The flow of €15 billion from Special Savings Incentive Accounts (SSIA) into the economy from next year will not further fuel house prices because the average payout is too small, according to Goodbody Stockbrokers. Siobhán Creaton, Finance Correspondent, reports
In a report Goodbody suggests the average payout to account holders will be €13,800, which is a relatively modest sum in relation to current house prices.
Dermot O'Leary, economist with Goodbody, says the payments will not materially affect house prices. "The average payout equates to around 4 per cent of the average Dublin house price and 5 per cent of house prices nationally. For first-time buyers it is just 6 per cent of the average house price," he said.
The report notes that many of the account-holders have indicated that they would like to use their windfall to invest in property. It estimates that up to €4.4 billion of the SSIA funds will go into investment property.
Based on an analysis of data collected by the Revenue Commissioners, the report says a significant number of the 1.2 million SSIA account-holders have upped their monthly contributions to the maximum €254 in recent months. This trend is expected to continue between now and the end of the scheme.
Mr O'Leary also suggests the golden age for new residential construction growth appears to be coming to an end and is expected to increase by just 4 per cent this year. The report says a slowdown in house prices is also becoming apparent with inflation reaching an almost three-year low in June.
Almost €15 billion in cash is expected to be released into the Irish economy when the SSIAs begin to mature between May 2006 and April 2007.
Mr O'Leary, says 44 per cent of SSIA account-holders are saving the maximum amount allowable under the Government-backed scheme compared with 37 per cent in 2002.
The impact on the economy will be immense as €14.9 billion is equivalent to 10 per cent of Ireland's expected Gross National Product in 2006.
About €5 billion is due to be paid out to SSIA holders in 2006 with the remaining up to €10 billion scheduled to be released in 2007.
According to the report, some €2.6 billion is expected to be invested in the stock market, and €1.8 billion is expected to be spent on travel and holidays. A further €1.4 billion will be used for home improvements and €1.2 billion will be spent on cars.
Goodbody says that while there are concerns about the impact of record high oil prices on Ireland's economy, the rate of economic growth will continue to remain the strongest in Europe.
It expects the economy will grow by 5.2 per cent this year and accelerate to 5.6 per cent in 2006, boosted by the SSIA funds.