Rental property glut benefits students

from RTE website:

Polish friend says 3 bed semis in Carrigaline estates are now renting for €900 unfurnished per month, or €1000 furnished, and that there is a huge choice.

Why is the fall in rents so small? A bit disappointing, I’d hoped for more. I mean, if the supply of oil or the supply of potatoes doubled, you’d expect much more than a couple per cent fall in the price. Is it because the population is still growing fast and immigration is still high, even if nether are as high as before? If there was no net immigration, would the fall have been much larger?

In a word demand

I’m observing a lot of movement of tenants in the rental market here in my patch of Dublin at the moment. There are a lot of two beds coming on the market within the price range of tenants who who previously rented a single room, so they are “trading up” for more space and better facilities.

Potential FTBs who would previously have rushed to get on the ladder are biding their time and waiting for house prices to come within their range, also the employment situation is less certain so less people are inclined to take on excess debt.

However landlords are discovering the winners curse and if they price these properties too high they sit there for ages.

There are still immigrants arriving here from Romania, Moldova & Mauritius and Polish students working for the Summer, this is keeping the lower end of the market going. Also a few immigrants are buying and Dublin 15 seems to be where they are settling, trips around Blanchardstown shopping centre on Saturdays seem to echo this change in population.

In the last two months though I get the impression that the decline in the economy is filtering through and more immigrants are leaving, with several I have spoken to heading back to South America or Eastern Europe at Christmas. Quite a few intend to tough it out here doing odd jobs etc. as the alternative to returning to Moldova, Iraq and even China is worse.
Read up on Gastarbeiter.

It is all good if you are a tenant right now, the over supply means there is no upward pressure on rents, however in 18 month time this will flip again as many uncapitalised landlords are forced out of the market, thus reducing supply, while at the same time tenants without secure employment and large deposits will be unable to borrow and unwilling to buy. The only factor reducing the upward pressure will be emigration.

Not sure abput the Chinese. I’ve noticed a lot less Chinese around Dublin than before and have been told by one Chinese guy that many are leaving to go home as a result of conditions having improved greatly for those in the cities. I think many of the young Chinese who come here are from relatively wealthy backgrounds and would probably be in a position to benefit from the current Chinese economic boom.

Also, expect the student visa programmes to be looked at - if this has not already been done - as a means to limit the entry of young Chinese ito the country if/as unemployment continues its upward trend.

I don’t see the logic there. Just because the landlord goes broke doesn’t meant the property vanishes. The property will still be there for someone to buy andf possibly let.

The landlords that go broke are mostly going to be those who bought and overpaid for property in marginal areas when few want to rent. At the moment the oversupply of properties on the rental market is keeping prices keen, but as the unemployment and emigration take hold there will be less demand for rental properties and voids will open up. It’s estimated 40% of the new build bought in 2006 was by BTL, this would imply a lot are highly geared and with yields on the floor at the time and even worse many are not covering the cost of servicing the debt.
So situation for these guys:

  • Long void periods opening up.
  • over leveraged/under capitalised.
  • Established landlords that are free and clear of mortgages can undercut them.
  • rent not covering mortgage.
  • cost of servicing debt increasing and few roll over options.
  • I have no information on how many BTL loans are interest only.
  • Government taxation and regulation increasing costs
  • Cost of living rising - renters are price concious.
  • Unemployment blackspots are coming back.
  • More people loose their home forced into the rental market.
  • Wages will fall most sectors of the economy.
  • Many Potential FTBs will not buy until prices have stabilised.
  • Banks will not lend having to rebuild capital + less competition

Prices are set at the margins, so the BTLs in the peripheral areas will be bankrupted first. Several landlords I know are over leveraged and have up to 20 properties, with the loan being secured against existing leveraged property introduce substantial voids into that mix and soon that landlord is bankrupt and there are 20 properties off the rental market.
Even if someone buys the house there is no rental demand in those areas, so more likely the property will be boarded up and left.

Once landlords realise that potential FTBs cannot borrow even if they want to they will jack up the price, this is what happened in the UK during the 90s crash.

Again, these are the bits that are troubling me. If there is no demand in the area the price has to go down regardless of who owns it. Unless somebody has enough money to just sit on it and watch it decay. Those people are descreasing in their numbers rapidly. If the price goes down sufficiently then FTBs can afford to buy it outright rather than rent.

That’s not really that cheap, last place I rented was a 3 bed semi in Donnybrook for €1000 a month. Much closer to the City for the same price. Don’t know what it would cost now, that was 7/8 months ago.

More like E2400 surely? Where in Donnybrook?

I think he means Donnybrook in Cork, not D4!

If there is no demand in the area then the price of the property tends towards zero or whatever a buyer reckons it’s worth for a purpose other than shelter (e.g. knock it down to recover materials and covert it back to a field or a cow shed, whichever is more profitable), the property may even be abandoned (Who lives in Peig Sayers house these days)

Under captitalised investors don’t have that luxury. VI’s often point out that property prices generally keep up with inflation over the long term, but they never explain the reason for this, it’s because people spend money maintaining the property in good order or upgrading it (e.g adding new heating system, extension etc.). When there is no maintenance carried out the property looses it value rapidly (in the absense of a property bubble) and will often be vandalised and stripped of anything valuable if left for an extended period of time. The countryside still has old ruins from previous generations who left the country. Don’t be surprised when in ten years time some of these ghost estates in the midlands look like this.

Those people are already having nightmares about the bank manager with an axe coming through the front door to take everything from them.
They can’t sleep well and their health is beginning to suffer. From personal experience it is really hard to think straight when you have a debt that you can’t pay and solicitors sending you letters intended to intimidate and menace you into paying. A gambler will always boast about their winnings, never the losses, so people don’t speak about it except in very hushed tones. What these people need to do now is sit down with an accountant and work out the best (or least worst exit strategy), because by the time the bank manager breaks through the front door with his axe, they won’t have too many options.

This is debatable, how many FTB’s have the deposit necessary to secure a mortgage?
FTB’s are generally on lower wages, thus reducing their ability to borrow further.
Unemployment is going to hit those in their 20’s most, thus reducing the pool of FTB’s.
The same people who advised getting on the ladder at all costs during the boom will now move to the opposite extreme.
Banks will continue to tighten lending standards and will eventually not lend to anyone viewed as an unacceptable risk (i.e. does not have a steady income or work in a perceived “secure” sector of the economy )
Because of the uncertainty about the future less people will be inclined to borrow.
Few will want to buy in areas where there a few services, schools or employment opportunities, this is why the properties will be boarded up.

Eventually the market will return to “normal”, but the bubble has so warped our perceptions, we don’t know what a normal functioning property market is anymore.

I had a look on daft yesterday and rental/sharing prices seem to be as daft as ever. There was a decrease in asking rents earlier in the year but they seem to be high-ish again. Perhaps it’s the problem with builders submitting ridiculous quotes striking again.