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20 Dec

Tuohy O’Toole - Year End Review


2012 will go down as another very difficult year for the property sector. With a faltering economy and ongoing job losses, consumer confidence has remained weak. This lack of confidence is perhaps most evident in the housing market where any talk of a marked recovery is some way off. As we head into 2013, this will mark the sixth year since the property sector peaked and it has been steadily downhill since. The market remains grossly over supplied in most locations with values perhaps 40% of the peak. Purchasers continue to exercise a high degree of caution with the justifiable expectation that we have not seen the bottom of the market.

The fundamentals of any housing market are built on confidence and access to debt. Both remain in very short supply. Our banks remain one of the problems as opposed to one of the solutions. The banks under the government bank guarantee scheme have been recapitalised but they are still struggling with the weight of their impairment charges.  They remain stubboringly immovable on the prospects of wholesale debt forgiveness but sooner than later they are going to have to recognise that they cannot and will not move the market by sitting on dead wood. The longer the market remains subdued, the higher their impairment charges and it is therefore in their own interest to take a far more proactive approach.

On a positive note, In Dublin there are clear signs that the better properties in good location are in demand and are unlikely to fall in value further. Moreover, prime well secured commercial assets particularly in the office and retail sectors are attracting large interest. There are now good prospects to see some rental and capital values rise going forward. Just as the market peaked in our capital, it is entirely logical that we should see the first green shoots of recovery there. However, there is a two tier market emerging within Dublin with the more peripheral locations outside of the prime areas, still struggling.

To the regions, the markets in most locations are very thin with a small number of active buyers. This is despite the fact there is compelling value and affordability which has rarely been better. Ultimately it is this value and affordability that will encourage more buyers into the market place. For now however, many potential buyers are happy to remain in the rental sector. For some that are committed to getting on the housing ladder, access to mortgage finance is simply not available.

Looking forward to the year ahead, we expect to see a large volume of distressed properties coming to the market in particular by the foreign owned banks that are working out their loan books and deleveraging with a view to leaving the Irish market. This volume of distressed properties will present some excellent medium term purchase options for cash buyers. However, in the short term, the volume of such sales is likely to exert yet further downward pressure on values.

From July onwards, homeowners will have to contend with paying property tax for the first time. This has been well flagged and is an unavoidable tax if the government are to broaden the tax base sufficiently in order to meet our fiscals targets agreed under the IMF/EU bail out.

In summary the property sector remains fragile but following six years of price declines, the sector offers compelling value to both occupiers and investors. We remain in a low interest rate environment with our banks under pressure to address the debt issue and restore a functioned banking system. When this comes about, the pent up demand in the market should bring about far more activity and help to underpin values. It is therefore, with slightly more confidence that I see 2013 as an opportunity as opposed to a threat.

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