irish residential market

Irish Residential Market
Spring Review 2015
Irish Residential
Market
Spring Review 2015
April 2015
summary
2
economic overview
3
Established housing Market
5
SUPPLY SIDE ANALYSIS
8
Consumer Sentiment in the Irish
Property Market
Outlook for the Future
10
12
Authors
Marian Finnegan
Chief Economist, Director of Research
+353 (0) 1 237 6341
marian.finnegan@sherryfitz.ie
Suvi Talja
Researcher, PhD
+353 (0) 1 237 6482
suvi.talja@sherryfitz.ie
SPRING review 2015
summary
Average values nationwide grew by 1.7% in the
three month period alone, according to the Sherry
FitzGerald barometer of property prices. That said,
there was a notable cooling in terms of the Dublin
market with the average value of property in Dublin
increasing by a moderate 0.9% in the three month
period, this compares to growth of 6.5% in the same
period in 2014. When Dublin is excluded from the
national figure, the quarterly growth figure was 2.8%.
A regional analysis of the results of the Sherry
FitzGerald barometer further highlights the diverging
performances of the regional markets across the
country. As such, the strength of the national
performance was underpinned by strong price growth
in three regions; specifically the Mid-West and SouthWest regions, which both grew in value by 3.2%, while
the Mid-East region saw price growth of 3.1%.
The first quarter of 2015 also saw a further
strengthening of transaction activity. At the time
of writing there were 8,292 property transactions
logged in the Property Price Register, with a value of
approximately €1.8 billion for the first three months of
the year. Although preliminary, this figure is already
26% higher when compared to the final figures for the
same period in 2014.
Deirdre O’Reilly
Researcher
+353 (0) 1 237 6365
deirdre.oreilly@sherryfitz.ie
2
The first quarter of 2015 has proven
to be another turning point in
the recovery story for the Irish
property market. The overall market
continued to expand in terms of
transaction activity and also price
performance.
Furthermore, supply remains critically low with the
latest results from the bi-annual analysis of stock
available for sale in the open market revealing that
there were 30,642 units advertised for sale in Ireland
in January 2015, which represents 1.6% of the private
housing stock. This compares to 37,883 units in
January 2014, a 19% reduction in the country overall.
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
Economic
Overview
The latest economic data tells
a very positive story for the
Irish economy, with economic
growth in 2014 the strongest
recorded in the European
Union.
Furthermore, this recovery is forecast to strengthen in 2015 with
all growth forecasts invariably being revised upwards, given the
weakness of the Euro, combined with the low interest rate and
inflation environment. Finally, unemployment is expected to
return to single digits this year for the first time since the onset
of the financial crisis.
The improving performance in the Irish economy for 2014 was
illustrated in the most recent national accounts data for the year.
GDP grew by 4.8% in the year in line with expectations, while
GNP grew by 5.2% annually. In comparison with 2013, GDP grew
by 0.2% and GNP, 3.3%.
While strong export performance remained a key driver of the
economy in 2014, domestic demand returned to growth for
the first time since the financial crisis. Most notably, capital
investment grew significantly by 11.3% in the year; this followed
growth of 4.3% in 2013. Personal consumption grew by 1.1% in
the year; this compares favorably to -0.8% recorded in 2013.
Government expenditure also rose marginally by 0.1% in the year.
Total exports were up 12.6% in the year; that said, import growth
outpaced export growth, up 13.2% in the year.
The Department of Finance projects GDP and GNP growth for
2015 will reach 3.9% and 3.6% respectively, with volumes on
course to exceed peak levels. Consumption levels are projected
to increase by up to 3% in 2015, while investment is forecast to
rise by up to 13%. However, underperformance of the European
economy and its uncertain outlook remains a concern.
GDP at Constant Market Prices, ANNUAL %
Source: CSO/Department of Finance
3
SPRING review 2015
summary
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
Economic Overview
Inflation levels remain low, both in Ireland and particularly
in the Euro zone area, causing the European Central Bank
(ECB) to deploy a large-scale quantitative easing (QE) plan to
kick-start growth and lift inflation out of negative territory.
