2004, sold for 1.03m
“Guide €800,000. detached, 5 bed. Sold at auction at €1,030,000.”
independent.ie/unsorted/prop … 77618.html
27 Lambourne Wood, Cabinteely (-335k, -32.5%)
2004, sold for 1.03m
With an asking price of €290 per square foot, this seems reasonable to the times we are in.
Quite a similar comparison for €710k also 5-bed det but smaller area comes in at €323 per square foot:
I know you are a well respected contributor on this site. This is my first post although I have followed the pin for a few years from Vancouver. I would like to use the valuation method proposed by Seamus Coffey in his most recent daft report for this property. daft.ie/report/Daft-House-Pr … 1-2012.pdf He suggests that property should typically sell for 12-15 times the annual rent. I know Ronan Lyon’s advocates this valuation method as well.
Fortunately there is a property listed for rent on daft daft.ie/searchrental.daft?id=1170496 that is comparable. It has been listed for a couple of weeks now @ 2500 per month. At the higher end of the range using the valuation method above (the rental property if it were for sale) would sell for 450000. 27 Lambourne Wood appears to be a nicer property due to recent renovations. A 245000 premium seems high though. That said how many people really believe that these properties will really sell below half a million for the foreseeable future?
My questions for you are:
- Do you think the proposed valuation method is really being used by prospective buyers in the market?
- If not, do you think it will be?
- Do you still believe the asking price for this property is reasonable? (I am curious and hope my tone reflects this)
The reason I ask is because apparently many commentators see property becoming more aligned to enconomic fundamentals\market value. When I look at properties I like I rarely see this in desireable areas of South Dublin for family homes with decent gardens.
Just in response to your question, although I’m not Sharper 1971, I have an opinion on this. Coffey’s ‘suggestion’ that houses should sell for 12-15 times their annual rent is just that - a suggestion. In reality, this isn’t what happens. Those figures suggest a 6.66%-8.33% gross yield, which isn’t all that easy to come by even in these times. This home is effectively a high-end home; its in a nice area, the estate has always been expensive, it is a good size and will be very attractive for families. The fact is that expensive family homes don’t get good yields, that’s just how its always been. The only possibility of achieving Seasmus Coffey’s suggested yields are to buy cheaper homes which may get close to those yields. These yields can be achieved for homes under €200k, but the likes of 27 Lambourne Wood will not fall within these desired yield levels any time soon. People in Ireland want to own their own home, it’s a desire that seems to be built in to the majority of the population. People will pay a huge premium to do so over what they would pay if they rented, and there’s always that little spark of hope at the back of peoples’ minds telling them that it could be worth a fortune again one day and that they’re getting a huge reduction on what they would have paid a few years ago, even though I think that such arguments are highly irrelevant. Rent, especially big rents even if they are low compared to the asking prices of comparable homes, is often seen as a ‘waste of money’ and that you’re ‘paying someone else’s mortgage’. An attitude change is needed in Ireland if larger family homes like this will ever lie within those level of yields.
I appreciate you taking the time to share your perspective. I hope you are wrong but the evidence certainly supports your position at this time. The valuation method I outlined is more than an opinion. Ronan Lyons has delivered a couple of excellent presentations recently with data to support his perspective. You can find an interesting video here with more information. ronanlyons.com/2012/04/09/ir … nd-future/
That said, I agree the Irish psyche is conditioned to want our own family homes. I certainly do! I also agree with your comments that paying large rents is viewed as a waste of money. Again, guilty as charged. I am not sure that the willingness to pay will change for family homes. I think that the ability to pay will. What I mean by this is that people will simply be unable to secure mortgages to pay for homes at the current levels as the years go by. Why? The banks do not have the funds to support borrowing at current market values. It is unlikely that new players will enter the Irish market either. Banks across the world are retrenching to their core\home markets to meet their deleveraging targets. Here is a good article to support my perspective if you are interested. economist.com/node/21553015 Potential entrants are unlikely to enter as long as the government has a controlling interest in AIB and forces management to make decisions for political rather than commercial reasons on mortgage rates etc which would make their offering’s uncompetitive.
