Proportion of Residential Properties Being Bought for Cash

I have been concerned about the accuracy of the statement that 50% of residential property purchases are for cash. This number is difficult to verify. To me it seems a little contraintuitive. For example, I bought a house about 18 months ago. While I could have done this without a mortgage, it suited me for a variety of reasons such as cashflow to have a relatively small mortgage of about 30% LTV.

One of the problems of any analysis is that much time and effort is required to merge poor quality and partial sources and prepare data for analysis rather than having one source of data that can be analysed.

There are three sources of property price information:

  1. IBF-PwC Residential Mortgage Data ( … arket.aspx) – this includes mortgages drawndown on residential properties for all the major lending institutions in operation. It includes about 95% of mortgages. The data is at a lag of a quarters so the data is only available up to Q1 2014. The data is available from Q1 2015 onwards.

  2. CSO Property Price Index – this is an index of residential property prices for which mortgages are registered. It does not include actual prices. The index is hedonic, that it, it attempts to classify property types (3 bed houses in Dublin, apartments in Cork) in order to compare like with like in order to create a valid index. Its source is nearly the same as the IBF data.

  3. Property Price Register – this includes almost all property purchases with a very small number of exceptions. It includes commercial and residential. The data quality is truly shocking. There is clearly no attempt to enforce any quality standards. The data is available from Jan 2010 onwards

Schematically, these overlapping data sources can be represented along the lines of:

From this incomplete data sources, you are trying to identify the subset of residential properties bought for cash:

There are multiple issues associated with comparing these data sources of which the greatest are:

• Matching times – they all contain data with dates but the dates may not match. So the date of a mortgage drawdown may not be the date when the purchase was registered.

• Identifying the subset of properties that are residential

IBF Residential Mortgage Data

This classifies mortgage amount drawdowns and mortgage average amounts by:

  1. First-time Buyer Purchaser (FTBP)
  2. Mover Purchaser (MP)
  3. Residential Investment Letting (RIL)
  4. Re-mortgage
  5. Top-up

For the purpose of this analysis, we are only interested in the first three. These (generally) give rise to property purchases. It may be that a re-mortgage or top-up give rise to a cash purchase of a second property but this is not known and making assumptions would not add value to the analysis. The value of mortgage drawdowns in these categories is small – around 5% of the total – and so any cash purchases they may give rise to can only be ignored. This current 5% of the total amount is very different from the peak of 39.9% they represented in the party times of Q1 2008.

In summary, the IBF numbers of mortgages in the three categories based on the average amounts and the total drawdowns are:

Quarter             FTB          MP         RIL       Total
Q1 2010            2,327       1,513         383       4,223
Q2 2010            2,971       1,691         281       4,943
Q3 2010            3,000       1,862         255       5,117
Q4 2010            2,317       1,469         238       4,024
Q1 2011            1,302         886         139       2,327
Q2 2011            1,504         998         144       2,646
Q3 2011            1,692       1,152          95       2,940
Q4 2011            1,890       1,204         131       3,225
Q1 2012            1,211         873         127       2,211
Q2 2012            1,644       1,055         132       2,832
Q3 2012            2,064       1,315         146       3,526
Q4 2012            3,722       1,679         179       5,580
Q1 2013              932         769         104       1,805
Q2 2013            1,599       1,155         105       2,858
Q3 2013            2,297       1,554         199       4,050
Q4 2013            2,706       1,863         194       4,763
Q1 2014            1,740       1,205         182       3,128

Property Price Register

The challenge here is identifying what are residential and what are commercial properties. These have then been excluded from any comparison with IBF numbers.