The ECB forecasts inflation will come in at zero this year but
projects a rise to 1.5% in 2016. However, the forecasts are
heavily influenced by oil prices and exchange rates. The euro
slumped to record lows following the announcement of the
QE programme, placing Europe in a competitive position in
the foreign exchange markets.
The latest exchequer figures for quarter one 2015 saw
exchequer surplus of €197 million, significantly improving
on the €2.3 billion deficit in the same period last year. Tax
revenue was ahead of targets in the three month period, due
primarily to increased tax revenue as a result of job creation,
reduced expenditure and a transfer from the National
Pension Reserve Fund to the Exchequer. Tax revenue of
€10.4 billion was collected in the three months to the end of
March, an increase of 13.4% compared with the same period
in 2014.
Unemployment levels are continuing to fall. The latest CSO
labour market data released for quarter four 2014 reveals
an annual increase in employment of 1.5%, or 29,100, in the
year to the fourth quarter of 2014, bringing total employment
to 1,938,900. The bulk
of the growth in jobs is
in full-time employment,
Unemployment
with a rise of 39,600, or
rate in Ireland
2.7%, while part-time
below the Eurozone
employment actually fell
average at the end
by 10,500 (-2.3%). On a
of 2014
seasonally adjusted basis,
employment levels rose
by 0.5% compared to the
previous quarter, and despite a moderation in the pace of
growth when compared with the same period in 2013, this
represents its 9th consecutive quarterly increase.
The seasonally adjusted standardised unemployment rate
also fell notably to 10.4% in the fourth quarter of the year,
from 11.1% in the previous quarter and compares favorably
with the crisis-high unemployment rate of 15.1% in 2012. It is
also worth noting that Ireland’s unemployment rate is below the
average Eurozone unemployment rate, which stood at 11.5% at
the end of 2014.
The latest KBC Ireland/ESRI Consumer Sentiment Index rose in
March to 97.8, up from 96.1 in February. Consumers’ confidence
increased in most areas when compared to the previous month,
with people being more positive about their current personal
finances and their expectations, while the general outlook for the
economy is also on the upside. Rising employment levels are a
significant factor in current consumer perceptions. The 3-month
moving average also continues to increase, reaching 98.3 in
March and up significantly on December 2014’s reading of 87.1.
The latest data on mortgage lending from the Banking and
Payments Federation Ireland reveals that the total volume of new
mortgage lending (excluding re-mortgages and top-ups) for the
final quarter of 2014 was 6,929, reflecting a significant rise of
46% on the same period in 2014. This brings the total number
of mortgages drawn down in 2014 to 20,155, a 50% uplift on the
2013 figure. Moreover, the value of mortgage drawdowns in the
final quarter of the year stood at €1.27 million, bringing the total
value in the year as a whole to €3.65 million, a 55% increase on
the comparable period in 2013.
A comparison between mortgages drawn-down in 2014 and the
property price register for 2014 suggests that cash purchasers
were responsible for 51% of all residential transactions in the
year.
Unemployment Rate %
Source: CSO
4
SPRING review 2015
summary
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
Established housing
Market
An analysis of the opening months of
2015 reveals a notable change in the
performance of the Irish housing market.
There may be a myriad of reasons for this depending on where
you are in the country, however, there is also every reason
to believe that the Central Bank intervention in the market in
January 2015 had a role to play in the market’s performance
in the intervening period.
The latest results from the Sherry FitzGerald barometer of
second-hand house prices reveal that the pace of house price
growth slowed notably during the first months of 2015. The
average value of residential property in Ireland rose by 1.7% in
the first quarter of 2015, this compares to growth of 5.0% in
the same period in 2014.
Notably, Dublin house prices rose by a moderate 0.9% in the
first quarter of the year, this compares to growth of 6.5% in
the same period in 2014. When Dublin is excluded from the
national figure, the quarterly growth figure was 2.8%. In
comparison, residential property outside Dublin grew by 3.0%
during the opening quarter of 2014.
