That article was really interesting to read. Thanks again for another informative educational piece.
I wonder if you think the idea of more auctions from allsops will have an impact on the property market?
Also, I think I read on namawinelake that they are clearing only Bank of Scotland Ireland properties. Do you think the results of their auctions may lead to auctions of other banks properties?
Also, now that NAMA has been apparently directed to “Sell Sell Sell” (quote from indo and so I’ve taken the pinch of salt), do you think that NAMA properties being sold may have an impact on prices of property in general?
Thanks
Paul
MichaelG
,
The Renmore “outlier” has an address on two roads; it would be more correctly addressed as Renmore Road. It stands at a crossroads on Renmore Road across from the Garrison church, Western Command headquarters, Renmore Army Barracks and the Dept. of Defence buildings. Access to the footpath over the railway bridge to Eyrs Square is 30 metres away.
One wonders if the sale of this property is related to that of 59/60 Murrough Ave/Drive with 9 bedrooms and a rent roll of €19,000. The developer of this property seems to have built 4 other adjacent houses which succeeded in walking a thin line through planning regulations!
Hi Paul,
Thanks for the comment. I think the number of this type of auction depends on the extent of properties that have no binding “lower bound”. Put another way, why doesn’t someone who bought five years ago and who’s looking to sell now not just cut their price to 65% below the peak? The bank that issued the mortgage will more than likely not let them as the money raised wouldn’t clear their debt. So we may see many properties still aiming for 40% below peak, even though the owners know that 65% below the peak would find a buyer. The exceptions will be probably be distressed properties and family home properties sold after the death of the last surviving parent… and possibly also NAMA properties. NAMA could easily use its muscle to reinforce the idea that 65% below the peak is the “new price level”. It remains to be seen if they want to do that.
@MichaelG
Thanks for that information on the Renmore property.
It’ll be interesting to see if this has much or any impact on the normal estate agent driven market. I can’t imagine they’d appreciate getting a bunch of offers in at 33% below asking on the grounds that there is some evidence to suggest that’s a rational clearing price if their vendors do not want to accept that, and, in fact, are in a position to wait it out. Whether that’s a wise move or not is debatable – historically it’s not that wise if you haven’t many offers at all.
That being said, I fail to see why an owner occupier would be willing to pay more than an investor. As a prudent person interested in your own finances, really you should be looking to pay as little as possible which means literally just enough to outstrip whoever is bidding against you, and if that’s an investor, then there’s no rational call for the difference in yield between each buyer type.
Hi Treasa,
Thanks for that comment. Your second paragraph is really interesting as it’s at the core of some of my doctoral work. Is there a difference between investor and owner-occupier yields? If so, why and is it sustainable? One story could be that investors face higher borrowing costs. Another – potentially more interesting – is that owner-occupiers value a greater range of amenities than tenants, and pay more than 10 times what a 2-year tenant would to “bundle” a 20-year supply of these amenities (close to coast or a good school)…
My general sense is that as the boundaries between sales and lettings segments have become more blurred in Ireland, the investor yield will become more important as a barometer, for precisely the reasoning you outline.
I’m not sure it’s sustainable to be honest. Certainly the difference was used to explain irrational exuberance in Ireland, and the historical desire to own property but with repossessions removing the certainty of tenure, I’m not sure that argument can count for much longer.
To be honest, I got the impression in Ireland for 5 or 6 years, it was a source of pride how *much* people paid for their property whereas going forward, it’ll be how *little* and what a bargain it was. Neither is a rational position, although I’d identify more with the latter than the former.
I imagine that will put a damper on prices also and perhaps close the gap.
Incidentally, I imagine the TRS changes for owner occupiers and the fact that investors still have some tax relief on interest (AFAIK – open to correction on that) may close financing cost gaps.
