casting my eyes back #1

[mr_anderson]

Just casting my eyes back on some (reasonably) old DAFT postings.
Heres one from city_centre_agent dated march 2007.
I briefly worked in the same office as him and we both used to think alike.
Hes no longer an EA.
He had some good postings prior to 2007, but cant seem to find any.
Could be the DAFT search option doesnt go back that far.

What I find most interesting about old threads like these are the responses.

Incidently, I realise some people posting here also posted on DAFT.
Please dont bring personlities into any responses you may have.

DAFT has reported that rents have seen a strong increase.
According to their figures, a 1 bed apt in Dublin 4 is currently renting at €1,144 a month.
Thats €13,728 a year.

Yet assuming that a 1 bed apt in Dublin 4 costs €450,000 (including stamp etc) - thats an interest only repayment of €21,375 (4.75% mortgage).

So you are making a loss of €7,647 each year.
As that’s a net figure, a higher rate taxpayer has to pay just under €13,000 from their gross salary.

Now, in a rising market thats money well spent.
You make more on the capital growth than you lose on subsidising the mortgage.

However, in a ‘soft landing’ market where prices are static, the €7,647 you are forking out is not being made up in capital growth.
It then comes down to how long investors are willing to continue stumping this up without seeing the benefit. Thats where the housing issue becomes less of an economic prediction and more of a psychological one.

To compound this, no rational investor would enter this market under these conditions.
Most importantly, nor would any bank manager give out loans under these conditions.
So the number of entrants to the market fall.

The end result is a decrease in demand.
And unless developers seriously reduce the amount of new stock, that can only lead to lower prices.

When prices fall, developers have no option but to cut their output.
This means less immigrants and hence less people renting.
Less people renting equals less rent, making property prices even more overvalued.
The downward spiral begins.

=4

[Green_Bear]

There are some good posts on the boards.ie housing bubble thread from January '07 that also reflect the times, the responses are also interesting in hindsight.

boards.ie/vbulletin/showthre … st52588027

If I may speculate in event of a crash its possible the government may tap into the excess inventory under the guise of social housing program, thereby bailing out the developers.

boards.ie/vbulletin/showthre … st52594035

[mr_anderson]

Heres one I wrote in July 2007.
I was explaining why developer clients of mine were packing up and leaving Ireland.

But regardless, look at my 1st point.
If only I had coined a crunchy explaination for what I was describing !

There goes my 15 mins

Obviously there are a number of reasons for their decision to move, whilst im not going to list them all, the top 4 were :

1. inter-bank interest rates (not mortgage rates !)
   When a bank loans a developer a lot of money, they syndicate that loan out among other banks (mainly foreign), who are looking for exposure to the irish economy. This has dried up. The only way you can shift these syndicated loans is by increasing the interest paid on them. So, last year developers were being charged 6% on their loans, currently its over 8%, and it is generally accepted that they will end the year at over 10%. Consequently, loans to irish developers have effectively taken on ‘junk-bond’ status.

This has a double-edged sword effect. Firstly, higher interest rates reduce profits (especially at a time of static/falling prices).
Secondly, it completely restricts the amount of money the bank can give out. Cashflow has been killed, and cashflow is essential in developments due to the time lag between building costs and sales revenue.
As they put it to me, if a multi millionaire with a long history of successful developments under their belt cannot get sufficient credit from the bank, it points to serious trouble ahead.

In essence, the banks have pulled the plug.

2. The 3 guys have, between them, 420 houses and apartments built (in various locations). Even after a 15% price reduction, only 55 have been sold. Doesnt take a genius to work out thats not the kind of market to continue operating in.
   Most importantly, to them it signals that the locals can no longer afford them. When that market goes, theres nothing left to hold it up.

3. The price of sites has fallen by 25% since last year, with few takers. This reflects the fact that some of the largest builders in the country have ceased or seriously curtailed operations. The amount of new starts have fallen dramaticially. The only building you currently see are where contracts were signed during the boom and must be completed. In areas where builders dont have to complete, they are not.

4. Its far easier to make money in other countries, so why try and force the issue here.

It also shows that the credit crisis is older than people think.

=4

[Longtermrenter]

@Green Bear

There are some good posts on the boards.ie housing bubble thread from January '07 that also reflect the times, the responses are also interesting in hindsight.

boards.ie/vbulletin/showthre … st52588027

If I may speculate in event of a crash its possible the government may tap into the excess inventory under the guise of social housing program, thereby bailing out the developers.

boards.ie/vbulletin/showthre … st52594035

Yer man Pa ElGrande sure writes good copy, that post is like a master-class on how to make a point on a forum.

[Green_Bear]

@mr_anderson

Heres one I wrote in July 2007.
I was explaining why developer clients of mine were packing up and leaving Ireland.

But regardless, look at my 1st point.
If only I had coined a crunchy explaination for what I was describing !

There goes my 15 mins

Seems the bank survey confirms your observations at the time, see “Factors affecting credit standards - house purchase loans” on the Ireland tab

centralbank.ie/data/EAFiles/ … 202008.xls [Excel or [url=https://www.openoffice.org/]OpenOfficerequired]