The regional centres outside Dublin experienced strong price
growth during the opening three month period, most notably
in Cork with price growth of 3.0% in the three months to end
March.
An analysis of the results of the Sherry FitzGerald
barometer by NUTS 3 regions further highlights the different
performance of the individual residential markets across
the country. Contrary to the same period in 2014, Dublin is
no longer the driver of national price inflation. Rather the
strength of the national performance was underpinned by
strong price growth in the Mid-West and South-West regions,
which both grew in value by 3.2%, while the Mid-East region
saw price growth of 3.1%. The price performance was more
moderate in the Midlands at 2.8%, South-East at 2.4% and
West at 2.2%. The slowest price inflation was recorded in the
Border region, 1.0%.
Approximately 43,000 properties transacted during 2014,
with an approximate value of €9.2 billion, or €8.5 billion
when multi-family/portfolio sales have been excluded. This
represents 2.2% of the total private housing market in 2014,
and compares with 1.6% in 2013.
2014 saw the volume of transactions nationwide increase year
on year by 38%. Activity during the year was boosted by a
notable uplift in transaction numbers during the final quarter
of 2014 with 14,700 properties transacted, representing over a
third of the overall activity.
Index Base Year = Q4 2001
Sherry FitzGerald All Ireland Barometer of Second-hand House Prices
Source: Sherry FitzGerald Research
5
SPRING review 2015
summary
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
Established housing
Market
Furthermore, there were significant regional differences
recorded during the year. Dublin saw an uplift in the
volume of sales by 28%, while transaction activity
increased by 65% in Limerick, 45% in Galway and 39%
in Cork. Outside the regional centres, Westmeath, Mayo,
Sligo and Meath enjoyed an increase in sales volumes
in excess of 60%. On the other hand, rural locations
like Roscommon and Leitrim only experienced a more
moderate increase in transaction activity of less than
10% during the twelve month period.
The opening quarter of 2015 saw a further strengthening
of transaction activity. At the time of writing there were
8,292 property transactions logged in the Property
Price Register, with a value of approximately €1.8 billion.
Although preliminary, this figure is already 26% higher
when compared to the same period in 2014. Similar to
2014, Dublin continues to dominate activity, accounting
for approximately a third of transactions during the three
month period.
Regional Price Performance - Q1 2015*
ER
BORD
1.0%
WEST
2.2%
EST
MID-W
3.2%
NDS
MIDLA%
2.8
IN
DUBL
0.9%
AST
MID-E
3.1%
Price Performance
> 3%
2.0-3.0%
1.0-2.0%
0-1.0%
T
H-EAS
SOUT %
2.4
T
H-WES
SOUT %
3.2
* CSO NUTS 3 statistical regions
Source: Sherry FitzGerald Research
6
SPRING review 2015
summary
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
Established housing
Market
In order to gain a greater insight into activity in the market,
an analysis of both vendors and purchasers through
Sherry FitzGerald during the opening months of 2015 was
undertaken. The analysis of sales closed through Sherry
FitzGerald during the first quarter in 2015 reveals that first
time buyers’ role in the market further diminished during
the opening quarter, accounting for 14% of the properties
traded in the three month period; this compares to 17% in the
same period in 2014. Owner occupation still dominates the
purchaser profile at 73%.
Vendor Analysis - Q1 2015
An analysis of the profile of vendors who sold their property
through Sherry FitzGerald in the quarter revealed that
36% of vendors were selling investment properties, while
investors represented only 20% of the purchaser cohort,
suggesting that the depletion of buy-to-let stock continued
in the opening months of the year, a factor which will put
further upward pressure on rental levels.
