The market is tough but the new Government has helped sentiment and properties are selling – if the price is right

THERE is an impression in the public arena that there are absolutely no residential property transactions taking place and that nothing is selling and nobody can get a mortgage in order to buy a home.

Now do not get me wrong, market conditions have been, and will remain, challenging for the moment. Finance is limited, to say the least, but to say there are no transactions is a fallacy. I want to set the record straight with some facts and figures regarding recent sales by our agency.

Over the last two weekends, DNG has taken over 30 deposits at an apartment development called Ocean Point in Courtown Harbour, Co Wexford. Almost all the purchasers were cash buyers. This success story may come as a surprise to those who believe that there is no money in the country – there is but those with it will only spend when the price is right.

Recently, we also released another apartment development at Cedar Grove, Templeogue and our agency secured sales on all of the 18 units on the opening weekend. Fourteen of the sales have since closed and the other four sales did not proceed due to the change in lending criteria and more restrictive stance taken by a number of lenders.

We began marketing a second-hand home in Albert Road in Sandycove, quoting €995,000 in Thursday’s Irish Times property supplement two weeks ago, This attractive period home attracted 78 parties to an open viewing the following Saturday and bids have already been taken on the property. We have many similar cases of properties released to the market in the last number of weeks.

At the upper end of the market, our agency recently sold a fine period home on Dartry Road for a price in the region of €1,300,000. In 2006, this property would have sold for in excess of €2,500,000-€3,000,000.

In all of the above cases the sales prices are less than half what they would have been at the height of the market.

The level of price decline in Ireland has been unprecedented with virtually no property immune from what really has been a “crash” in every sense of the word. We have numerous examples of houses that sold at the height of the market and that we have since resold which are evidence of such price drops. Declines of 60% are commonplace and up to 70% price falls are being recorded in certain sectors of the residential market.

As an example, our agency sold a house off Palmerston Road in Dublin 6 at auction for more than €2 million in 2007.

The same house was recently sold by our agency for a price in the region of €900,000. This represents a 65% fall in value – and this area has traditionally been perceived as “bullet proof” .

Our own house price index, which has recorded second-hand residential prices in the capital for well over a decade now, shows a decline of 55% since the peak of the market in 2006. In my view this is a fair reflection of what has happened to prices.

In its recent report on the Irish economy, the Central Bank of Ireland projected total price reductions in the order of 60% from peak to trough in the residential sector, and whilst their analysis is drawn on the Permanent TSB Index, which shows a decline of only 38% to date, they readily acknowledge that these figures lag the market.

I think the Central bank is correct in its assumption of a 60% decline in values but I would say most of the total decline has already occurred. I would even go as far as to say that there is clear evidence that, in certain circumstances and segments of the market, prices have already overcorrected, dropping below the 60% level.

In further support of this theory, it is now impossible to build new homes such as apartments with underground car spaces for the price that you can buy them for, even taking into account the reduction of residential construction tender prices that has occurred over the last three years or so.

Secondly, it is now cheaper for many first-time buyers to purchase rather than rent as rents now exceed the equivalent mortgage repayments in many locations.

I never thought I would see again one-bedroom apartments for under €100,000 within walking distance of Grafton Street. It is also now possible to buy a good quality two-bedroom apartment in the city centre for under €130,000.

With one-bed apartments commanding rents of €900 per month vs. an equivalent mortgage repayment of only €500 per month, buying is really making a lot of sense. Mortgage lending is now the biggest barrier to market recovery and as long as this issue remains, property prices will remain over-corrected.

The creation of a new government has already had a positive impact on buyer sentiment with agents reporting improved levels of interest, offers and sales over the last few weeks.

The material reduction in stamp duty announced in Budget 2011 has also had a significant positive effect on the higher priced properties.

How long property prices will remain in the doldrums is now heavily dependent on how quickly the government can deal with the problems of the banking sector.

When the property market is buoyant, it is very difficult to imagine it being any different. Likewise, when market conditions are challenging it is also very difficult for many to imagine property prices ever rising again.

However, if the new government can get be innovative and act quickly in dealing with the banking issues, then the recovery of the property market could happen much quicker than many people expect.

Keith Lowe is CEO of Douglas Newman Good