This is done in a number of ways:

Properties that are obviously commercial such as:

• Mc Donnells Pub, Graveyard St., Ballinakill

• Apts 11 12 13 23 24 38 48, 58 59 65 66 & 67 The Waterfront, Hanover Quay – this is a purchase of multiple units logged as a single purchase

• 08/11/2012 Units in Sandford Lodge, Sandford Close – again this is a purchase of multiple units logged as a single purchase

• Where multiple units with similar names are logged as purchased on the same day, such as:

04/01/2010 No. 11, Charlotte Quay
04/01/2010 No. 12, Charlotte Quay
04/01/2010 No. 13, Charlotte Quay
04/01/2010 No. 18, Charlotte Quay

This table shows the value of property purchases from the register and the IBF:

Quarter            Purchase Value  Value Excl. Commercial    IBF Drawdown    Residential % of IBF
Q12010               1,087,187,522           1,024,523,308   1,220,000,000                  83.98%
Q22010               1,296,778,750           1,205,220,016   1,305,000,000                  92.35%
Q32010               1,441,143,173           1,396,986,527   1,239,000,000                 112.75%
Q42010               1,264,082,409           1,201,037,653     982,000,000                 122.31%
Q12011                 816,078,396             763,016,447     577,000,000                 132.24%
Q22011                 883,757,342             851,340,292     624,000,000                 136.43%
Q32011               1,077,529,429           1,020,706,336     623,000,000                 163.84%
Q42011               1,171,051,491           1,085,563,702     639,000,000                 169.88%
Q12012                 820,347,842             776,222,345     450,000,000                 172.49%
Q22012                 990,619,148             916,951,222     524,000,000                 174.99%
Q32012               1,285,999,888           1,243,495,633     663,000,000                 187.56%
Q42012               1,786,422,739           1,656,801,863     999,000,000                 165.85%
Q12013                 890,204,166             827,451,178     331,000,000                 249.99%
Q22013               1,241,414,397           1,115,111,923     518,000,000                 215.27%
Q32013               1,720,114,784           1,549,366,729     750,000,000                 206.58%
Q42013               2,272,547,293           2,009,211,730     896,000,000                 224.24%
Q12014               1,333,953,125           1,203,558,349     568,000,000                 211.89%
Q22014               1,792,336,837           1,661,250,778
Q32014                 670,207,905             541,489,307

The columns are:

• Quarter – the quarter
• Purchase Value – the total value of all property purchases in the register for the quarter
• Value Excl. Commercial –the estimated total value of all residential property purchases in the register for the quarter
• IBF Drawdown – the IBF residential mortgage drawdown amount
• Residential % of IBF – the proportion of residential properties in the register purchased in a quarter as a proportion of the number of properties in the same quarter from the IBF mortgage data

This table shows the number of property purchases in the register and estimates the number of commercial.

Quarter           # Purchases     Commercial    Residential IBF Residential   Residential % of IBF
Q12010                   4,218            212          4,006          4,223                  94.85%
Q22010                   5,147            212          4,935          4,943                  99.83%
Q32010                   5,943            224          5,719          5,117                 111.75%
Q42010                   5,596            334          5,262          4,024                 130.78%
Q12011                   3,489            230          3,259          2,327                 140.03%
Q22011                   4,104            197          3,907          2,646                 147.66%
Q32011                   4,957            256          4,701          2,940                 159.91%
Q42011                   5,780            372          5,408          3,225                 167.68%
Q12012                   4,249            193          4,056          2,211                 183.44%
Q22012                   5,346            414          4,932          2,832                 174.18%
Q32012                   6,379            269          6,110          3,526                 173.29%
Q42012                   9,195            447          8,748          5,580                 156.76%
Q12013                   4,865            249          4,616          1,805                 255.79%
Q22013                   6,223            265          5,958          2,858                 208.44%
Q32013                   7,957            324          7,633          4,050                 188.48%
Q42013                  10,664           1161          9,503          4,763                 199.51%
Q12014                   6,709            492          6,217          3,128                 198.77%
Q22014                   8,726            694          8,032
Q32014                   2,882            335          2,547

The columns are:

• Quarter – the quarter
• # Purchases – the number of purchases in the register
• Commercial – the estimated number of commercial purchases. Where the purchase of multiple properties is recorded as a single entry in the register, this is recorded here also as one purchase.
• Residential – the estimated number of residential properties
• IBF Residential – the number of residential purchases from the IBF mortgage data
• Residential % of IBF – the proportion of residential property total value in the register purchased in a quarter as a proportion of the IBF amount of properties in the same quarter

While quarters are not directly comparable because of lags, the current average number of residential properties bought without mortgages from IBF member banks is around 50%.