Source: Sherry FitzGerald Research
Market Activity 2014
Donegal
Monaghan
Sligo
Leitrim
Mayo
Cavan
Louth
Roscommon
Longford
Meath
Westmeath
Dublin
Galway
Offaly
Kildare
Laois
Clare
Wicklow
Carlow
Limerick
Tipperary
Kilkenny
Wexford
Activity
> 2.5%
Kerry
Waterford
> 2.5%
> 2.0%
Cork
> 1.5%
County
% of Housing Stock
Versus Sales 2014
Dublin
Westmeath
Wicklow
Louth
Meath
Kildare
Longford
Wexford
Waterford
Sligo
Cavan
Galway
Cork
Laois
Leitrim
Carlow
Limerick
Clare
Kilkenny
Roscommon
Offaly
Kerry
Mayo
Tipperary
Donegal
Monaghan
2.7%
2.6%
2.6%
2.4%
2.4%
2.4%
2.4%
2.3%
2.3%
2.2%
2.2%
2.1%
2.1%
2.1%
2.0%
2.0%
2.0%
1.9%
1.8%
1.8%
1.7%
1.7%
1.6%
1.5%
1.4%
1.3%
State
2.2%
Source: PPR / Sherry FitzGerald Research
7
SPRING review 2015
summary
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
Supply Side Analysis
The regional centres outside Dublin saw the available stock
decreasing during the twelve month period, down 27% in Galway,
24% in Limerick and 22% in Cork. When cities are analysed
separately from the county data, it is worth noting that Galway
and Cork cities have relatively similar proportions of available
properties for sale, 0.8% and 0.9%, respectively. In Limerick city,
1.8% of the private housing market is on sale.
The latest bi-annual analysis of stock
available for sale in the open market
revealed that there were 30,642 units
advertised for sale in Ireland in January
2015, which represents 1.6% of the private
housing stock.
The latest data from the CSO reveals that the volume of planning
permissions granted during the final quarter of 2014 increased
by approximately 32% from the corresponding period in 2013.
In the fourth quarter of 2014, planning permission was granted
for 2,057 dwelling units. This consisted of 1,905 houses and 152
apartment units. One-off houses accounted for 39.3% of all
new dwelling units granted planning permission, a figure largely
unchanged from the previous quarter.
This compares to 37,883 units in January 2014, a 19%
reduction in the country overall.
In the four local authorities of Dublin, there were 3,982 units
advertised for sale in January 2015, which represents 0.8%
of the private housing stock. However, this represents a 32%
increase on available stock in Dublin from January 2014.
An analysis of the commuter counties reveals that Kildare
has only 0.8% of private properties available for sale, while
Meath has 1.0% and Wicklow, 1.6%. Kildare has seen the most
notable reduction in available stock during the twelve months,
down 30%. Meath saw a decrease of 26%, whereas supply in
Wicklow only decreased by 16%.
According to latest figures released from the Department
of Environment, Community and Local Government, 2014
witnessed a revival in construction activity. A total of 11,016
housing units were completed in 2014, an increase of 32.7% from
the previous year. Of the total housing completions recorded,
Dublin accounted for just under 30%. In terms of 2015, data on
completions is only available for the first month, which saw 676
units being complete, Dublin accounting for 17% of the total.
Private Housing Supply - january 2015
Donegal
1.6%
Monaghan
1.3%
Sligo
2.2%
Leitrim Cavan
3.0%
3.4%
Roscommon
2.9% Longford
Meath
2.7%
1.0%
Westmeath
Galway
1.9%
Mayo
3.3%
City: 0.8%
County: 2.2%
Offaly
1.6%
Laois
1.4%
Clare
1.9%
City: 1.8%
County: 2.2%
Limerick
Kerry
3.4%
Louth
1.4%
Kildare
0.8%
Wicklow
1.6%
Carlow
1.8%
Kilkenny
Tipperary
Wexford
1.4%
2.5%
1.8%
Cork
Fingal 0.9%
Dublin
Dublin
City
0.8%
South Dublin
0.8%
DLR
0.9%
Waterford
2.0%
City: 0.9%
County: 1.9%
County
% of Second Hand Private Stock
Advertised for Sale January 2015
South Dublin
Dublin City
Galway City
Kildare
Dun Laoghaire-Rathdown
Cork City
Fingal
Meath
Monaghan
Kilkenny
Laois
Louth
Wicklow
Offaly
Donegal
Limerick City
Wexford
Carlow
Westmeath
Clare
Cork County
Waterford
Limerick County
Galway County
Sligo
Tipperary
Longford
Roscommon
Leitrim
Mayo
Cavan
Kerry
0.8%
0.8%
0.8%
0.8%
0.9%
0.9%
0.9%
1.0%
1.3%
1.4%
1.4%
1.4%
1.6%
1.6%
1.6%
1.8%
1.8%
1.8%
1.9%
1.9%
1.9%
2.0%
2.2%
2.2%
2.2%
2.5%
2.7%
2.9%
3.0%
3.3%
3.4%
3.4%
State
1.6%
Source: Sherry FitzGerald Research
8
SPRING review 2015
summary
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
Supply Side Analysis
House Completions 1990 – 2015
Source: DoECLG
Housing registrations and commencement notices offer a
good indicator for future house building levels. The volume
of new home registrations nearly doubled during the twelve
months in 2014 compared to the same period in 2013. A total
of 2,574 dwelling units were registered in 2014. However, this
is still very low compared with the 10-year annual average of
approximately 19,000 registrations.
