Investment Property in Ireland - Investors Guide

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Investment Property in Ireland - Market Overview

Property in Ireland is in demand but it comes at a cost. Increasing wealth, resulting from the recent economic boom years has pushed property prices up to one of the highest levels in Europe. Consequently, property in Ireland is not cheap.

A recent International Monetary Fund study revealed that Irish house prices are overvalued by 10-20%. It’s almost impossible to find a house in Dublin, the city’s capital for under €200,000 and anything that becomes available for less tends to be the size of a shoebox or in typically undesirable locations.

Move out to the suburbs and you can expect to pay anything up to €600,000 for a mediocre 1970’s style home lacking in any great character or charm. Buying a character home dating between the 1850’s and 1950’s in Dublin and you can expect to pay anything between €600,000 and €1.5 million. New homes tend to be the cheapest to buy, averaging around €300,000.

The demand is fuelled further by an increasing interest by the Irish themselves in property investment. The uncertainty following 9/11 has led many to see property investment as a more reliable alternative or supplement to the pension fund!

One third of all mortgage lending by Irish financial institutions funds people investing in the buy-to-let sector. There is much speculation about how long the investor buzz can be sustained and how much further prices can rise. Will the market collapse or will Ireland become an exclusive property market, similar to Jersey in the Channel Islands, where properties under the €1 million mark are the exception?

All indications suggest that Ireland will continue to sustain growth in the property market. However, the intrepid investor or buyers seeking a new home in Ireland may want to consider carefully how and where to invest in the Irish property market. While it may not be possible to buy at the prices that attracted thousands of Americans to the Irish shores in the 80’s, it is still possible to find good value property, capable of yielding reliable rental returns and appreciating steadily over time.

IIB Bank Report : Irish Housing Market Outlook:

Summary - According to the IIB Bank report, Irish Housing Market Outlook 2005, Irish housing wealth increased four times as much as money GNP. The report suggests that higher property values could emerge as a key driver of the Irish economy in coming years. The rise in property values in Ireland was somewhat faster than the estimated 7 per cent rise in the US. In both instances, the increases in ‘net worth’ in housing were dramatic relative to the current level of household disposable income.

Drawing together the change in house prices, an increase in the housing stock and higher borrowing levels, the report estimates that Irish housing related wealth increased by about 15 per cent last year. This corresponds to an increase in money terms of around €30 billion which is more than 4 times the rise in money GNP last year.
In time, as the market matures, it might be expected that Irish households will seek to unlock some of their increased wealth built up in a rising property market.

If Ireland converges towards the US experience, it would imply household spending here would be boosted by a considerable amount. As a result, re-mortgaging could prove to be one of the key features of the Irish economy in coming years. The scope for growth in this area is hinted at by the fact that re-mortgaging currently accounts for around one quarter of residential property borrowing in Ireland, a little over one half of the 45 pre cent share it represented of UK lending in 2003.

The Report Makes the Following Conclusions:

• Interest rates will rise moderately but not enough to significantly affect the property market.
• Survey evidence indicates that there has been an increase in property purchase intention in recent years.
• Demand may be in process of peaking and is unlikely to decline significantly in next two years
• Stronger demand outlook suggests house price inflation is likely to average 7%
• Surge in housing wealth in Ireland has been dramatic with an estimated net worth of homeowners increasing by about €30 billion in 2004; more than four times the rise in GNP.
• Housing wealth likely to be a key driver of Irish economic outlook in coming years.

Investing in Holiday Homes in Ireland

Ireland has recently witnessed an upsurge in the number of investors buying holiday homes in some of the country’s most scenic areas. With stars like Jeremy Irons and Daniel Day-Lewis popping up in the quaint villages of West Cork, prices in many of these areas are at a premium. Kerry and West Cork, in particular, and the south coast in general, known as the Irish Riviera are attracting a steady flow of Britons and American’s. The majority of the British buyers are investing in a property to use as a holiday home with the intention of retiring to it in the future.

