The year 2008 will be remembered as a year of change for the global economy, the Irish economy, and the Irish property market. From a rapidly expanding Irish economy between 2002 and 2006, and in tandem a rapidly expanding property market, to rapid contractions in 2008. The transition from expansion to contraction has been very difficult for most involved in business, and the property sector in particular. Reformation of business structures, changing market conditions, and new realities in product market values, reduced profits, and in many cases substantial losses and significant job losses. These are some of the consequences of the change.
The residential property market is one of the most talked about markets in our economy, and is often used as an anecdotal indicator of the health of the overall economy. The discussions have changed from the record high prices to how low prices will go and where the bottom is. It is difficult for both vendors and purchasers to know exactly where the current market value is for property. One thing for sure is that the market has corrected more than most of the property indices suggest. Most suggest that the market has fallen by a maximum of 16 per cent from the peak of late 2006. We believe that prices have actually fallen in Galway city in the order of 17 to 30 per cent; this is for actual sales, not asking prices. From a recent analysis of sales since the beginning of November in our Eyre Square office we see prices have been 16.6 to 34 per cent lower than what would have been peak prices for these properties. What is encouraging is that there is considerable activity and interest in a property when it is pitched at or close to these new market prices, with many sales.
We have witnessed similar activity with new homes where recently a developer client reduced prices on a city scheme by 15 to 22 per cent, with considerable sale success as a result.
Smaller, lower value properties have fallen less than the larger, higher value properties. The lower value homes have fallen more in the order of 15 to 25 per cent whereas the larger homes are more likely to have fallen by 25 to 30 per cent depending on many factors including location, style and quality of house, etc.
The advanced price correction and rapidly falling interest rates in recent months have combined to make property much more affordable and attractive to those who need a home now. Indeed with further falls expected in interest rates in the first quarter of 2009, soon it will be cheaper to be paying a mortgage on a home rather than to rent it as rental values are higher than the monthly cost of the mortgage. Availability of credit from the financial institutions is one restricting factor but the financial institutions still appear keen to lend to home owners/owner occupiers as against lending to investors in residential property.
For those who wish to buy a home in the current uncertain changing environment we would suggest that there are many positive factors including much lower prices, cheaper cost of money, and considerable choice in the market place. For most their home is a mid to long term purchase/investment and people are likely to reside there for five to 30 years. Property values will go up and down during this time. If you are buying a home and you can get it at a 20 or 30 per cent reduction and the cost of financing it is similar to rent you are paying, then it makes sense to purchase. It is likely that after this period of uncertainty and change, property values will improve. Construction activity of new homes has nearly ground to a halt in Galway city and this will lead to lack of supply in one to two years, which in turn will increase the likelihood of capital growth.
Compare the price correction in house values to your weekly shop. Many people are now shopping in one or other of the big stores who are regularly offering 20 to 25 per cent discounts and people are stocking up on their weekly shop when they receive such value.
Our advice to those of you who are considering purchasing a home, new or second-hand, is that you should be actively viewing the properties available as value is better than many realise. In addition cost of credit is relatively cheap and likely to get cheaper. The New Year will bring opportunities and a new optimism and value.
The rental market
Change has occurred in Galway city rental market also but to a lesser degree than in the sales capital market. Rental values in 2008 reduced by anything up to 10 per cent in the less central locations. Location, as with all property, is very important. Galway city centre rents held their own throughout the year with strong demand. Salthill and inner suburban areas generally performed well. Suburban locations such as Doughiska and Knocknacarra did experience some decline in rental values of between five and 10 per cent, depending on property size and type. The reason for the reduced/static rental values is the increased supply of rental property. Many homeowners who tried to sell their home but were not successful decided to rent; in addition many developers offered unsold new homes for rent rather than sell at reduced levels. The demand for rental accommodation is boosted by those who have decided to continue renting rather than buying for the moment and this has helped to compensate for the loss of many migrant workers who no longer work in Ireland.
How the rental market performs in 2009 will be influenced by how active or not the sales/capital property market is. If sales activity improves, then rental values are likely to drop. If sales activity stays slow, then rental values are likely to hold their own in 2009.
Well furnished, clean, modern homes are likely to be first choice for tenants. Central locations close to all services, or well serviced with public transport, are also likely to be key factors for tenants. Our advice to landlords is to prepare your property and present it as well as possible. Galway city does not suffer from a large over supply of unsold new homes so rents are likely to hold their own, but tenants (rightly so ) will be more particular and will expect better quality accommodation.
Sherry FitzGerald Kavanagh wish you all a happy New Year in 2009.
