The buy-to-let market has had its best days but there are opportunities for the brave if they're cute and follow age-old ground rules, writes JACK FAGAN

THE RECENT introduction of a new tax on non-principal private homes has triggered interest in just how rapidly the buy-to-let apartment and housing market has developed in this country, much of it in the decade now coming to an end.

The statistics show that there are now 72,712 rental properties or second homes in the four Dublin local authority areas and that the city centre heads the list with 41,412. In the country as a whole, there are currently 226,435 rental or secondary properties.

Dublin’s investment market goes back to 1981 when the then Fianna Fáil government introduced tax incentives to promote the development of a new stock of private rental accommodation to replace the damp and cold bedsits in Rathmines, Ranelagh, Harolds Cross and Drumcondra. Though the move proved a godsend for the construction industry, the incentives were promptly dropped two years later when Fianna Fáil were replaced in office by a Fine Gael-Labour coalition. However, the now legendary camaraderie between the builders and Fianna Fáil led to the incentives being restored when a Charles Haughey-led administration took office in 1987. The rest, as they say, is history.

In the early years, more than half the newly-built apartments in Dublin were bought by doctors, dentists, vets, solicitors and farmers based in the provinces with the intention of allowing their children to live there while at college and once they moved on, to divert the rental income into a pension fund. Though the investors did not necessarily realise it at the time, some of the earliest developments were poorly designed and badly built. However as the apartment market picked up and newspapers began to show interest, there was a marked improvement in the architecture, layout and the quality of the finish.

By all accounts the early investors did their homework before buying city apartments. They took great care in choosing the locations, they worked out how the tax breaks affected their income, they did the projections on rents and yields, and got professional advice on the likely capital appreciation over a particular time frame. In this decade, the old-style professionals were replaced by young businessmen hell-bent on getting rich quickly, even if it meant flipping on apartments at a profit before they were due to complete the purchase. That option is no longer available and most of those who bought in the last three years now find themselves in negative equity at a time when rents are falling and void periods are more common. It is all a great shock to the system because a credit squeeze, a recession and a collapse in property prices and rents was not in the script for 2009.

Slowly but surely this new generation of investors is beginning to understand the universal truth about property: that prices can fall as well as rise. Those with a portfolio of six to 10 apartments to manage will also realise that it is almost a full-time job to keep them ticking over and, if they choose to hire an agent to look after maintenance and rent collection, the chances are that after they pay for these services, the rental income won’t cover the mortgages. And it may get worse. The €200 registration fee for rental properties is but a starting point and, with the exchequer in deep trouble, more property taxes seem inevitable.

As for mortgage interest relief, now only 75 per cent of the interest on the loan can be deducted as a rental expense instead of the previous 100 per cent.

With an estimated 12,500 apartments lying empty in the greater Dublin area, the likelihood is that the buy-to-let market has had its best days. Rents are unlikely to bounce back as long as the economy is in turmoil and jobs are under threat. A new generation of bankers, due to take over a flawed banking system, will be loathe to finance buy-to-let apartments in outlying areas where there is little or no demand for them.

Those still interested in breaking into the residential investment market would be well advised to revert to the ground rules followed by the country doctors and the vets in the 1980s. Of course they were cute hoors, but it worked.