Ronan Lyon’s wrote an article for the Sunday Business Post last weekend suggesting that now might be a good time to buy which supports your perspective and Sharper1971’s. His point was that “prices are now close to their fundamentals”. As I mentioned in my earlier post I rarely see this for family homes in South County Dublin (or anywhere in nicer areas of Dublin really for that matter) using the valuation method he seems to support. I think this valuation method should apply to family homes. I presume it does. It would be a pretty large segment of the market to exclude in his analysis. I expect large premiums will continue to be paid for trophy homes. I believe typical buyers relying on finance from banks will find it harder to fund these premiums.
Thanks again for your response!
Don’t see this happening any time soon myself.
But what I would be curious to know is, pre boom, in the 70/80’s early 90’s were those yields on more expensive homes being achieved. ie have those huge premiums we Irish are willing to pay to own been around all along. And if so I believe it will be like this at least until the children of the negative equity generation come of age because they will have a different attitude to owning perhaps.
I bought property in the early 90s in London for investment purposes.the standard yield on good London apartments was 10 percent , in Dublin you could do no better than 4 to 5 and Less for top end Dublin property. In the not so good areas of London 12 or 13 was achievable.
I think it was the same for homes.
The country would need a few decades of price stagnation in order to fix the yield issue, as long-term capital appreciation is automatically built-in as a given at present (wrong or right as that may be).
Yields in the 70s/80s and early 90s were higher as interest rates were higher. An investor will require a yield slightly above the cost of borrowing. So in 70s/80s and 90s when interest rates were double digits. yields required would have been double digit. As interest rates plummeted in late 90s and 2000s so too did the required yiled (although yields fell below the theoretical optimal level as investors were banking on capital gains to make up the difference). For good properties in desireable locations the yield would be around 0.5%-1.0% above the cost of borrowing.
For example, if an investor borrow @ 5% at 80% LTV and manages a yield of 6%, then ingnoring capital movements their return would be 6% + 4 x (6%-5%) = 10%. Because of leverage an investor can turn a small gap between the yield and cost of borrowing into a higher return. (Of course, becuase of leverage, small movements in capital values can have big effects on the total return, positive or negative)
Note too that people purchainsg a property to live in would normally accept a lower yield than an investor. An investor requires a higher yield to cover the risk of voids, non payment of rent, difficult tenants etc, issues that will not affect somone purchaing to live in.
Equally rent as a proportion of net income was higher in the past. In Ireland case, current nominal rents are only at the same level as they were in the late 90’s level. Whereas Irish incomes have increased substantively.
IMO net incomes in Ireland will fall over the next few years but this will not necessarily result in a fall in rents. Rather rents as a proportion of net incomes may start to return to historical norms.
I really don’t think very many people think about the rental yield of their house when purchasing and whether that yield would pay their mortgage. Because if they had to rent it out to pay the mortgage they’d still have to rent somewhere else to live in. And the majority of people are just buying a house to live in. That’s not to say that they shouldn’t think about this however - particularly the plane loads who went to Bulgaria and any number of part time landlords who bought investment properties here (and I have rented from some of them…) without having a clue about the basic principles of BTL.
Personally I think about what would happen if I spent a number of months out of work or earning very little income, would I be able to pay the mortgage? So having the smallest possible mortgage, if any, is the most preferable scenario to me.
People often refer to rent as dead money - paying 100% of the purchase price of a house in interest over the lifetime of a mortgage is dead money in my opinion. As a system I think it is fundamentally flawed.
I strongly agree with the point that few buyers looking for a PPR are concerned about rental yield.
I would just add that economic rules of thumb are far too general to cover the individual differences that buyers will accord to a given road, house layout, garden orientation, even decorative style - factors that pinsters are very vocal about when offering a critique of houses but that they tend to overlook when applying a general (e.g. yield-based) rule of thumb to a property.
