Has Dublin high-end residential auction market died ?

The auction market is the ultimate sign of strength in a residential market.

The auction of Milverton, in the autumn of 2013 for about 4.6m, was a big moment in recovery of Dublin high-end residential.

Been a while now since we have seen a high-end / top 100 (i.e. +2m) house auctioned in Dublin ?

There where notable failures in mid-2015 when nobody bid, and post summer of 2015, high-end auctions effectively ceased.

We are coming to end of March 2016, into the peak of spring selling and … no auctions of Dublin high-end ?

Could it be due to with the fall off in values in 2015 (vs. 2014), where we have seen number of benchmark sales in 2016 struggle to match their 2013 equivalents (i.e. 70 Ailesbury Road, 57 Merrion Road, St Finbars Ailesbury Road etc.)

Discussed in more detail here.

a very very bad sign - especially given a shortage in supply

The whole market seems very quiet so far this year. Not much property seems to have come on or sold. I think this might be to do with the early Easter this year. Perhaps there will be avalanche of activity in April and May.

My own little theory :

Last year banks lent as much as they could early on in the year, then suddenly ground to a halt in the 3rd & 4th Qr as the CB clamped down on the restrictions.

From an outsiders perspective, this CB action seemed to take banks by surprise.

It’s almost as if banks thought ‘yeah, we know there are restrictions, but you know, we’re back to old times again … nudge nudge wink wink’, but the CB didn’t play along.

So the banks are not trying not to get caught out again this year.

I think the 3.5x income & deposit restrictions are killing the upper end.
Everyone thinks the upper end is immune to these caps.
The evidence points otherwise.

I’m sure the 3.5x income and deposit restrictions are effecting the normal high end, but I would have thought the >2m market wasn’t particularly mortgage dependent anyway.

I’m not so sure that the mortgage rules are the dominant issue in the weakness in Dublin high-end, given that Irish banks post the GFC, don’t want to get into +1m mortgages (regardless of salary etc.), and have been reluctant to give them regardless of rules.

In naughties, the Irish law partner would get 6x total annual compensation (i.e. salary+bonuses) as a personal trackers mortgage (i.e. 6m), on the same terms that the Irish bus driver would also get on his 6x total annual compensation (i.e. only salary).

The lawyer’s earnings turned out to be unsustainable, while the bus driver’s durability was much better.

This is a lesson that US banks learned many years ago, and therefore “jumbo” mortgages (i.e. loans of over $800k) are separately regulated and costed for in the US market. Irish banks are so full of insolvent +3m mortgages that they don’t want any more “jumbo” mortgages - period.

A couple of private banks in Ireland, are running a side-line in “portfolio finance” loans where you get a rolling 3 monthly 1.5% tracker loan secured against liquid shares etc (you get +75% LTV). It’s not a mortgage (and can be withdrawn at a months notice, or if the shares fall materially in value - 2007 deja vu), but it has been appearing quite a few times in Dublin high-end (I would guess that 2 Shrewsbury Road is a very public case in point, and I can think of 2 other cases on that road as well).

Given that so much of the +2m market in Dublin is driven by non-domestic buyers (incl. ex. pats), I would suspect that international factors, and the slow-down in the insane London property market (as well as sterling weakness more recently), is more dominant.

Since the GFC, Dublin high-end has been very fragile anyway - so fragile that almost no Irish bank will foreclose on a high-end Dublin property (as the market can’t handle any more supply than current run-rate).

A modest fall off in even London based Irish ex. pats, would be a material problem in the high-end Dublin market.

Where as in 2014, when London property was at its peak + Sterling was also very strong, that was a key driver of Dublin pricing.

Very interesting info. Thanks observer35

Yep, sterling’s fall has definitely been a major factor.
Forgot to mention that.

The US has substantial non-mortgage-related costs of ownership which probably help hold prices down (outside of places like San Francisco). Property tax in Texas on that 370k jumbo mortgaged property, assuming a 100% mortgage, will be nearly 8k per year! Home insurance there also seems to be weirdly expensive; >1000 per year seems common. The houses also tend to be very large (~200sqm is the average size of a new home) and apparently insulation tends not to be great, so heating and cooling costs are substantial. Most newer houses are in HOAs (similar to management companies), and these tend to be very expensive, even for houses (as opposed to apartments).

All in all, a person in the US with a 400k house is spending a hell of a lot more per month on it than someone in Ireland with ditto, which perhaps helps suppress the price through sheer unaffordability.

You are right Mantissa

They used (and still) do have a “high cost area” carve-out (which was pretty much most major US cities) which was very close to $800k, but I think is now down to just over $600k.

People derided the US “sub-prime” market in the GFC, but the only reason why there is a US “sub-prime” sector, is because the US credit market is far more sophisticated and segmented. European banks (and I include UK banks here) are full of “sub-prime”, they just don’t have the data (i.e. individual credit scoring / classification) to capture it properly as they do in the US.