New housing commencement notices are up 64% in 2014. A
total of 7,717 notices were logged during the twelve month
period. However, it is difficult to assess the long-term impact
of this trend as a large part of the sudden increase took place
in February 2014 with 4,343 notices given. The unusually high
volume of notices registered that month was partly due to
the new building control regulations coming into force on 1st
March 2014. Additional requirements were introduced, relating
to the application of commencement notices through the new
Building Control Management System (BCMS) and enhanced
accountability on the certification process of building works.
The subsequent months following the introduction of the
new regulations saw the volume of notices drop dramatically.
However, during the latter part of the year, the volume of notices
increased to a monthly average of 354.
House Building Activity 2007 – 2015
Source: DoECLG
9
SPRING review 2015
summary
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
Consumer Sentiment in the
Irish Property Market
In order to gain a greater understanding of
consumer sentiment towards the property
market and to assess future market trends,
Sherry FitzGerald Research conduct
a bi-annual sentiment survey.
This is achieved through a survey of all registered home
buyers in the four regional centres. The latest survey was
conducted in February 2015. The timing of this survey also
allowed an insight into the buyers’ perspective on the new
mortgage lending rules by the Central Bank.
The survey was conducted among approximately 6,000
registered buyers in Dublin and a further 3,000 in Cork,
Galway and Limerick with a response rate of 11%.
An analysis of the responses revealed that first time buyers
represented 40% of all respondents whereas 43% of
respondents indicated they were trading up or down. A
regional breakdown of these figures reveals that first time
buyers accounted for the largest cohort in the regional centres
outside Dublin; 47% in Cork, followed by 42% in Limerick
and 40% in Galway. Respectively, 27%, 28% and 38% were
trading up or down. In Dublin, 45% of the respondents were
trading up or down, while first time buyers accounted for
40%. The largest share of investors were recorded in Galway,
at 16%.
When queried as to their current status, approximately 45%
of respondents are living in rented accommodation, while
41% live in their own home. The largest cohort of respondents
living in rented accommodation was in Cork at 52%, whereas
this figure was 45% in Dublin and 44% and 43% in Galway
and Limerick, respectively.
In order to determine trends for future demand, the survey
queried in what time frame respondents intended to purchase
a property. Approximately 69% of respondents purported
that they wished to buy a property in the next six months with
a further 24% saying within a six to twelve month period.
Purchaser Profile
Source: Sherry FitzGerald Research
10 SPRING review 2015
summary
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
Consumer Sentiment in the
Irish Property Market
When queried as to the type of property they were seeking to
buy it appears that three-bed homes continue to be the most
sought after accommodation. On average, 38% of respondents
are seeking a three-bed house, whereas 25% are seeking a fourbed property.
In Dublin, 39% of the respondents revealed their first preference
to be a three-bed property, while the same cohort for Cork stood
at 37%, Galway 27% and Limerick 25%. Four-bed houses are
notably sought after in Limerick where 54% of respondents
indicated preference over
this type of accommodation.
