Published: Thursday, 29th July, 2010 12:00pm
Deep pockets and patience are key to buying property now
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MoneyTimes with Jill Kerby and Aviva
The property monster just won't go away. And yet, a few houses are still being bought and sold every day this summer, some to eager first-time buyers who have spent the last couple of years building up their down payments and also to confident second-time buyers who don't have much personal debt, especially property debt.
Both groups now have the best opportunity in years to pick up quality, good value properties that are at least 40% below their 2007 peak values, according to the latest Daft.ie survey for the second quarter of 2010. Nationally, asking prices are down 4.2% in the second quarter at €220,000. Dublin is down 5%, Cork and Limerick by 3% and 2%; Donegal, Cavan and Monaghan down 11%.
So is now a good or even better time to buy a house in Ireland because there have been such sharp price falls and there is so much new house inventory from which to choose from desperate builders - or NAMA?
I've written 'house' because every property expert I speak to or read these days seem to agree that apartments, new or second hand, are probably not a good purchase option at the moment for the following reasons:
- There are far too many of them and their prices will fall even more than houses until the supply overhang is cut;
- The quality of too many apartment (poor to dismal) has given the market a bad reputation: in the cities, entire blocks are at risk of being turned into future slums if high maintenance and upgrading programmes are not ongoing by owners and management companies. Both are struggling as interest rates rise;
- Rental yields keep falling;
- Banks only have limited mortgage lending budgets. They only want to lend to triple-A rated mortgage borrowers and prefer to lend to home buyers, not apartment buyers for all the above reasons;
- The regulator is imposing much tighter lending conditions on the banks, including restrictions on down payments, lending terms and the renting of rooms to boost repayment income.
So much for apartments.
First time buyers who are keen to get on the property ladder may be in a far better position to do so than a few years ago, but they must not let themselves get carried away. No matter how large a down-payment they have, or how accommodating their mortgage lender is because they have decent jobs and repayment prospects, they need to cover all the cost angles, and not just the 'ability to repay' one.
For example, they need to put location, location, location ahead of the apparent bargain price or the quality of the finish of the kitchen cabinets.
It doesn't matter if you're in the eye of a recessionary storm or in an economic paradise; it's always better over the long term to buy the worst house on the best street and most desirable neighbourhood. You can always fix up the house; you can't fix the other 50 houses around you.
When you are in a buyer's market (you have a sound down-payment and loan approval) you are also in a far better position to negotiate price. As a first-time buyer you are also entirely exempt from Stamp Duty and that should allow you to maximise the amount you can borrow (compared to second time buyers who still have to pay 7% on values between €125,001 and €1 million, or 9% on property worth over €1 million.)
A well-built older house in a desirable neighbourhood with access to public transport, established schools, shops and other amenities is always going to be a better longer term buy than a brand new one in a far distant suburb, unless you happen to also work in that suburb and the area has every chance of providing all those amenities by the time you intend to sell up (or have to, say because your job has moved).
Whether you are a first time buyer or a second hand one be clear about one thing: the on-going cost of property ownership is going up. The EBS was the latest lender to announce an interest rate hike, of 0.6%. The other banks intend to follow and with no tracker rate mortgages available and not every borrower being offered fixed rate loans, you need to make sure that you can comfortably repay not just a typical 4% variable rate, but a 5% or right rate. Ideally, aim for the fixed.
Finally, one leading mortgage broker I know, defying every conventional view about the merits of buy-to-let investments says he is personally in the market to buy small, city-based ex-corporation-type terraced houses, which he says are falling in value and which are now beginning to offer good rental yields of up to 7%.
The Dublin neighbourhoods he's looking at, mainly on the northside, may well be offering those kind of returns, but my own the Rialto/Inchicore area of central Dublin, is still throwing up the most ridiculous prices for two and three-bed houses ex-corpo properties: from €199,000 in dubious condition, to €360,000 for the yuppified versions.
However, rental prospects hover at around €1,000 a month or €12,000 a year which isn't too far off the broker's 7% target yield, but is a mere 3.3% yield on the €360,000 property, which won't cover the finance costs.
With unemployment and immigration still rising and wages and incomes still falling, this is not the time to be jumping into the buy-to-let market, even in established neighbourhoods unless you have deep pockets.