To me this seems non-intuitive. But there it is.

The steady decline from all or almost all residential properties being bought with a mortgage to the current position of roughly half is, in my opinion, quite astonishing.

The IBF data is lagging behind the data in the price register. More recent IBF data will indicate if the trend is continuing or diminishing.

Clearly the 50% figure is gross and does not contain any details or market segmentation: what types of properties are being bought for cash. But the second table above shows that the proportion of the total amount being paid for residential property is around half of the amount being provided by IBF member lending institutions.

The surplus spend on residential property over the residential mortgage IBF drawdown amounts are:

Quarter         Surplus Over IBF
Q12010              -195,476,692
Q22010               -99,779,984
Q32010               157,986,527
Q42010               219,037,653
Q12011               186,016,447
Q22011               227,340,292
Q32011               397,706,336
Q42011               446,563,702
Q12012               326,222,345
Q22012               392,951,222
Q32012               580,495,633
Q42012               657,801,863
Q12013               496,451,178
Q22013               597,111,923
Q32013               799,366,729
Q42013             1,113,211,730
Q12014               635,558,349

The total surplus is actually quite small - 6,938,565,251 – for the 17 quarters listed above . This is almost exactly the same amount as was lent at the peak of lending in Q2 2016.

It could be that non-IBF financial institutions are lending a greater proportion than the IBF estimate. It could be that commercial purchase of property is higher than I have estimated. It could be that the number of individuals from outside Ireland buying property is high. It could also be that there really is a lot individuals buying property for cash.

Great piece of work :slight_smile:

Good work, thanks!

Cracking work.

I don’t know enough about method of analysis to comment objectively but it does seem as if your progressing methodically so thanks for the added voice.

I note you referred not at all to anecdotal EA statements!

Why are you astonished at the state of play? Transactions are at such low levels that previously bit part players (such as cash seeking returns) can have an over dominating effect. I mean, the median house price in Bray for 08/14 according to Irish Property Price Register is 0 simply because there’s been no transactions registered in the first week in August. :smiley:

Nice analysis - but the 50% figure is really just an indicator of the collapse in bank funded transactions.

Assume the number of cash sales is roughly 15K every year (this is the same as the total IBF drawdowns for 2013) - this volume would be consistent irrespective of the level of bank lending.

If you take the IBF drawdown figures from 2005 - 2013 then:

2005 - 201,000 mortgage drawdowns. % of cash sales = 7%
2006 - 204,000 mortgage drawdowns. % of cash sales = 7%
2007 - 158,000 mortgage drawdowns. % of cash sales = 9%
2008 - 110,000 mortgage drawdowns. % of cash sales = 12%
2009 - 46,000 mortgage drawdowns. % of cash sales = 25%
2010 - 27,000 mortgage drawdowns. % of cash sales = 35%
2011 - 14,000 mortgage drawdowns. % of cash sales = 50%
2012 - 16,000 mortgage drawdowns. % of cash sales = 49%
2013 - 15,000 mortgage drawdowns. % of cash sales = 50%

So apparently cash sales have gone from 7% of the number of market transactions to 50% of them - but they haven’t really.

It’s the bank funded market that’s collapsed.

So when people say cash sales account for 50% of the market - what they’re really saying (whether they realise it or not) is that there is fuck all bank lending.

very well put WGU

And to add - as I’ve said all along - the low transaction volume is also significant for the use of CSO numbers.

The fact that the CSO chooses not to include cash sales* then they should really simply stop publishing.

*Otherwise they are simply massively incompetent to not be able to come up with a model, at this stage, that allows them to incorporate the PPR data.

IMO the most likely explanation for the low level of lending is that buyers cannot or will not pay what potential sellers demand.

Sustained rises in rents would drive lending up, because those would indicate greater capacity to pay for housing services.

That or capitulation from potential sellers.

