Simple stuff here. If a house wont make money by renting it out then dont buy to let. But if you can make big money fast because its going up in price thats what people have been doing. If you look at the thread “who was buying all the houses” you will see the breakdown purchases via peoples incomes.
Basically this all concludes that a portion of (probably older) people on above average earnings have been buying up overpriced property on the basis that they can make a profit by it going up in value.
Over the past few years the average age of a first time buyer has gone up. This could be interpreted as people being priced out of the market.
A perfect example of an asset bubble. It had all the makings of it. This should have been spotted years ago and dealt with as a threat to our medium and long term prosperity.
You’ve out done your self this time Blindjustice - brilliant work.
This is very graphical information and the source of it is impeccable.
Even the most hard line bull can’t deny this.
That rental yield graph makes very scary reading as it clearly shows yields have collapsed by a whopping 70%.
Anyone armed with this info. would be advised to stay well clear of the Irish property market.
I couldn’t agree more - some people have a lot to answer for thats for sure.
Those figures tie in precisely with prof. Morgan’s conclusion that houses are over valued by 70%.
Rent covered a repayment mortgage up till late 90’s early 2000’s. This allowed those in secure jobs like public/semi state sector and banks to borrow to buy lots of properties. I know people working as Gardai, prison officers, firemen, Aer lingus managers, mortgage brokers etc who bought up loads of properties in 1980s and 1990s despite being on an average salary. The young people entering these jobs these days can barely afford their own first property let alone contemplate buying multiple buy to let properties. It was really a matter of luck, anyone with a secure job in 80s/90s could have easily became a millionaire by buying self financing properties. Pity for us born two/three decades too late! Maybe there will be chance to buy high yielding property again in future but no time soon i fear. At least we were born in a relatively comfortable era with exception of recent developments in house prices.
What about net present value method?
As Professor Morgan Kelly said “its a text book bubble”
My oh my
Remember Rossa White from the daft report? The Guest blogger.
He is an uber bear!!
This is all from Rossa White/Davy Stockbrokers.
davydirect.ie/other/pubartic … 060329.pdf
All these politicians and economists know EXACTLY whats happening. Every party knows.
I think Labour and Fine Gael dont want to take this up because it would ruin their promises and they would be seen as doom mongering.
The PDs are warning about the economy being in trouble, with their “dont throw it all away” tag lines, if we dont elect them.
FF, I fear, may spend alot of money bailing out developers.
I have no faith in the politicians.
This is some mess.
The only competition between the main political parties is who gets the Merc’s & Perks. Even if a FG/Labour/Green coalition gets in then the first thing they will do is reassure the voters that they will maintain a steady course and won’t rock the boat.
None of them will be able to deliver on their promises to spend our tax Euro’s without a further expansion of the credit bubble or investment to boost exports.
The Irish Election in 3 minutes
Now that the Germans are picking up a gear with expected budget surpluses and increased employment, interest rates are going to continue their upward trend for now, so ironically we are going to be paying the Germans more for our houses in higher interest rates (Some of the money we splurged on property came from their savings).
we only got the German money because they were afraid of currency risks.
Based on what? Rental yields or capital appreciation for the return on your investment? With reference to the vacant properties the cash flow atm is non existent!! And because they are not for rent you cant project cash any flow! And now with capital appreciation at best stalled and inflation eating into your investment the obvious thing would be to “cash in” your investment. Liquidate!!
As net present value is for a long term investment- just how long term do you want to go? Will we live long enough? What about the running the risk that in 20 years time the property has returned a lower yield than less risky investments?
What about massive amount of interest only “investment” property loans that were given out. Eventually the capital will need to be paid!
It all points to a bubble!
Some of the comments on this thread worry me a bit. They seem to be a rather uncritical. I love this site and think it has a major role to play in revealing spin; being a counter-weight to VIâ€™s; and generally illuminating market undercurrents. So please can we try to avoid cheerleading and instead focus on rational discussion. I am sorry that what follows is not short and sweet, but please bear with it- it is carefully considered.
There are two fundamental assumptions underlying the above estimate of fundamental value:
That the appropriate yield to be employed is the average between 1980 and 1985 i.e. it would appear between 11 and 12%. Nobody should applaud that conclusion without considering whether that indeed is the appropriate yield.
There is a presumption that current capital values are wrong but that rental values are right. The market has undergone huge change over the period of the graph and we should not assume that either values are fundamentally correct.
The simple yield used in the above calculation of fundamental value is called the â€œall risks yieldâ€
Do people really think that UK land is worth half of Irish land? because that’s the situation presently, and site costs in Ireland can account for up to 60% of the price of a house.
as our wage packets are plundered this month,
because of the property bubble caused by ridiculous speculation on behalf of investors, doesn’t your heart go out to these guys!
rightly so, these taxes could be put to better use
get a job like many others and it might actually help your situation
€1,000 per month seems quite high for an INTEREST-ONLY mortgage - remember the property only commands a rent of €1,000pm, so what could the original purchase price have been?
banks trying to build up tier 1 capital of 12% might soon that invitation becoming more formal
not sure the Simon community would agree
Why do people who made unsound investments get off the hook?
Throwing good money after bad.
This guy with his 20 properties has failed to comprehend a basic approach to investment - you invest your surplus. If you have an ongoing cost to finance your investment (such as interest payments) and you depend on write-offs to break even, you’re over leveraging yourself and taking on a big risk.
The case for investing in residential property in Ireland is simply the opportunity cost of putting the money into property. If rent will yield 5% while other investments with similar risk profiles yield 4%, then it could make sense.
Of course, too many people aren’t prepared to save enough money to make investments and would prefer to borrow money to fund them.
His point seems to be that it is not profitable to borrow to invest in property? Why should it be? If this were the case then why would the bank not just invest themselves? How is the risk profile different by using this gombeen man as a proxy to the properties? What special skills in managing the asset does he have? What assets does he have to offer the bank recourse in even of default? Is it profitable to borrow to invest in shares? gold? potatoes?