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Sunday Times, Money Comment - 15 December, 2013

Posted by Jill Kerby on December 15 2013 @ 09:00

Somebody please tell Mr Noonan why rents are rising

 

The Minister for Finance Mr Noonan has been out of the loop for many years when it comes to finding an affordable roof to put over his own or his family’s head, otherwise he would not have suggested last week that cheaper, interest-only loans for investors only is somehow going to be a good thing for hard pressed renters in the capital.

Rents in Dublin, according to the latest PTSB/ESRI rent index are up 6.4% year on year to September, while still declining by 0.2% in the rest of the country. For houses, rents averaged €1,157 compared to €1,095 a year ago, and €1,042 for apartments in Q3, compared with €983 a year ago.

There is certainly no evidence to show that special lending terms to investors, even foreign ones that Bank of Ireland say they will lend to, will bring rents down or magically improve supply.

Why would anyone enter a market if they knew that rents were sure to fall?  Surely the banks will encourage new investors to buy their repossessed buy-to-lets with sitting tenants? That hardly increases the supply problem.

Dublin residential prices are being driven up by a limited number of cash buyers seeking yield, young professionals starting families who were not burned in the crash and have big deposits and a supply problem that has only grown larger since the 2007 crash. Now the banks are going to fuel it by offering preferential interest rates and borrowing conditions to investors who will drive Dublin rents even higher.

We’ve seen what happens when property markets are manipulated, mainly through taxation and interest rate manipulation and then when losses and arrears are not dealt with expeditiously. Things get worse.

Rents will stabilise and residential property in Dublin will be affordable (and even profitable again for investors) if and when we ever see the great debt burden clear, employment numbers recover and savers duly rewarded by solvent, independent banks.

Until then, anyone stupid enough to think that now is the time to become an amateur landlord in Dublin, should know that while the rules of the property game keep changing, any “special” deal from the banks is an offer you might want to think twice about accepting

 Danske Bank customers with overdrafts and credit cards will be given two or three months respectively to repay their loan balances before these services are withdrawn in the course of the next six months or s0.

Personal loan and mortgage customers will continue to repay these loans and will be unaffected by the closure of the retail side of the bank. Unfortunately, Danske Bank customers with current account mortgages remain in limbo.

Readers who have contacted me say their loans are linked to the credit balance in their current or savings accounts, “but without a current account, what happens to the mortgage?”  They want Danske Bank, who say they will be contacting all their retail customers “shortly”, to either honour their existing contacts or come up with a mutually acceptable solution.

Danske Bank mortgage holders are not the only ones uncertain about how their mortgages will be treated next year. Thirteen thousand remaining INBS mortgage customers are much worse off.

Refused a chance to bid for their loans, which are being auctioned in lots, to foreign bidders as part of the liquidation of the Irish Bank Resolution Corporation (IBRC), if their mortgages are purchased this way, they will lose all the consumer protection they enjoy under the Irish Financial Services codes of conduct and regulations.

However unfair this is, the only hope for the ex-INBS borrowers is that Nama, the national asset management agency and not some foreign vulture investor will ends up with their unsold loans.

Nama says it will maintain the regulatory status quo for the ex-INBS borrowers, even though they are under no such legal obligation. (It is not a financial institution in the conventional sense, requiring Central Bank supervision or regulation.)

It has been suggested that might even let people bid for their own mortgages, though no one should hold out getting the kind of discount that foreign bidders of will be expecting.

I may not be a fan of property investing, but over 1000 potential buyers queued outside the RDS last week for a chance to bid on nearly 150 mainly commercial and retail properties at the latest Alsop Space auction.

The residential properties didn’t catch as much the attention as did the commercial ones, but some holiday properties were picked up for a song – like the two bed apartment overlooking Kilkee Bay in Co Clare that sold for €32,000 or the modern, white-washed cottage in Achill, Co Mayo that sold for €18,000.

Meanwhile, someone decided that a two bedroom apartment in Bray costing €101,000 with a sitting tenant and an annual yield of 8.32% was good value, while another in Belturbet, Co Cavan perhaps did better by buying an apartment for just €37,000 and an annual yield of nearly 13%.

Alsop’s director of auctions naturally claimed that this record breaking auction – it took in €23.7 million - has “kick-started” the Irish property market.  Well, maybe the lower end of the commercial and retail market.

And while a few residential properties did sell with 6%-8% yields, most good advisers say that is too low a yield to adequately reward any investor after they cover mortgage interest payments, income tax, property tax, maintenance and/or management fees and insurance.

 

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