to deliver zero completions in 2009; while the overhang of housing stock is now expected to take until the second half of 2010--at the earliest--to clear.
"Even those numbers don't get to the crux of the matter. The biggest dilemma for both buyers and sellers in the market right now is that prices are all over the place. It seems that the Irish have been so far removed from reality this past decade, we've no idea what any piece of property is worth.
"But with crisis comes opportunity. And, for now, the best opportunities exist for buyers in the resale sector, where prices are falling 20%...30%...even as much as 50%. Today, this market feels more Latin American than European. Be in the right place at the right time--with a stressed seller on your hands--and you could find an unbelievably good deal.
"I'm not talking investment opportunity; those days are over. But, for the first time in more than a decade, a foothold on the Emerald Isle--for vacation or retirement--is once again an affordable possibility for the foreign buyer.
"You'll have little competition at local level. In addition to falling prices, you've got three other factors working in your favor...
"First, in the current climate, most people can't afford a move without offloading their existing property. A reported 340,000 of Irish property owners, were they to sell their properties today, would find themselves with negative equity. This means a significant number of people are stuck on the same rung they hopped on in the days of 100% mortgages.
"Second, while property is more affordable than ever for first-time buyers, many are reluctant to buy in this unpredictable market for fear that they, too, could wind up in negative equity a year or two down the road. Instead, they're choosing to wait it out.
"Third, mortgages are much more difficult to secure. Banks are far more careful about who they'll lend to. I recently heard of a couple who'd applied for their first mortgage together. In determining the maximum loan amount possible, the bank would consider only the teacher's salary. Poor Mr. Car Salesman's income was too unreliable.
"To illustrate the idiosyncrasies of the market, take the property my husband and I went to view last week: a traditional Irish cottage, oozing with charm, recently renovated and extended, and surrounded by 1 acre of flat land. One mile uphill from the beach on a very special stretch of the Irish coast, it's the perfect property for a foreign buyer craving a slice of Irish country life.
"Last year, this little house entered the market at 350,000 euro (US$484,669). Asking price today, as listed on a number of Irish property websites, is 250,000 euro (US$346,237).
"Some might call this new price a bargain. In fact, these days, you'll see a lot of property advertised as 'significantly reduced' or 'recession-busting.' Remember, though, you're dealing in a market where, not long ago, prices were extraordinarily over-inflated.
"What is this little cottage my husband and I are interested in actually worth today? Having walked the house, outbuildings, and surrounding land, I figured 200,000 euro (US$276,989) would be more realistic.
"Despite significant room for expansion, there's no getting over the fact that, right now, the living area is cramped (the combined kitchen/living room is less than 300 square feet).
"And it could well be that I'm right in my estimation. I've been keeping in touch with the estate agent, and it seems that the buyer may be willing to settle for less even than my guesstimate. Word is that this seller, desperate to offload the cottage, is seriously considering an offer of 170,000 euro (US$235,421). That's 180,000 euro (US$249,265)--or just over 51%--less than the original asking price.
"Is 170,000 euro good value? Again, it's anybody's guess.
"The point is, when scouting this market, don't be put off by the listed price. Think about what the property is worth to you...what you're prepared to pay...and don't be afraid to 'be cheeky, as we Irish put it. You aren't going to offend anyone right now with a low-ball offer. With so little moving in the market, it's definitely worth a shot."
Kathleen Peddicord
Lynn adds: "If the prospect of a 300-square-foot kitchen-cum-living room sounds shocking, consider the upside: properties with a floor area less than 125 square meters (1,345 square feet) are exempt from stamp duty. For larger properties, the taxman takes 7% to 9% of the value above 125,000 euro at closing."
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