Property prices to continue to rise in spite of Brexit

Irish residential property prices are expected to rise by 6 per cent this year, according to a new Standard and Poor's (S&P) forecast which suggests Irish GDP growth will be between 0.3 per cent and 0.7 per cent lower next year due to Brexit.

The study suggests low lending rates should keep Europe’s housing market recovery on track this year with activity expected to continue to expand in nearly all major European countries.

The German housing market is forecast to show the strongest growth in 2016, with prices up 7 per cent due to strong demand and tight supply. Ireland will see the second strongest growth rate in Europe, with prices rising 6 per cent. S&P also predicted Irish property prices would rise by a further 2.5 per cent in 2017 and by 3 per cent the following year.

“Although Ireland’s economy has tight economic ties with the UK, we expect its housing market will continue its robust recovery, with prices growing by 6 per cent this year, aided by the ongoing improvement in the labour market and a housing supply shortage,” the ratings agency said.

S&P said it expects Irish GDP growth to be between 0.3 per cent and 0.7 per cent lower between 2017 and 2018 due to the impact of Brexit.

"GDP should continue to grow at, under the circumstances, robust rates of 4.6 per cent this year, 3.2 per cent next year, and 3 per cent in 2018. This relative slowdown in growth, due to the Brexit vote, explains to a large extent the deceleration in house price inflation in our forecast. In addition, tighter mortgage underwriting standards recently introduced by the Bank of Ireland, are likely to continue to have a dampening effect on house prices," the agency said.

S&P added that the housing shortage will remain a key driver of price inflation in the coming years, but said it will take some time before margins improve sufficiently to allow the homebuilding sector to fully recover.

“In order to avoid affordability from deteriorating, the Government may need to take additional policy steps to reduce costs not directly related to construction activity,” it said.

S&P said while uncertainties caused by the UK’s decision to leave the EU could debt euro zone growth and, by extension, the housing market recovery over the next few years, it doesn’t expect it will completely derail it.

“We forecast euro zone real GDP will expand by 1.7 per cent this year and we expect the European Central Bank’s (ECB’s) accommodative monetary stance, leading to historically low sovereign bond yields and mortgage interest rates, will spur improvements in Europe’s housing markets,” it said.

The UK is the only housing market for which the agency forecasts house price declines as a result of Brexit. However, the agency said strong market gains in the first half of 2016 should keep full-year price rises at 5 per cent with the market likely declining by 2 per cent next year.