Very thought-provoking. Can I suggest first action to refine the conclusions would be to look at Allsops auction outcomes compared to agent prices in NI and GB. This might give an idea as to the ‘auction discount’. The need for cash, for quick decision making etc and time off work during the day on what might be a pointless task greatly reduces the number of bidders, depressing prices. I would think that this discount is magnified for those buying to occupy rather than rent out. Few owner occupiers would commit to buying a flat in a block without seeing it while, particularly if already let, an investor might be completely relaxed.
This brings us unto the ‘doctoral’ question, why a premium for owner occupation. I would suggest that the very high ‘search costs’, where it is not uncommon for individuals to view into the dozens of houses, is part of this. This suggests that there are indeed factors (sun?traffic noise, schools…) that may be of greater importance to those planning to stay for an extended duration. Or maybe the causation runs the other way?
A related point is the extreme micro-markets involved, where someone looking to buy in an area does not consider outside it. In areas with more expensive housing there is a very thin rental market (at least outside say London), yet plentiful supply as individuals working abroad say wish to let out for their absence. Again this brings in a fresh difficulty to the effective funcitoning of a market, the extremely high transaction costs, which prevent the market clearing.
I think therefore that as we move up the house price scale we see a shift from commodity to specific, and it is this, rather than owner occupation per se that is the differentiator. I suggest if you take a low house price area you will find the investor/occupier differential collapses to nil. Its thus about growing wealth allowing a premium to be placed on wider housing issues, not readily captured in house descriptions.
G
Leo Allen
,
Ronan – as usual quite stimulating. I would have thought that several more of these auctions would be needed before any meaningful conclusions could be drawn.
Firstly it is quite evident that just as BOSI took the market up, they are now leading the charge on the way down and that any offer might have been accepted from them and they want to clear out and there are many that will know that they have been accepting incredible discounts. God Bless the Queen.
Secondly the analysis by John Fitzgerald on Daft Rentals where he referred to the increase in number of households. Between 1995 and 2005 the proportion of people aged over 25 living in independent households (as in not with parents or sharing with others) did not rise significantly. High cost meant they stayed at home or shared far longer than was common elsewhere in Europe – except Spain. Fall in rents in 2008/9 changed this.
This factor is being overlooked by many in the continuing negativity. What it is pointing to is either delayed purchasing or a fundamental reassessment in owning v. renting.
Thirdly the noise about empty houses was totally flawed and in Dublin – as always – there could be a shortage soonish rather than later.
Personally I always thought owning was flawed because of the opportunity costand the state should encourage ‘buy to lets’ rather than reducing the interest relief at this point. State policy is totally flawed here.
Never the less the pendulum has swung back where affordability is such that houses that simply could not have been afforded a number of years ago are possible. I am not sure there is much of a ‘fundamental’ change as opposed to caution in purchasing. Just as I was told the prices would never stop rising, the chatter is they will never stop falling. Both are / were rubbish.
Several more of these auctions will rekindle the market, and the continuing negativity and much of it ill informed (contrast that with Ronan here who is so open to different views) that people simply have stopped watching RTE .. and eventually they will be looking at their own situation .. how much a month is this..can I afford it.. and making the call. Becasue the FTB are missing the Invetsor as competitors, there is simply more pervaracating than ever before ..but the worm will turn.
[…] PTSB. You can get up to 4.2% from PTSB deposit accounts, 9.7% from 10-year Irish sovereign bonds, 9% from residential property. Yet PTSB is prepared to give you less than a measly 2% over a five year period on your €5,000 […]
[…] was either on how many people turned up or how much above the reserves the properties sold for. My own analysis highlighted what I thought were two more important statistics: the fall from the peak, and the relationship between rents and house prices. In the April auction, […]
Paul Mara ,
Hi Ronan
That article was really interesting to read. Thanks again for another informative educational piece.
I wonder if you think the idea of more auctions from allsops will have an impact on the property market?
Also, I think I read on namawinelake that they are clearing only Bank of Scotland Ireland properties. Do you think the results of their auctions may lead to auctions of other banks properties?
