Investing in Real Estate in Ireland
Ireland’s property market has lost its momentum
Ireland’s real estate price growth is now sluggishly slowing down, with the central bank’s restrictive lending rules coupled with an increasing supply of housing. The confusion surrounding Brexit also makes homebuyers uneasy.
According to the Central Statistics Office (CSO) Ireland, the national residential property price index increased by a tiny 0.93 percent (0.24 percent inflation-adjusted) during the year to October 2019, significantly down from last year’s 8.34 percent y-o-y rise.
This is supported by data from Ireland‘s largest real estate website, Daft.ie, which saw national average house prices rise marginally (by 0.1%) to €257,114 (US$ 286,528) during the year to Q3 2019.
In Dublin, Ireland’s capital city, the residential property price index dropped by 1.48 percent (-2.16 percent inflation-adjusted) during the year to October 2019, compared to a rise of 6.31 percent in October 2018, according to the CSO. This is not shocking given the recent large increase in residential construction in Dublin.
In the year to Q3 2019:
- In Dublin City Centre, the average asking price fell by 2.4 percent to €328,551 (US$ 365,924), in sharp comparison to the previous year’s rise of 9.9 percent.
- The average asking price of North Dublin City increased by a meagre 0.1 percent y-o -y to €344,113 (US$ 383,256), a sharp decline from a 5 percent annual rise in Q3 2018.
- The average asking price of North County Dublin increased marginally to €316,261 (US$ 352,236) by 0.3 per cent y-o -y, a decline from an annual rise of 3.9 percent a year ago.
- The average asking price of South Dublin City dropped by 0.3 percent to €411,098 (US$ 457,860), relative to a rise of 6.1 percent in the previous year.
- West County Dublin‘s average asking price fell marginally to €305,980 (US$ 340,785) by 0.1 percent y-o-y, a decline from 2.2 percent rise a year earlier.
- The average asking price of South County Dublin dropped by 3.6 percent y-o -y to EUR 580,971 (USD 647,056), a dramatic reversal from the y-o -y rise of 7.9 percent a year earlier.
Outside Dublin, average residential prices rose by a modest 3.3 percent (2.59 percent inflation-adjusted) during the year to October 2019, much lower than the previous year’s 10.62 percent increase, according to CSO Ireland.
In some of the biggest cities in Ireland (based on Daft.ie’s figures):
- In Cork, Ireland’s second largest city (located in Munster, in the south of Ireland), the average asking price rose by 2.8 percent y-o -y to €281,251 (US$ 313,243) in Q3 2019.
- In Limerick City, Ireland’s third most populous city, the average selling price rose by 5.5 percent to €201,865 (US$ 224,827) in Q3 2019.
- In Galway, one of the country’s largest cities and regarded as the “Economic Center of Ireland” (located in Connacht, Ireland’s western region), the average selling price fell marginally by 0.3 percent y-o-y to €198,850 (US$ 221,469) in Q3 2019.
- In Waterford City, also one of Ireland’s biggest cities, the average selling price rose by 4.7 percent to €181,395 ($202,029) in Q3 2019.
Apartment prices in Ireland increased by a marginal 0.56 percent during October 2019 (-0.13 percent inflation-adjusted). Similarly, house prices fell by just 0.81 percent (0.12 percent inflation-adjusted).
The present downturn in market growth is mainly due to central bank lending regulations and strained scarcity, according to Conall MacCoille, Chief Economist at Davy, Ireland’s largest stockbroker. These considerations deter latent housing demand from turning into runaway house price inflation fueled by increasing mortgage lending leverage. Recently, Davy updated Ireland’s household price growth projection to just 1% this year and 2% in 2020.
Ireland’s economy is forecast to expand in this year and the next, according to forecasts by the European Commission.
Outstanding yields on small apartments in Dublin
Total rental yields on apartments remains great in Dublin, in certain places and for certain sizes. Across the spectrum of apartments and house sizes, Dublin 1 receives the highest returns. Dublin yields, however, are dropping as prices increase.
How much are you going to earn? One-bedroom homes will earn comparatively more than two-bedroom houses (in terms of return-on -investment), and those in turn will gain significantly more than three-bedroom houses, etc. Purchase smaller units to gain better returns.
As could be predicted, the best-performing apartments are those in the lowest-cost locations. Such regions also tend to be those where markets are the least volatile and therefore the least vulnerable to a slowdown.
- In Dublin 1 a 1-bedroom apartment bought for around €215,000 can be rented for around €1,530 per month, receiving a return of 8.6 percent. Please note that these yields are gross; the net yield would be lower.
- In Dublin 7, a 1-bedroom apartment bought for around €211,000 can be leased for around €1,470 a month, receiving 8.4 percent of returns
- Big houses (4 and 5 bedrooms) appear to have fairly small yields.
Roundtrip transaction costs are moderate for residential real estate buyers in Ireland.
Purchase costs are modest in Ireland
Roundtrip acquisition costs are about 4.94 percent to 13.205 percent of the property price. The purchaser pays the stamp duty, the legal fee plus VAT and the registration fee.
Landlord and Tenant
Strict but equal tenancy rights in Ireland
Ireland has good tenant protection legislation.
Rents: The parties are free to negotiate rents, but the sum may not surpass the open market limit. The rent can be reviewed and be adjusted once a year. Price issues are appealed to the Private Residential Tenancy Board (PRTB).
Tenant Protection: Security of tenure shall be effective for four years; for the first six months, the landlord may terminate the lease without specifying the grounds, but once the tenancy has lasted for six months, the landlord may terminate the lease only for the next three and a half years, citing just causes.
Tax inversions artificially inflate Ireland’s economic growth
Ireland’s impressive economic growth for 2018 has again skewed perceptions, with official estimates revealing that real GDP has risen by 8.3 percent from the previous year. This was mainly driven by nominally relocated companies in the country, such as Perrigo Co. and Jazz Pharmaceuticals Plc. They are drawn by the country’s very open economy and its relatively low tax inversion rate of 12.5 percent. This corporate inversions result in little actual change in output, only a change in where the legal ownership of production is based.
When a company’s head office is located in Ireland, all its earnings (including profits generated abroad) are counted as part of the country’s gross national income -which dramatically increases the country’s economic growth without corresponding increases in jobs. This also raises Ireland’s contribution to the EU budget, which is dependent on the scale of the member’s economy. They also create confusion about the real state of the Irish economy and raise people’s scepticism about the credibility of economic figures.
Unemployment fell to 4.8% in November 2019 , down from 5.6% in the previous year, according to the CSO. Around 117,800 people were unemployed in November 2019 – a decline of 17,600 from the previous year.
Ireland’s first fiscal surplus in 11 years
Ireland ‘s economy has been on an extraordinary path in the past 7 years.
Ireland had the biggest fiscal deficit in the euro region in 2010 at 31.2% of GDP. It had no alternative but to seek a €67.5 billion ( US$ 82 billion) loan from the European Union (EU) and the International Monetary Fund (IMF) in November 2010. In return, Ireland has pledged itself to a strict austerity plan.
The country invested about €80 billion to set up the National Asset Management Agency (NAMA) to purchase toxic loans, largely to increase the availability of credit to the Irish economy and to eliminate non-performing loans from bank balance sheets.
According to the European Commission, the nation is expected to post surpluses equal to 0.2 percent of GDP this year and 0.3 percent of GDP in 2020.
Likewise, total public debt is expected to fall to 59 percent of GDP this year, from 63.6 percent in 2018 and 68.4 percent in 2017, according to projections by the European Commission.