Crisis Investing In Ireland

Markets In Crisis, Part 3: Ireland—Bust To Boom To Bust In A Single Generation

A young Irish friend relocated recently from Dublin to Panama City to join my editorial team. When I asked him about the move, he explained, flatly: “I’m here because my own country is a mess.”

Denis went on: “I remember being 16 in high school history class. Our teacher was trying to explain to us that our country was facing potential economic troubles, that bad things lay ahead for us on the horizon.

He predicted a return to tough times for Ireland. We all rolled our eyes and made jokes. We didn’t believe Ireland could suffer economically, not anymore, not again. All we had ever known was economic growth. Stories about no work, no money…all that was ancient history. Boy, were we in for a rude awakening not too many years later…”

Denis, a lad of but 21 years, was born into the Celtic Tiger Age. For him and his fellows, Ireland was a land of plenty. All their early lives, all around, they knew plenty of money, plenty of work, plenty of construction, plenty of credit, plenty of optimism, even plenty of arrogance. Somehow, over the past 25 years, the Irish became convinced that Ireland was an economic powerhouse with unlimited stores of potential. This period of Irish history, it’s worth pointing out, is unique in all Irish history. Never before had any Irish generation known such prosperity.

When we moved to Ireland in the mid-1990s, real estate prices across the country had already been appreciating by as much as 15% to 25% a year for a few years running. What was driving the growth, we’d ask people. “Ah, it’s the Celtic Tiger,” they’d tell us.

Finally, one Irishman, a banker from Dublin, gave a different answer:

“There’s no such thing as the Celtic Tiger,” he admitted soberly. “It’s a transplanted American Tiger.”

Finally, an explanation that made sense. It wasn’t that suddenly Ireland had created new industries. Ireland wasn’t manufacturing any new products or providing any new services. What they had managed to do, by offering tax breaks and other incentives, was to entice foreign industries, mostly American at first, to migrate to Ireland. These transplanted industries (call centers, computer manufacturing plants) injected not only investment capital but also population into a country perhaps best known for exporting those things. Before this time and throughout this country’s history, its best and brightest had gone elsewhere in search of opportunity. They, like young Denis today, recognized that their own country was no place for the ambitious.

When the Ireland Development Authority (IDA), though, succeeded, starting in the early 1990s, in attracting foreign businesses and investors to Irish shores, they reversed this trend. Foreign investor capital flowed across this green isle triggering an age of growth. The entrepreneurs, the executives, and the workforces who answered the IDA’s call had something that this country had never known before–disposable income. For the first time in Ireland’s history, young Irish lads and lasses could afford to move out of their parents’ homes before they got married and certainly after. The building boom that followed was reminiscent of the Baby Boom in the United States following World War II. A euphoria took hold. The Irish were making money, spending money, investing money, having babies, and, primarily, more than anything else, it seemed, building houses. All those new families needed places to live, after all.

Over the seven years we were residents of the Emerald Isle, this run continued. We watched year after year as the Irish continued to buy and sell land and houses, one to another, and, each year, we predicted the peak. Surely, this year would be the one when this Irish property bubble would burst. This growth couldn’t continue. Nothing real was behind it. But it did continue, even for a couple of years after we took our leave of this market. By the time we moved from Ireland to France, Dublin property prices exceeded those of Paris on a per-square-meter basis. How could that be?

Moving from Waterford to Paris, we expected our cost of living to increase. We’d watched costs in Ireland rise throughout the seven years we’d been living there. Costs for everything from groceries to doctor’s visits and from taxi rides to office staff had gone up 100% and more during our time as Irish residents. Still, we assumed, life in Paris would be costlier. Paris is…Paris. What we found, though, was that, living in Paris, our overall cost of living was reduced by about 20% compared with what it had been in Waterford. Again, how could that be?

The rapid rates of inflation that Ireland experienced throughout the Celtic Tiger era were a big contributor to the end of the Celtic Tiger era. The foreign businesses that opened offices and that invested in plants in Ireland to take advantage of IDA incentives were also counting on low costs of labor and of doing business. When those things moved from cheap to expensive, the foreign businesses moved on (to Eastern Europe, for example), taking their transplanted Tiger boom with them. For our part, we eventually found our way to Panama.

Today, the Irish economy, banking industry, and property market have collapsed. The Irish construction industry, once responsible for feeding the Celtic Tiger, is all but insolvent. Real estate across the country is on offer for as little as 50%, 60%, and less of what it sold for pre-2008, and prices continue down. The market isn’t stable enough to accept all the foreclosed real estate on the books, so the government and the banks are holding many properties to the side, especially in small, localized markets, where the number of foreclosures as a percentage of the market overall could be crushing.

One of the biggest challenges facing both buyers and sellers considering the Irish property market today is that prices are all over the place. The Irish have been so far removed from reality this past decade-and-a-half that they no idea what any piece of property is worth. The post-Celtic Tiger Irish property market is more Latin American than European. In a market like this one, you can’t pay any attention to list prices, and you shouldn’t be afraid to offer half what’s being asked. Again, no one has any idea what any piece of property is “worth” in Ireland today, meaning it’s worth what a ready seller is willing to pay.

A friend still living in Waterford forwarded me some current property listings from that part of Ireland recently, including one for a house in County Kilkenny, the next county over from Waterford. When I saw the picture, I thought for a minute I was looking at our old Waterford place. The two houses are nearly identical (Irish Georgian and stone), except this one in Kilkenny has already been fully and nicely renovated and has a third, dormer story. The kicker is the price. The price of the Kilkenny place is about the same as what we paid for our slightly smaller, not renovated Waterford property back in 1998.

Is it time to buy? This market fooled me for a long time, continuing to appreciate beyond all reason and for no reason for years, with me all the while continually predicting its collapse, so I’m reluctant to try to pin it down now. That said, if you’ve ever dreamt of a home of your own on the Emerald Isle, I’d have to say that, yes, right now could be the best time in your lifetime to go shopping for it.

When you do, I’d hold any investor-agenda to the side. Don’t expect any capital appreciation in the next five years at least; probably values in this country won’t rebound even over the coming decade. However, that needn’t be the point and shouldn’t interfere with any retiree-buyer or lifestyle-buyer agenda. Ireland holds out the promise of a peaceful, tranquil retirement amidst landscapes and seascapes that qualify as among the world’s most glorious. This country has long been a top retirement choice, a beautiful, welcoming, peaceful nation of friendly, hospitable folks who speak English and who have a long-standing affinity with the United States.

For decades, the retirement daydream of many Americans has been a white-washed, thatched-roof cottage on the Emerald Isle. In the course of but two decades, Ireland has seen unprecedented boom and dramatic bust. Through the wild up and down, though, she has retained her heart. Irish retirement living is as appealing and charming an idea as it ever was, and today it’s also, again, affordable.

Kathleen Peddicord

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