I’ve been informally chatting with various estate agents in South County Dublin to try and find out what vendors are doing if they can’t or won’t sell, but need the money. The short answer is they’re trying to let. Here’s an example: viewtopic.php=10102
According to most EAs I’ve spoken to, the pattern is:
Vendors who BOUGHT at the €1m region and can’t afford or don’t want to sell now for €500k are finding it fairly easy to go down the letting route - lots of demand for semi-ds and large apts to let in the right parts of SCD at the €1500-2500pm price, apparently.
Vendors who BOUGHT at much higher prices (€2m plus I suppose) and can’t afford / don’t want to sell at sub-€1m are finding it very hard to let their houses out at the €3000pm mark.
A while back I did a fairly thorough review of pricier lets in SCD on myhome.ie and Daft, and discovered what I suspected: some of the nicest, biggest best houses are letting, presumably in many cases because the owners can’t afford to live in them. In fact it was quite depressing - I saw as many decent houses online in that one search as I’ve found for sale in the last six months.
Doing the maths, an owner who paid, say, €2.8 million on a 90% mortgage over 30 years would (or should!) be repaying something of the order of €12k per month (very rough calculation based on €500 per month per €100k borrowed). There’s no way that anyone is going to pay close to that kind of rent now, so it’s still a whopping great shortfall even if you rent for 3-4k per month.
So for how long can these vendors turned letters hang on?
Who’s going to stop them going on like this til the end of time? Assuming they’re paying at least half that rent towards the mortgage they won’t be top of the repo list (if that ever happens )
I would expect most of them have a mortgage that’s nothing like 90% of E2.8million.
For a start a E12k pcm mortgage suggests post tax take home pay of well over over E200k on which to base the mortgage, seems unlikely.
Second not all that many houses exchanged hands in the peak year itself, many of them have probably been owned a bit longer than that.
Third, there really was a property ladder. You bought your first house, paid down the mortgage, it rose in value. You traded it in, bought a better house with a bigger deposit. Bigger mortgage sure, but not 90%, maybe 50 - 70%. Repeat twice more and throw in some inheritance, and you’re at the E2.8million house with a mortgage about E1million.
Had a very interesting conversation today with a vendor/landlord, not in a mortgage situation but an inherited house. He nearly sold it before the bursting of the bubble and has had it on the market ever since with a completely unrealistic asking price. The bizarre thing is that it was two years on the market completely empty until he eventually decide to rent it out rather than leaving it empty, he has only had one viewing in the last year, and yet he is clinging to the asking which is probably 30-40% too high to tempt in any bidders. It’s unbelievable that at no point has he or the EA thought of dropping the asking or else taking it off the market and do a proper rental job on it
Anyway i thought it was instructive as to why this particular house is on the market for a long time at a stupid price, and presumably this can explain some similar properties around town too.
The perception by unrealistic sellers of the whole thing being a zero-sum game always bugs me. They seem to expect the renting lark in all instances to be an approximate financial equivalent to selling at their asking price. Hence that chilling C*** T**** phrase: “We’ll just rent it out!”. Jesus that phrase make my blood run cold. It smacks of having your cake and eating it too. As though there will always be someone there to pay your bills and no drop in the wealth-generating potential of the property ever needs to be borne.
It can’t be a zero sum game though. First, because as long as *some *houses need to transact (probate properties, repo’s, mortgage-free properties etc.) that inexorably pushes the marginal clearing price down. Which will also in turn push down rents. Second there can only be so many renters who will fill the gap. Or to put that another way, there is only so long these renters will all stay renting while prices creep down. Third, changing economic conditions will alter the maths of the “rent it out!” option.
I see this phenomenon as an inevitable phase of our property crash. And just one more element that is going to drag the whole thing on for years and years and years. For a while now my call for the bottom has been Spring selling season 2013. 2 years from now. Meh. I now think it’ll be much later than that.
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