That is why the ECB (and it is the ECB, not the Irish Central Bank) has enforced the mortgage caps in Ireland - it is the only way to be sure that Ireland starts to deleverage is consumer loan book in a controlled manner (which is still Europe’s most indebted, when calculated properly on a “per cap” basis, rather then the mis-leading % of GDP or GNP basis.).

Which is why property taxes in Ireland are artificially low.

Property taxes are one of the very few taxes that I know of in Ireland, that are not particularly progressive (i.e. much steeper rates as the value rises). If the Left continues its rise in Ireland (as Draghi’s QE will almost ensure due to it’s effect on income inequality - i.e. assets ramped, but inflation floored), then I think this will change, and certainly a 2% p.a. tax on +2m houses would be an easy one to pass through. Perhaps, the weakness in Dublin high-end is also from this?

Possibly a US-level tax on very expensive houses could be done, but I’d expect any tax that put significant pressure on retired people to be extremely unpopular. The 1-2% pa taxes standard in the US must be a killer for the elderly; not sure how retired people manage them.

Realistically, putting a high tax on >2m euro houses wouldn’t yield much; there aren’t enough of them. And property taxes are very unpopular; even that SF wealth tax proposal knocking around a while back exempted the family home.

The left wing in Ireland are completely against property tax (which is insane, in my view, but there you have it - and sure I approve of water charges too, so what do I know!)

The left wing are against “Irish water type” property taxes
(i.e. taxes on everybody, and particularly when they are expressed in a flat poll-tax type of structure, where all wealth brackets pay similar).

I’m pretty sure the left wing in Ireland is NOT against property taxes on +1m houses.

There are (very roughly) well over 4-6bn, at today’s market value, of +2m houses in Dublin.

2% per annum on that is +100m per year = get rid of Irish water.

Very compelling math for any left wing Government.

In addition, higher property taxes on higher-end houses, has worked wonders in several US cities (Chicago, Boston) at:

  1. Releasing stock, as “empty nesters” sell faster (big sites get broken up in particular).

  2. Suppressing property price rises (we have down that road).

  3. Improving quality of apartments (as richer “empty nesters” buy more condos).

FG suppressed Property Taxes to keep ramping Irish house prices, and are fully aware of the impact of international buyers on Dublin houses of over +2m (prime drivers). Many international buyers of high-end Dublin houses are going to get a shock in the coming years as their property taxes rise materially and, they find the domestic demand is not strong enough for their exit.

A tax on those who own property is not a “tax on everyone”.

good point !

I wouldn’t be sure of that. Lots of members of the “left wing” constituency will have a granny, cousin, friend who happens to live in a house that is worth a million but doesn’t have a large income but there is no way they could ever leave, sure they are there 50 years!
All the people who turned out to try to keep O’Donnell in Gorse Hill were not fellow millionaires.
The SF/AAA/PBP etc “tax the rich” policies are incredibly vague. Once you have to actually enact this into legislation you lose half your supporters hence SF refusing point blank to consider taking any part in running the country.
The great thing about being on the left wing in Ireland at the moment is that you can be against absolutely everything including massively progressive forms of taxation such as property tax and water metering without having to put forward any sort of a cohesive alternative.

Unless property values are re-assessed and taxes applied as appropriate, the LPT will wither and die. A slight alteration would be to fairly assess the property value, and levy the tax on say 75% of that value, which is what in effect happens in many other countries.

Conversely the LPT will be weakened considerably if more tinkering is attempted.
And supposedly left wing voices will be the loudest in the clamour for a return to fully regressive taxation.

As long as Draghi keeps widening income inequality with QE (ramping asset prices making homes un-affordable, while killing CPI via ZIRP/NIRP thus suppressing wages), the Left will continue to grow (as it is doing even in the US with Bernie, the UK with Corbyn and of course Europe, where it is booming).

It is a worldwide trend (from other global QEs) and seems to be only strengthening.

Young people have gotten a very bad deal from QE, and are being turned into George Orwell’s “Boxer the Horse”, to take on crazy debts again (or rent for life to hedge funds, who will themselves take on the crazy central bank funded debts), to ensure the baby-boomer generation can be bought out of their overpriced assets ?

The Left in Ireland have been consistently vocal on the need for higher wealth taxes. I think this is pretty un-ambigous ? The easiest form of wealth taxes are property taxes (Ireland has the property taxation process set-up from the Trokia’s program).

… And Ireland has some of the lowest % property taxes on high-end +2m homes in Europe (if not the lowest, ex. UK).

… And Ireland has the largest per cap consumer debt rate in Europe (why the ECB insists on having a mortgage cap).

Thus, I think higher property taxes on high-end +2m homes in Ireland, is a strong likelihood on current trajectory ?