The property industry felt it could walk on water during the first half of the noughties, but after 2006, it all began to go terribly wrong.
ORNA MULCAHY, FRANCES O'ROURKEand
JACK FAGANreport
SO HOW did it all go so wrong in the property market? For a while there, mid-noughties, people in the property business felt they could walk on water. Now, with almost a decade of growth wiped off the value of Irish homes, both buyers and sellers are asking, how low can we go? Are we still in freefall, bumping along the bottom, or seeing the beginnings of recovery? Nobody wants to make the call.
Surprisingly, they were asking the same questions back in 2001. “Now that the boom is over, everyone wants to know what is going to happen to property prices. Is now a good time to buy, will values drop even more in the spring? Should sellers wait?” this supplement asked in December 2001.
After six consecutive years of growth since the mid-1990s, and the euphoria of the millennium, 2001 proved a tough year with a nasty sting in the tail. The dotcom bubble had burst, and the horror of 9/11 had blanketed the world with gloom.
House prices fell back by 15-20 per cent and pundits were predicting an even more difficult year ahead. At the same time, lending rates had fallen to their lowest level in decades and, unlike now, money was freely available.
First-time buyers were getting younger, with Irish Permanent reporting that a surprising 13 per cent of first-time buyers were aged between 20 and 24.
Auctions halved in 2001, though by comparison with today, auctioneers were busy, holding over 800 auctions that year, down from a peak of 1,804 in 1998. In 2009, just 17 properties were auctioned in Dublin.
And the prices in 2001? Two-bedroom apartments and houses in Lucan could be had for €120,000 to €140,000, much like today; three-bedroom terraced houses in the area of the South Circular Road were selling for around €370,000, while in Monkstown, Co Dublin, one of the houses at Trafalgar Terrace was asking €1.71 million. Today, there’s a slightly smaller house for sale on the terrace at €1.575 million.
Builders were in trouble, as buyers dropped off. Investors had been taken out of the picture by market-cooling measures introduced back in 1998 on foot of the Bacon Report.
They petitioned the Goverment to help and it obliged with Minister for Finance Charlie McCreevy re-introducing mortgage interest relief in investment property in the December budget of 2001. New homes agents were back in business.
Meanwhile, the Government extended Section 23 tax reliefs and introduced new incentives to build and buy holiday homes, student accommodation and nursing homes,
By 2003, the gloom had lifted and there was more competition than ever for both starter homes and trophy homes, with redbrick Victorian houses on the big Ballsbridge roads, Shrewsbury, Ailesbury, Herbert Park and St Mary’s, making around the €5 million mark.
Competition began to hot up between estate agents for a share of the lucrative new homes market. “A round of applause for the hugely successful launch of the coolest location on the northside”, ran one full page ad that September for Drynam Hall in Kinsealy, north Co Dublin, where no less than 110 sales were agreed at the launch weekend.
Three-bed semis were flagged as a dying breed by estate agents who said that apartments would be the preferred option for local authorities who wanted to stop the spread of housing estates.
By 2004, boom times were taking off again despite more grim economic forecasts. A staggering 77,000 new homes were built, outdoing the previous two years, with 16,000 of those in Dublin.
The high level of sales was triggered by attractive mortgage rates with a typical tracker rate of 3.1 per cent available to borrowers. Lisney warned of “the rise of tenant power” saying tenants were becoming demanding. The reason: plenty of choice with the buy-to-let market busy.
Big houses got even more expensive, with a detached five-bed house on Temple Road in Dublin 6 leading the list of the top selling houses at over €9 million.
Meanwhile, Irish investors were dominating the UK investment market, with some of them buying up entire apartment developments. London agents said that bulk buying at early stages was what differentiated the Irish from the rest of the punters.
And the mania for buying properties abroad that had begun even before 2000 continued unabated:we’ve bought at least 150,000 properties abroad by now, if a figure quoted by Bertie Ahern in a recent radio interview is accurate.
People invested in properties from Provençe to Portugal, Bulgaria to Barbados, Turkey to Dubai, where a property bubble to rival our own burst last week. Cheap flights, cheap mortgages and sizeable equity in our own homes fuelled the foreign purchases.
House prices at home rocketed in 2005, and by the end of that year, several Dublin roads had seen their houses double in value in two years.
A stratospheric €58 million was paid for Walford, a house on two acres on Shrewsbury Road said to have been bought in the name of Gayle Dunne, wife of developer Sean Dunne, though he has denied this.
