"What experience and history teach is this: that people and governments never have learnt anything from history, or acted on principles deduced from it." - George Wilhelm Hegel (1770-1831)

Every property boom contains the seeds of its own destruction. The current boom in Irish property will end in tears: the big question is - when?

Currently, the Irish property market is prospering because the Irish economy is flourishing. The Irish economy will continue to prosper for as long as the following factors prevail:

1. The US-based technology industry remains healthy at a world-wide level. 2. International interest rates remain stable and low. 3. Credit is available without too many constraints. 4. Ireland remains competitive as a location for international business.

At the moment there are few clouds on the horizon but we just have to look at Asia to see how quickly, and unpredictably, circumstances can change.

The risks to the Irish economy, and thus the property market, are:

Some unforeseen international factor, such as a war in the Far East or a stock market crash etc.

Wages and cost-driven inflation; this is a real risk in Ireland (see below).

Over-confidence, leading to unrealistic risk-taking by banks and entrepreneurs.

Interference by government.

Loss of confidence.

If none of these risks come to pass, then the good times in the property industry could last another five years, or even longer. However, this would then be one of the longest-running property booms ever in Europe. While such a continuing boom would seem to be good news to all of us in the property development and investment industry, it would inevitably make the property readjustments more painful when the slump does happen. There is no such thing as a soft landing in the property business.

What is currently happening in the property industry? From a property perspective, Ireland is going through a number of important transitions which feed back directly into the real estate market. These are:

We are moving from a UK interest-rate regime to a European (German) interest-rate environment.

From over-supply of building construction at historic costs to a current under-supply of buildings constructed at current costs.

However, the current profitability of new projects will lead to an over-supply of buildings constructed at even higher costs than now prevail. (The Irish Times reported last week that skilled workers' earnings in the building industry rose by 26 per cent last year).

Employees glad to have any job and other employees trying to find work from the highest bidder, usually successfully at wages 20 per cent above those paid in their former job.

Movement from high emigration to a significant level of immigration, thus aggravating the demand for housing and other facilities.

An under-utilised infrastructure is replaced by one that is experiencing serious capacity constraints (for example, the M50 will be used at full capacity when the final stretch is open in 2004).

WHILE the movement in property values in the housing sector has been obvious to all, a similar transition has been occurring in the commercial sector. For example, Dublin office rents have almost doubled in five years - from £10/12 per sq ft in 1991/92 to quoted current rents of £18/£20 per sq ft for prime locations. In the industrial sector, prime rents have moved from £3.50 to £6.50 and £7 per sq ft in the same period. In the retail sector, rents have increased by similar amounts

It should be noted that in 1989/90 the prime office rents in Dublin were making £15/£16 per sq ft due to temporary shortages at that time but later came down to the £10/£12 per sq ft level as a result of recession and oversupply.

Will this continue? The author believes that this rapid escalation in values (i.e., a doubling of prices in five years) will not be sustained, mainly because it has now become very profitable to carry out new development. The catching-up process is coming to an end and further increases in values will not be securely based.

This is because up until quite recently much new development was unprofitable due to low rent and high yields. However, the recent increase in rents and falls in yields has made the construction of all forms of commercial projects extremely profitable and has also triggered high land values. Thus most developers are now heavily involved in new projects that are producing new space. This activity will create an over-supply in most, if not all sectors, in the not too distant future.

the building industry is operating at 160 per cent above its level of seven years ago. Professional service providers are stretched and it is difficult to find competent architects, quantity surveyors, engineers and town planners. Also, there is a shortage of tradesmen, such as bricklayers, plumbers and carpenters. One of the interesting features of the Irish building industry is its current high productivity. Due to the general high quality of management skills in the industry, and the same level of skills in the use of materials and suppliers, high-quality buildings are currently being constructed in about half the time that was applicable a decade ago.

Thus builders are producing more and better buildings faster than ever before. At present, these new buildings are being bought by our booming economy but there are emerging signs of an oversupply in one or two sectors. Given the slightest falter in the economy, then there will be significant over-supply of new buildings in all sectors. Within the building industry there is a serious concern about what happens to this high capacity and productivity when this demand eases off.

There is an old adage related to development land : "Up like a rocket and down like a stone". Owning the right development land in the right place is one of the fastest ways to make money known to man. Over the last couple of years we have seen development land values double and treble. Industrial rezoned land, which was changing hands at under £100,000 in the early 1990s, is now selling at £300,000£400,000 per acre.

However, such high land values attract attention and others try to get in on the act. This has increased supply, particularly in the suburbs. Whereas it was difficult to find a site for a new warehouse or industrial building a couple of years ago, one is now spoilt for choice in searching for sites; there appears to be a new business park every mile or so along the M50, as landowners seek to cash in on the land value bonanza.

The emergence of all these business parks gives the lie to the claim from the property industry that the planners are holding up development.

Development land in Dublin city centre has become scarce. This is mainly due to the success of the tax-designation schemes, leading to the construction of many apartments on any available piece of land. While this is a good thing in itself and may have improved the fabric of the city centre, it has resulted in a scarcity of city-centre sites.

However, every cloud has a silver lining as the shortage of sites in the historic core of Dublin is likely to create pressure to develop sites in docklands. Landowners there are in the middle of a bonanza, with transactions achieving site values that were unforeseen as recently as five years ago.

The fall in interest rates, fear of a bull market on the stock exchange and the large profits earned by many entrepreneurs over the past five years, combined with high levels of cash in the pension funds, has resulted in an intense demand for any form of building that can be deemed to be a property investment.

We regularly see Fitzwilliam Square houses and other Georgian properties selling for in excess of £1 million each. These same buildings would probably have sold for £300,000£400,000 in the early part of this decade. I believe that many of these properties will give a disappointing investment performance to their new owners.

My current advice to long-term property investors is sell those properties which they do not wish to hold for at least 10 years or so, particularly as a sale now will attract capital gains tax at a historically low rate of 20 per cent. This advice is particularly important for long-term investors who hold low-quality properties, as such properties will sell now at premium prices but will not sell in the inevitable bear market.

One of the characteristics of all property markets in all parts of the developed world is it's cyclical nature. These cycles result in the booms and busts in the property market. However, there has been one characteristic: at the height of the boom, those "in the know" advise their friends that this boom is different and will last for another 5/10 years. Another historical fact is that in the depth of a property recession some of these "experts" argue that this is not a normal recession but a "depression" which will last for the rest of the generation.

In Ireland, we are experiencing unusual times but sooner or later our economic boom will come to an end. When that happens there will be an over-supply of built space. Many people seem to have forgotten their history. As I write I am reminded of a simple maxim which was given to me by that doyen of the property market, Michael Lucey - "to make money out of property, buy from frightened men and then sell to greedy men."

At this time in Ireland there are no frightened men in the property market and perhaps there should be. When the music stops, there will not be enough chairs for all the dancers.

WK Nowlan is a chartered surveyor and management consultant who advises private investors and institutional property funds. He is visiting professor at the University of Ulster.