Rents in the residential property market are expected to rise by up to 15 per cent this year with apartments in central locations likely to experience the biggest increases, according to market experts. This compares to meteoric rises during 1998 of up to 35 per cent.
City centre apartments are now achieving the same rental levels as apartments in Dublin 4 and the economic boom is continuing to drive an insatiable demand for rental accommodation among young professionals.
A number of apartment developments will be completed to avail of the extended Section 23 deadline of April 31st this year and this will help to boost the capital's diminishing rental stock. However, some experts believe that the interest relief for residential property investors, which was abolished under the Bacon Report, should be re-introduced in order to meet the city's growing accommodation needs.
"Our phones are ringing constantly about properties to rent and typically callers are looking for two-bedroom apartments at £700 per month which really don't exist anymore," says Siobhan Kirwin, of O'Dwyer Property Management. "They are gone from our books in less than an hour when they become available."
Since the Irish residential property market moved into uncharted waters in 1998 with unprecedented price increases, rents have also climbed dramatically. One Dublin estate agent estimated that rents rose by as much as 35 per cent last year.
One-bedroom apartments, which once rented for £450 per month, now cost an average of £500 to £550 per month, more than the cost of some mortgages. Two-bedroom apartments now rent for between £700 and £900 per month in sought-after locations. As for a three-bedroom house in south Dublin or close to the DART line, tenants can expect to pay £1,000 per month.
In the corporate market, properties in desirable locations can comfortably achieve monthly rents of between £1,500 and £2,000. In stark contrast to the middle rental market, there is a good choice of properties available here and prices are not expected to increase this year.
Recent rent increases in the capital have precipitated notable lifestyle changes. Young couples who once sought two-bedroom apartments in order to allow themselves a spare room or study are now opting for the more affordable option of a one-bedroom unit. Estate agents are also inundated with requests from groups of four people for two-bedroom apartments to share, although most are unwilling to let such properties to more than two people because of the additional wear and tear on the property.
With the exception of the top end of the rental sector, Dublin's supply of rental accommodation is dwindling. At the lower end of the market, the traditional bedsits have been converted into large family homes and in the middle sector, good quality apartments are in short supply.
However, the extension of the deadline for Section 23 properties should bring some new units on stream, according to Ronan O'Driscoll of Hamilton Osborne King. "There are probably about 2,000 apartments under construction around Dublin and at least half of them will come on to the rental market," he says.
Despite the abolition of interest relief for investors under the Bacon Report, investors should not be deterred from the residential market. Rising rents coupled with good capital appreciation mean that property still represents a good investment, particularly in desirable locations.
According to Ms Kirwin, the rents achieved by second-hand properties have also increased and investors should consider such properties in good locations in Dublin.
"We have clients who traditionally buy an apartment or house for their portfolio each year and they were certainly shocked and stymied by the Bacon Report when it was published. But because of low interest rates and increased rents, many people are prepared to buy into the residential market and there are very good prospects for capital appreciation," she says.
In September last, student groups protested that the supply of rented accommodation had dried up, but the last Budget brought student accommodation under the Section 23 tax incentive scheme for the first time and this should ease future difficulties in this area.
However, Ken McDonald, of Hooke & McDonald estate agents, says the Government should re-introduce interest relief into new letting areas in order to replenish the rental accommodation stock. Failure to do so could inflict severe damage on the rental market.
"Rents went up by between 20 and 25 per cent over the last 12 months. The scarcity of rental accommodation is forcing them to move upwards, but it is unlikely that the market can bear the same sort of increases again," says Mr McDonald.
"Politically and socially it is going to cause severe problems, because you can't really afford to have rents going out of control. It affects too many people."