The south coast of Ireland tends to have a milder climate than the rest of Ireland, experiencing warm summers and milder winters brought in by the Gulf Stream current that flows past its shoreline. The climate, coupled with the breath-taking scenery and strong sense of heritage and culture, has made Cork an attractive location not only for Britons searching for a rural retirement idyll but also for the French and Dutch who have long been attracted to county.
The Irish too, taking advantage of improved roads, domestic flights offered by Aer Aran, and generous tax incentives are beginning to search closer to home for holiday home investments. With prices as low as €110.000 for a two bed roomed chalet on Dingle Peninsula, investing in a holiday home in Ireland, need not break the bank. Generally, chalet style homes will be cheaper to buy than stand alone properties on their own land.

Most people want to buy a traditional style home with views of the sea or unspoilt countryside. A typical three-bedroom property with sea views could cost anything upwards of €480,000, while a property with spectacular country views could have a price tag in excess of €280,000. The difficulty and one of the factors contributing to the high property prices in Ireland’s most scenic locations, is the shortage of properties that come on the market. It seems that when people buy in Ireland’s most scenic locations, they don’t want to move!

Holiday Homes 

With many of the people buying holiday homes in Ireland having roots in the country, they tend not to get too involved in renting out the property. For those who want to invest in a holiday home to let when not in use, the letting potential of properties located in areas such as West Cork, Kerry, Connemara or quaint port towns such as Killibegs, is good. A four bed roomed house with good sea views could expect to take in €1000 per week in the summer season.

Quite often, buyers find holiday homes too small and see extending the property or building a new home in Ireland as the best option. It is worth bearing in mind the difficulties that may be encountered taking this route. Strict planning regulations make it almost impossible for foreign investors or indeed Irish nationals from outside the county, to build a property on purchased land.

Planning Regulations 

Planning regulations favour locals building new homes in the area. It may be more difficult too for foreign buyers to obtain planning permission to significantly alter or renovate an existing property, though once a property is owned, it is easier to secure planning.

With the demand for second homes remaining steady, there is no sign of prices slowing down. Last year property prices in West Cork rose between 8-9%. The situation is similar for many of the other tourist hotspots. Rental incomes aside, anybody making a smart investment in some of Ireland most desirable scenic locations can expect to see significant return on investment over the coming years.

Property Ireland - Rural Bargains

Generally, the east coast, including Dublin, and the major cities such as Galway and Cork tend to be hugely overpriced. Avoiding these areas and investing in Ireland’s midland counties where prices are more realistic is a safer option but no necessarily the most profitable. If the worst-case scenario happens and the property market in Ireland plummets, those investing in price-inflated properties will suffer most.

Those who invest in rural Ireland’s cheaper properties will escape largely unscathed. Not everybody, however, looks at property purely for its investment potential. For those making a complete relocation and buying a permanent home, swings in the market are irrelevant. Many come to Ireland to live a quality life in a quality environment and never intend to sell.

These are the people who can be choosy about where and what they buy since they are likely to sit out any crash in the market. For many investors too, rural Ireland and the ‘hunting, shooting, fishing’ lifestyle that it conjures up in the imagination is the preferred option. Although prices in country areas have increased over time, they still lag behind the inflated city prices and it is possible to find a ready to move into home in Ireland for as little as €70,000.

For those who have the inclination and resources to renovate, the skeletons of former Irish cottages can be picked up throughout the midlands for as little as €35,000.

Buying Property in Tourist Hotspots 

For the budget investor, however, even in rural Ireland there are areas to avoid. Trying to buy property in Ireland’s established tourist hotspots puts you in competition with the wealthy elite who has the cash to lay claim to some of Ireland’s most beautiful landscapes. Killarney in Co Kerry, Killibegs in Donegal, Kinsale in Cork and Connemara in Galway are likely to break the bank of any small scale investor. However, the Irish tourist board are making considerable efforts to promote new kinds of tourism in Irelands midland counties. In particularly counties situated along the river Shannon, such as Roscommon and Leitrim.

It is still possible to pick up properties in these counties at an absolute steal by today’s standards. The properties are likely also to have excellent rental potential from the tourist industry and are well suited for letting to fishing enthusiasts because of the many lakes and wetlands that surround them. Supply a boat with your property and you can very much guarantee being booked out for the summer. Renting a three bed-roomed property in Roscommon, you might expect to earn somewhere between €450 and €700 per week in peak season.