Also, now that NAMA has been apparently directed to “Sell Sell Sell” (quote from indo and so I’ve taken the pinch of salt), do you think that NAMA properties being sold may have an impact on prices of property in general?
Thanks
Paul
MichaelG ,
The Renmore “outlier” has an address on two roads; it would be more correctly addressed as Renmore Road. It stands at a crossroads on Renmore Road across from the Garrison church, Western Command headquarters, Renmore Army Barracks and the Dept. of Defence buildings. Access to the footpath over the railway bridge to Eyrs Square is 30 metres away.
One wonders if the sale of this property is related to that of 59/60 Murrough Ave/Drive with 9 bedrooms and a rent roll of €19,000. The developer of this property seems to have built 4 other adjacent houses which succeeded in walking a thin line through planning regulations!
Ronan Lyons ,
Hi Paul,
Thanks for the comment. I think the number of this type of auction depends on the extent of properties that have no binding “lower bound”. Put another way, why doesn’t someone who bought five years ago and who’s looking to sell now not just cut their price to 65% below the peak? The bank that issued the mortgage will more than likely not let them as the money raised wouldn’t clear their debt. So we may see many properties still aiming for 40% below peak, even though the owners know that 65% below the peak would find a buyer. The exceptions will be probably be distressed properties and family home properties sold after the death of the last surviving parent… and possibly also NAMA properties. NAMA could easily use its muscle to reinforce the idea that 65% below the peak is the “new price level”. It remains to be seen if they want to do that.
@MichaelG
Thanks for that information on the Renmore property.
Treasa ,
It’ll be interesting to see if this has much or any impact on the normal estate agent driven market. I can’t imagine they’d appreciate getting a bunch of offers in at 33% below asking on the grounds that there is some evidence to suggest that’s a rational clearing price if their vendors do not want to accept that, and, in fact, are in a position to wait it out. Whether that’s a wise move or not is debatable – historically it’s not that wise if you haven’t many offers at all.
That being said, I fail to see why an owner occupier would be willing to pay more than an investor. As a prudent person interested in your own finances, really you should be looking to pay as little as possible which means literally just enough to outstrip whoever is bidding against you, and if that’s an investor, then there’s no rational call for the difference in yield between each buyer type.
Ronan Lyons ,
Hi Treasa,
Thanks for that comment. Your second paragraph is really interesting as it’s at the core of some of my doctoral work. Is there a difference between investor and owner-occupier yields? If so, why and is it sustainable? One story could be that investors face higher borrowing costs. Another – potentially more interesting – is that owner-occupiers value a greater range of amenities than tenants, and pay more than 10 times what a 2-year tenant would to “bundle” a 20-year supply of these amenities (close to coast or a good school)…
My general sense is that as the boundaries between sales and lettings segments have become more blurred in Ireland, the investor yield will become more important as a barometer, for precisely the reasoning you outline.
R
Treasa ,
I’m not sure it’s sustainable to be honest. Certainly the difference was used to explain irrational exuberance in Ireland, and the historical desire to own property but with repossessions removing the certainty of tenure, I’m not sure that argument can count for much longer.
To be honest, I got the impression in Ireland for 5 or 6 years, it was a source of pride how *much* people paid for their property whereas going forward, it’ll be how *little* and what a bargain it was. Neither is a rational position, although I’d identify more with the latter than the former.
I imagine that will put a damper on prices also and perhaps close the gap.
Incidentally, I imagine the TRS changes for owner occupiers and the fact that investors still have some tax relief on interest (AFAIK – open to correction on that) may close financing cost gaps.
