Dublin high-end house prices could see correction, says Fitch

Dublin's high-end property market could be in line for a price correction as mortgage restrictions hamper demand, a report from influential credit ratings agency Fitch suggests.

While prices in the market as a whole are forecast to continue growing steadily, the demand for more expensive properties “may be insufficient to avoid a price correction in this part of the market”.

Fitch is basing that assessment on the fact that just over half of newly constructed homes sold for more than €350,000 in the first 10 months of 2018, suggesting that new-builds are targeted at high earners. Nevertheless, the ratings agency forecast house prices to rise by 3 per cent both this year and next despite the fact that buyers are hitting the affordability barrier.

With buyers unable to finance high purchase prices and with loans limited to 3½ times income, Fitch forecasts growth in the market to cool, although it will continue to stay close to the growth witnessed in the first few months of 2019.

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In March, the Central Statistics Office found that growth had slowed to 3.9 per cent over the 12-month period, down from the average growth rate of 9 per cent from mid-2016 to mid-2018.

The picture across the other six cities surveyed by the ratings agency was not a whole lot different, with borrowing constraints and reduced activity from first-time buyers seen as having an impact on prices.

However, in London Fitch forecast that prices would fall by between 3 per cent and 5 per cent in 2018 and 2019. A no-deal Brexit, it added, would lead to “significantly larger home price declines”.

Fitch said the Brexit impact was not limited to London, with Dublin home prices likely to be a beneficiary.

"Brexit, including a no-deal version, is likely to lead to further population growth in Dublin as companies transfer staff and open offices. This increased demand is likely to support higher price growth in 2020," wrote Fitch analyst Sanja Paic.

However, she added that continued uncertainty was leading to potential buyers delaying their purchases as the impact on their jobs was less clear.

New builds

New supply across the euro zone has been slow to increase in the aftermath of the financial crash, with Madrid and Dublin the two markets that were singled out in the Fitch report. And the likelihood of an immanent change seems negligible given limited space for new builds, limited construction capacity and builders focusing on investors and the high-end segment of the market.

“As such, we expect supply to remain insufficient to meet growing demand, supporting home prices,” the agency said.

However, the ratings agency said those investors were going to be competing with foreign and Irish nationals moving to Dublin as job opportunities continued to increase.

It added that oversupply of luxury properties was a feature of several cities, and in London and Stockholm prices of those properties would continue to fall "through 2020".