The house has remained idle and was recently valued at around €20 million. Still in 2005, another canny seller was one Professor Gerald Doyle, brother of the late hotelier PV Doyle, who sold his Carrickmines home on over eight acres, Barrington Tower, for €36 million.
The canniness of the Doyle family was to emerge that year too, when they sold the three Ballsbridge hotels to Sean Dunne for a record €260 million.
The peak of the market was fast approaching, but few could see it. Significantly, both AIB and Bank of Ireland were getting ready to off-load bank branches up and down the country, which they then sold for hundreds of millions.
Young people continued to pile into the new homes market, including a new group of buyers – foreign nationals. Between 2002 and 2005, there was a 40 per cent increase in the number of foreign nationals living in the State. One new homes agent, Ronan O’Driscoll of HOK (now Savills) reckoned 30 per cent of his customers were non-nationals in 2005, up from 5 per cent in 2003.
Meanwhile the price of good suburban homes was soaring. A five-bed bungalow in Mount Merrion was sold at auction for €2.33 million. Today it might make just over €1 million.
Frenzied buying at auction and in the new homes market through the spring of 2006 can be seen now as the final throes of the boom. Prices rose between 12 to 25 per cent in the first three months alone. The number of auctions was high, over 1,400 in the year.
Auctioneers were by now bound to use a new system of auction guide prices, called the Advised Minimum Value (AMV), i.e. the price below which the vendor would not sell. However, these did not help: a two-bedroom Stillorgan house sold for €1 million, when the agent expected €650,000; a house in Dalkey made €6.3 million, nearly twice its €3.5 million AMV.
A family home with land in Foxrock was bought by developer David Arnold for €31 million, €11 million over the AMV.
There was a spending spree on redbricks, with seven houses on Ailesbury Road in D4 selling in 2006 for prices between €9.6 million and €15 million. In Take 5 we featured a detached Donnybrook redbrick for €2.5 million versus a château on 284 acres near Vichy in France for the same price.
It couldn’t last and it didn’t. When a glut of similar houses came on the market in autumn 2006, most did not sell. New homes sales were beginning tail off too. Over 90,000 new homes were completed by the end of 2006, at least 20,000 of them in the Dublin area.
Tánaiste Michael McDowell caused a furore in late 2006, declaring that stamp duty needed to be reformed and that the state did not need the €2.6 billion that had been raised that year. The property market stalled for the remainder of the year.
Rising interest rates, uncertainty over stamp duty reform and ebbing confidence in international money markets confirmed the downturn early in 2007. Sales by auction dropped by 72 per cent over the year and property values fell by up to 20 per cent in some areas.
Still, rents went up, also by 20 per cent – although by year’s end, they were slowing too.
Unsold apartments were piling up, however and one developer in Ashtown, D15, broke ranks in December 2007 by offering discounts of €100,000 on units that had been €400,000. A rival builder offered to buy his stock privately rather than destabilise the market with price cuts. It was the beginning of the discount trend.
Still, some people got lucky, including former taoiseach Albert Reynolds who managed to sell the house on Ailesbury Road he had bought in 1996 for £600,000 for a staggering €14 million. He promptly moved into an apartment in the Four Seasons Hotel.
“Cutting price the only way to sell in a sluggish market” was the advice we gave in 2008; sellers were not in a mood to listen.
The whole industry was in denial and soon in dire straits as the Irish banking crisis followed the global financial crash.
The number of unsold new homes continued to rise, and developers opted to rent their empty apartments out instead, causing a a glut in rentals.
Rents dropped and vacancy rates rose dramatically. Banks began to tighten up on lending. Even those who did want to move, couldn’t get the money. Selling their existing house was a big problem. The auction system all but died, and prices fell by an estimated 40 per cent according to the Douglas Newman Good agency.
Things were so bad that Edward Carey, the then president of the auctioneers’ association, advised people who did not need to sell to pull their homes off the market.
Some of the 35,000 new homes overhanging the market, he said, would never sell because they were built in the wrong places.
By 2009, only those who genuinly needed to risked the market. Executor sales – the owner being dead - attracted attention and generally have sold well. Other sales stemmed from business failure, marriage break-ups and the loss of jobs.
However, sales activity was poor all year, with some activity under €500,000 and virtually none over €1 million. All thoughts of making a fortune in property have collapsed but interest hasn’t. Most agents say that viewings are strong, that people still want to buy, but with banks still stalling, the market has yet to show a bit of bounce.