Interest in apartments
three-bed
remained strongest in Galway
homes remain
at 26%, while on average, this
the occupational
figure stood at 16%.
preference among
respondents
The strong interest in
apartments, as well as the
relatively larger share of
investors in Galway, perhaps
goes toward explaining the high number of respondents with
a budget of approximately €200,000 or less. Of all Galway
respondents, 40% are looking at properties in this price
category, while on average only 12% of respondents in total have
a budget of €200,000 or less. The largest proportion of Dublin
respondents, 31%, were seeking properties in the price category
€350,000 - €549,000.
In terms of the availability of residential properties on the
market, the results from the sentiment survey are in line
with our latest supply analysis which reveals a tightening
of supply in locations outside Dublin. Most notably, 55% of
respondents in Cork feel supply is decreasing, with 43% and
48% respectively in Galway and in Limerick. While the figure
is lower in Dublin with 35% of those surveyed reporting a
decrease in supply.
When queried on the impacts of the new mortgage lending
requirements of the Central Bank, approximately half of those
surveyed were of the opinion that the new mortgage lending
rules are fair, but respondents in Dublin and Cork were more
inclined to regard the rules as having a negative effect on
people’s ability to buy property. Notably, 20% of respondents
in Dublin and 23% in Cork, suggested that the new regulatory
requirements would result in a delay in their ability to secure
a home.
Preferred Accommodation Type
Source: Sherry FitzGerald Research
11
SPRING review 2015
summary
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
Outlook for the Future
Looking to the future, the
fundamentals of the market have
not altered significantly with
a continued recovery in demand
and tight supply.
However, there is undoubtedly a more cautious
approach from a consumer perspective and as a
result, the level of price inflation has moderated
considerably in Dublin. The reason for this change
in sentiment is not clear, however, it would be
reasonable to presume that the increase in prices
in the past two years in Dublin, combined with an
increase in available properties to buy and the
Central Bank intervention in the market, would all
have influenced consumer sentiment.
Notably, the market outside Dublin has improved
with a notable uplift in activity and moderate price
growth. This suggests that there is a definite lag
between the performance of Dublin and the rest of
Ireland and as such, the property markets outside
Dublin looks set to outperform the capital in the year
ahead, for the first time since the recovery began.
All in all, the preliminary evidence available to date
suggests the trend of improved activity should
continue in the months ahead suggesting that
overall sales in the year may well reach 50,000
units. However, we can expect a more moderate
price performance than in recent years, with
current indicators suggesting that while Dublin will
experience positive price growth in 2015, it will most
likely be low single digit growth rather than the
double digit growth recorded in the past two years.
Furthermore it seems reasonable to assume that the
rest of Ireland will enjoy stronger price performance,
however such price growth is likely to remain below
10%.
That said, given the depletion in the quantity of buyto-let stock on the market and the continued uplift
in demand for rental accommodation, there is every
reason to believe that the story for 2015 will be one
of heightened rental inflation, particularly in the key
urban centres.
12 SPRING review 2015
summary
economic
overview
Established
housing Market
SUPPLY SIDE
ANALYSIS
consumer
Sentiment
outlook
About Sherry FitzGerald
Founded in 1982, Sherry FitzGerald has grown to
become Ireland’s largest property advisory firm with
over 90 branches throughout Ireland. The Group’s
services include Residential and Commercial sales,
Financial Services, Lettings and Investments. Sherry
FitzGerald is also the exclusive Irish affiliate of
Christies International Real Estate, offering an
unrivalled international dimension for buyers and
sellers of luxury properties.
For further information please visit www.sherryfitz.ie
© 2015
This report should not be relied upon as a basis for entering transactionswithout seeking
specific, qualified, professional advice. It is intended as a general guide only. This report has
been prepared on the basis of publicly available information, internally developed data and other
sources believed to be reliable. While reasonable care has been taken in the preparation of the
report, neither Sherry FitzGerald nor any of directors, employees or affiliates guarantees the
accuracy or completeness of the information contained in the report. Any opinion expressed
(including estimates and forecasts) may be subject to change without notice. No warranty or
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employees or affiliates, all of whom expressly disclaim any and all liability for the contents of,
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