(And thanks to other posters for saving me the trouble of a long answer)
Best valuation is 200 times the monthly rent - easy one step - do it in your head - all rents in dublin are in monthly
As mentioned, I have my serious misgivings about the general application of such rules of thumb. But if buyers use these kinds of calculations, the above rule would suggest that the rent on an equivalent house (5 beds, 2,400 square feet, well-proportioned, detached, well-appointed) would be about €3,500pm (in order to justify an asking price of 200 x rent or about €700k). And in spite of my protestations, I’d have to admit that’s probably about the level of monthly rent this place would achieve - based on some of the places acquaintances of mine are paying €3-4k for at the moment. So the calculation lives up to my own valuation, which is that this house will probably achieve its asking price.
I’m curious to know if anyone here has been to see it or heard if there have been any bids yet?
There has been a lot of excellent insights posted on this thread on why consumers are unlikely to use economic criteria to purchase a home. Recent examples include…
What about the other side of the equation though? Most buyers will rely on finance from banks to purchase their homes. Banks DO need to use objective criteria precisely because the majority of consumers won’t to protect their investment. The Central Bank also seems determined to provide more oversight to avoid the mistakes of the past. (Even though they are willing to approve negative equity mortgages in some cases due to long term depressed housing market prospects.) For example a recent article in the Irish Independent shows that AIB have reduced the amount they are willing to lend by 10% for first time buyers due to changes in their lending criteria. independent.ie/business/pers … 83681.html
Less credit = lower prices & more rigerous criteria for those to be approved. I have read many times that even though a prospective buyer was willing to pay a certain price for a property their bank was unwilling to fund the mortage at that level. The Bank did not think the house was worth it. I wonder what criteria the banks are using. This might be a better question to ask.
Well as per the indo article…
…Bank would still lend 4.5 times the combined salaries. Which is too much in my opinion - or at least more than I personally would be willing to borrow.
If they would apply even stricter lending criteria it might drive prices down further, but as they are not, I think Sharper is right; and I think that is why houses of a particular type are selling in certain areas at certain prices brackets. I would not pay 695k for this house but that’s because I don’t want to live in Cabinteely. If it was in one the areas that I would like to live this would be looking like value to me certainly. It’s a five bed detached house in decent nick. Still cheeky offer would be obligatory!
I don’t know if there have been any bids yet to answer your question. It’s a fine house. Whomever buys it will be lucky to live there.
It is worth noting that we do have an equivalent house to compare it in the same neighbourhood. It’s right here. daft.ie/searchrental.daft?id=1170496 If we use this as a benchmark and apply the proposed calculation from GermanFred (rent x 200) (2500 x 200) this house would be valued @ 500,000. 50,000 more than my original suggested price using the valuation method proposed by Ronan Lyon’s but still a whopping 195,000 cheaper than the current list price!
I will ask the question a different way than to see if this resonates better with the Pinsters!
Let’s say the couple has a down payment of 10% for the property @ 69500. They want to finance a mortgage for 625500. The couple qualify for a mortgage at this level. However when the Bank goes to value the house they determine it is only worth 450000 because they use the valuation method proposed by Ronan Lyons. (Hypothetical example only. I am not trying to suggest this is the correct answer) On this basis they refuse a mortgage of 625500 deposit because the value of the asset if sold does not cover the loan amount of the mortgage.
I acknowledge that the Banks are unlikely using Ronan Lyons valuation method or German Fred’s method. My question is does anyone know what valuation method they are using to value properties they finance? I think it is highly unlikely that they are using the couple’s ability to pay alone to make their lending decisions. I could be wrong. I really don’t know.
As far as I am aware, banks currently use chartered surveyors to conduct valuations. Now I’m not a chartered surveyor and can’t speak for the esoteric methods they use, but I’m quite sure it’s not just some rent multiple or yield-based figure. I’m also pretty certain that chartered surveyors take into account factors such as build quality (although they would not be as thorough in such an assessment as a structural engineer) and recent sales activity for similar properties in the area.
Why do people assume that higher priced houses are all financed at 90%?
Is 50% not closer to the mark at this price point