Conor ,
I saw the guys over on NAMA Wine Lake have a list of the results, but here’s mine where I’ve also calculated the yield on each lot where applicable – http://icampaigned.com/blog/2011/04/allsop-dublin-auction-april-2011/
Gordon Welsh ,
Very thought-provoking. Can I suggest first action to refine the conclusions would be to look at Allsops auction outcomes compared to agent prices in NI and GB. This might give an idea as to the ‘auction discount’. The need for cash, for quick decision making etc and time off work during the day on what might be a pointless task greatly reduces the number of bidders, depressing prices. I would think that this discount is magnified for those buying to occupy rather than rent out. Few owner occupiers would commit to buying a flat in a block without seeing it while, particularly if already let, an investor might be completely relaxed.
This brings us unto the ‘doctoral’ question, why a premium for owner occupation. I would suggest that the very high ‘search costs’, where it is not uncommon for individuals to view into the dozens of houses, is part of this. This suggests that there are indeed factors (sun?traffic noise, schools…) that may be of greater importance to those planning to stay for an extended duration. Or maybe the causation runs the other way?
A related point is the extreme micro-markets involved, where someone looking to buy in an area does not consider outside it. In areas with more expensive housing there is a very thin rental market (at least outside say London), yet plentiful supply as individuals working abroad say wish to let out for their absence. Again this brings in a fresh difficulty to the effective funcitoning of a market, the extremely high transaction costs, which prevent the market clearing.
I think therefore that as we move up the house price scale we see a shift from commodity to specific, and it is this, rather than owner occupation per se that is the differentiator. I suggest if you take a low house price area you will find the investor/occupier differential collapses to nil. Its thus about growing wealth allowing a premium to be placed on wider housing issues, not readily captured in house descriptions.
G
Leo Allen ,
Ronan – as usual quite stimulating. I would have thought that several more of these auctions would be needed before any meaningful conclusions could be drawn.
Firstly it is quite evident that just as BOSI took the market up, they are now leading the charge on the way down and that any offer might have been accepted from them and they want to clear out and there are many that will know that they have been accepting incredible discounts. God Bless the Queen.
Secondly the analysis by John Fitzgerald on Daft Rentals where he referred to the increase in number of households. Between 1995 and 2005 the proportion of people aged over 25 living in independent households (as in not with parents or sharing with others) did not rise significantly. High cost meant they stayed at home or shared far longer than was common elsewhere in Europe – except Spain. Fall in rents in 2008/9 changed this.
This factor is being overlooked by many in the continuing negativity. What it is pointing to is either delayed purchasing or a fundamental reassessment in owning v. renting.
Thirdly the noise about empty houses was totally flawed and in Dublin – as always – there could be a shortage soonish rather than later.
Personally I always thought owning was flawed because of the opportunity costand the state should encourage ‘buy to lets’ rather than reducing the interest relief at this point. State policy is totally flawed here.
Never the less the pendulum has swung back where affordability is such that houses that simply could not have been afforded a number of years ago are possible. I am not sure there is much of a ‘fundamental’ change as opposed to caution in purchasing. Just as I was told the prices would never stop rising, the chatter is they will never stop falling. Both are / were rubbish.
Several more of these auctions will rekindle the market, and the continuing negativity and much of it ill informed (contrast that with Ronan here who is so open to different views) that people simply have stopped watching RTE .. and eventually they will be looking at their own situation .. how much a month is this..can I afford it.. and making the call. Becasue the FTB are missing the Invetsor as competitors, there is simply more pervaracating than ever before ..but the worm will turn.
A cheeky offer on tracker mortgages from Permanent TSB « NAMA Wine Lake ,
[…] PTSB. You can get up to 4.2% from PTSB deposit accounts, 9.7% from 10-year Irish sovereign bonds, 9% from residential property. Yet PTSB is prepared to give you less than a measly 2% over a five year period on your €5,000 […]
Market thickness matters – insights from the second fire-sale auction | Ronan Lyons ,
[…] was either on how many people turned up or how much above the reserves the properties sold for. My own analysis highlighted what I thought were two more important statistics: the fall from the peak, and the relationship between rents and house prices. In the April auction, […]