You’ll find properties equally as cheap in some parts of County Sligo, eastern Mayo and Tipperary. As a rule, the further the property from the sea, the cheaper the price tag! So even in counties with coast lines, the further you move away from the coastline, the cheaper you can expect the properties to be.

The most affordable of all the counties is County Tipperary. The largest of the inland counties, Tipperary is lacking the key attractions that make for good tourism, lakes, rivers, and mountains. It does have it’s own charm and is certainly the place to look if you are seeking ‘the peace and tranquillity of rural Ireland’. It’s not over-run by tourists and it still has the air of a well-guarded secret. In Tipperary it’s not unheard of to pick up a property for €25,000.

Investing in Dublin Property

On the back of attractive tax breaks introduced in the 1980’s to encourage the regeneration of Dublin’s run-down city areas, apartment complexes began to spring up in every nook and corner of the city. Prior to that, apartment living was virtually unheard of in Ireland making up only 13% of all sales in 1980.

Now, apartments in Dublin account for 1 in 4 of all new homes built and make up half of all sales in Dublin, and the supply continues to increase dramatically every year.

Dublin Property Prices 

With more people jumping onto the property ladder prices have increased in line with demand. A two bed roomed apartment in Dublin’s more exclusive, but not necessarily central, developments can go of up to €450,000. Similarly, a one-bed roomed apartment located within 2 miles of the city centre can go for €400.000.

Since their arrival, apartments have always been the favoured option with investors in Dublin. Being low maintenance, they are a relatively hassle free investments. Also their typically central locations make them attractive to the young Dublin workforce looking for a centrally located property to rent. On the downside, the oversupply of apartments in Dublin, coupled with the favourable interest environment pushing more people onto the property ladder, has meant that rental yields from properties in Ireland have fallen from boom time figures to under 3%. In fact, rental yields have decreased by 19% since their peak in 2002.

In many ways the fall in rents is not too surprising since rental prices rose phenomenally prior to 2002. This year a property that might have taken in a rent of €1000 per month last year is now bringing in €800.

So, the big question for investors a property purchase in Ireland is, will the rental income cover the cost of the mortgage repayments? In the current climate, probably not but choosing whether or not to invest in the buy-to-let property market is a decision that will depend on how long the investor is prepared to wait for a return on investment.

While it was possible for investors to make a property pay quickly in the pre-2002 environment, now investors are forced to rely on capital appreciation to give the returns they expect.

Even if the rents don’t entirely cover the costs of the property, those prepared to sit on their investments for up to ten years will still receive an excellent return. With capital appreciation on Irish properties at around 13% last year, investors can expect a property to almost double its value in the space of 5 years. Even if as suggested house inflation is estimated at 7%, the capital appreciation on the cumulative price over a ten year period makes it a worthwhile buy. Significantly, 32% of all houses built in the greater Dublin area in the first half of 2004 were sold to investors, indicating that despite a decrease in rents, investment interest remains strong. This suggests that investors capital appreciation rather than rental yields is motivating most buy-to-let investors.

Property Dublin City Centre 

While property in the city centre or within a short commute distance are expensive, there are still areas of the city that offer good value, particularly around Drumcondra and old Finglas on Dublin’s northside and Ballinteer and Cabinteely on the southside.

The key to finding cheap properties that will still rent out at a rate that will cover the investment costs is research, local knowledge and networking.

Buy to Let Properties 

Buy-to-let properties in the range of €190,000 to €300,000 are the safest option for those who want rents to cover the cost of mortgage repayments.

It is worth noting also that despite apartments being the first choice with many buy-to-let investors, houses offer more potential for income since they can be divided in two or more rental units. Houses will also appreciate at a higher rate than apartments.

Irish property prices have increased on average by 86% between 1999 and 2004. In comparison, apartments have increased in price by 68% over the same time period.

Buying Investment Property in Ireland - Professional advice

Use qualified professionals to protect your interests and make the purchase of your new home in Irelanda stress-free experience. Estate agents are a good source of advice.

Only negotiate with ones that are officially registered and hold a licence. Ensure you have a good lawyer to deal with the endless stream of rules and regulations.