The increase in residential property prices in the Republic from 1995 to 1999 was 85 per cent ahead of Finland and Holland, its nearest "rival", according to figures produced by the Bank of International Settlements (BIS). The data compared property price rises in a number of the world's most advanced industrialised economies. In the commercial property sector, Dublin saw prices increase by 171 per cent from 1995 to 1999. This rise was 63 per cent greater than Madrid. That city saw commercial property prices rise by 105 per cent in the period.
The figures were published in the quarterly review of the BIS in Basle, Switzerland, which is a bank and forum for the world's central banks. The review warned that "historically, it is the extensive use of real estate as collateral that has been the main source of losses for banks". However, a spokesman for the Central Bank said there was a lot of "catching up" involved in the rise in property prices in the Republic over the past number of years.
He also pointed out that the International Monetary Fund (IMF), in its report on the Irish economy recently, found that the financial system was "sound and highly developed".
The IMF report said the Central Bank had been "active in alerting banks to the risks posed by rapid overall and property-related lending" and that "stress tests suggest a high degree of resilience to macroeconomic shocks and a fall in property prices".
The BIS, in its report, noted that property prices in the West "have registered significant gains over the last few years in many countries. The strength of the economy has tended to be the driving factor in real estate price gains. Indeed, among industrial countries, Ireland had the strongest property market between 1995 and 1999, and Japan the weakest". "At the same time, rapid credit growth has added fuel to price gains in some markets. The commercial property booms in Dublin, Madrid and major US cities, for example, have been accompanied by private credit growth that has far outpaced that of the underlying national economies. Experience indicates that, at least in those countries where property prices have risen sharply and approached previous peaks, developments warrant close monitoring."
Residential property prices in the Republic, adjusted to take account of inflation, rose by 76 per cent in the period 1995 to 1999, compared to 41 per cent in Finland and the Netherlands, 31 per cent in Denmark and 29 per cent in Norway.
In France during the same period the increase was only 2 per cent, while in Japan prices fell by 12 per cent and in Germany they fell by 8 per cent. In Italy prices fell by 9 per cent.
Commercial property prices in Dublin, when adjusted for inflation, rose by 171 per cent. Prices in Madrid during the same period rose by 105 per cent, followed by cities in the United States, where the price increase was 59 per cent.
"While statistical analysis shows that the strength of the economy has tended to be a driving factor in recent gains in property prices, the analysis also points to a number of cases where the difference between private credit growth and GDP growth have been an important factor as well," according to the BIS report. "The commercial property booms in Dublin, Madrid and major US cities have been accompanied by private credit growth that has far outpaced that of the underlying national economies."
"In the case of residential real estate, credit growth has little systematic influence on the cross-country differences in performance. Indeed, even the spectacular gains in the Irish residential market appear to be in line with GDP growth."
The bank said credit growth which was in excess of GDP was a widespread phenomenon. Various institutional developments had eased credit conditions and those on property lending in particular. "In Ireland, new entry has sharply raised competition in the mortgage market and led to a significant relaxation of terms on real estate financing," it said.