Every CSO report since February 2013 to June 2014 have stated “The CSO is currently examining Stamp Duty returns to the Revenue Commissioners, made via the Revenue Online Service (ROS), with a view to assessing both the extent of cash-based full market price transactions and any potential bias in the RPPI that might accrue from their exclusion.”

Maybe they’ll conclude sometime soon…

Could they use the census?

Solution going forward is insert more compulsory fields in the eStamp Duty return

Yet lending is increasing? … -1.1894625

Just because it’s increasing doesn’t mean much. It’s still less than half the figures we were seeing yearly between 2005-2008.

We should really be dealing in cold figures. Percentages and terminology can be misleading at the best of times.

There are residential purchases in the PPR that are implicitly commercial and who purchase was not funded with residential mortgages are recorded in the IBF PwC numbers.

It seems very improbable that the persons who bought 26 residential units on 10/04/201411 at The Lawn Clover Meadows, Belmont Road, Ferrybank, Kilkenny or who bought 44 residential units on 07/03/2014 at Clares Court, Main Street/Church Street, Cavan did so with multiple individual residential mortgages. However they funded the purchase – from commercial lending, cash, consortium, etc. – it was not with residential mortgages that are contained in the IBF PwC numbers. So they need to be identified and excluded before any comparison is made to get a more accurate view.

Similarly the analysis excluded purchases such as Milner’s Square, Shanowen Road, Santry on 23/01/2012 for €8,000,000.00 and Units in Sandford Lodge, Sandford Close on for €27,000,000.00.

While a quarter by quarter comparison between the price register and the IBF PwC numbers is problematic because the two sets of data will not be date-aligned, it is instructive:

Quarter              Proportion Cash Per Qtr      Proportion Cash Per Year          Cash Units          Cash Units
Q12010                                 -5.43%                                              -217
Q22010                                 -0.17%                                                -8
Q32010                                 10.52%                                               602
Q42010                                 23.54%                         8.10%               1,238               1,614
Q12011                                 28.59%                                               932
Q22011                                 32.28%                                             1,261
Q32011                                 37.46%                                             1,761
Q42011                                 40.36%                        35.52%               2,183               6,137
Q12012                                 45.49%                                             1,845
Q22012                                 42.59%                                             2,100
Q32012                                 42.29%                                             2,584
Q42012                                 36.21%                        40.67%               3,168               9,697
Q12013                                 60.91%                                             2,811
Q22013                                 52.03%                                             3,100
Q32013                                 46.94%                                             3,583
Q42013                                 49.88%                        51.37%               4,740              14,234
Q12014                                 49.69%                                             3,089

The annual comparisons are more accurate than the quarter comparisons because date misalignments will be reduced by an estimated 75%.

The price register data only goes back to 2010 so any comparison before then is not possible. The annual proportion of cash purchases was an estimated 8% in 2010. The estimated actual number of cash purchases was not a constant through the years in which both sets of data are available. That it appears to have risen from 1,616 in 2010 to 14,234 in 2013 is worth noting and needs some explanation.

As I said, I find this puzzling. It may be that properties are being bought as homes by those (such as me) who stood on the sidelines and watched for years in incredulity at increasing property prices and who still got splattered by the exploding bubble.

As an asset a property is quite illiquid and while the longer-term investment horizon may suits investors looking for a fixed income asset class it does not suit everyone and more especially the smaller investor who have fewer assets to spread over all investment types to reduce risk.

Given that a large number of smaller investors were thoroughly torched in the bubble, their numbers should be reduced and the resources and risk appetites of the brave remainder should be diminished.

Regarding the comment about anecdotes from estate agents on numbers of cash purchases, the answer to the question as to how I stand on estate agents is very firmly on their windpipes.

I feel the reason for this is more complex. But ultimately the 50% proportion as a fact appears to still stand.

As I said previously:
The Chart That Shows How Fucked Irish Banks Are… Still!

And again the numbers don’t include BTL - they are just for PDH - so it’s actually a lot worse

Will up date when the Central Bank figure for 2014 Q2 come out.

I agree - but it’s also instructive to look at the flipside of the coin - how much is it worth to buy outright for cash when you can be subsidised by the banks for free?