April 3, 2014

Irish Property - Why cash buyers are squeezing out young families, yet again

Posted in Banks · 41 comments ·

What is the true state of the housing market in Ireland and what does it mean for you? There’s a huge amount of hype, speculation and sales talk doing the rounds and in this cacophony and noise, it is hard to get a true picture. One way to look at the property market is through the eyes of two very different generations of Irish people.

The first generation is the people who bought at or close to the top of the market. For these people, price increases of late are only meaningful if prices keep rising so that they can get out of negative equity.

The second group is the investors – or, as they have been referred to lately, the ‘cash buyers’. For them, the pivotal issue is the yield on the property.

This week there was loads of data published about the property market and it gives us the opportunity to deliver a snapshot about where it is right now. In order to make some sense of the numbers for both groups, I have taken the rental data published yesterday by daft.ie and the house price data published, also yesterday, by myhome.ie. In table 1, I have calculated how long it will take for my first generation to get out of negative equity.

Table 1 Independent

If property prices rise – as they have in Dublin over the past year, by 10pc – it will take four more years for them to get out of negative equity. However, if prices were to rise by a more modest 5pc per year, it would take another eight years. In the more likely scenario of a 5pc price rise across the board, people in Meath will not be out of negative equity until 2023. This is shocking.

These are the young families I wrote about here many years back, in 2006 to be precise. They were the ‘juggling generation’, juggling childcare, community and massive mortgages – they are going to be juggling for some time to come.

At the other end of the scale is the ‘cash buyer’ or the investor. These are mainly older people and these investors are playing a huge part, yet again, in the Irish property market.

Why is this?

It is because when you hear the favoured description these days of the ‘cash buyer’, this person is almost always an investor. By investor I mean that this is a person who already has a house and is buying a second place to rent.

The strange aspect about the ‘cash buyer’ is that they are elbowing out the first-time buyer or the second-time buyer. Talk to anyone in an urban part of Ireland who is in their thirties and wants to move to a slightly bigger house, they will tell you that they are being outbid by older buyers, typically in their fifties or sixties. So what is happening? What is the dynamic?

Years ago I referred in this column that there was a generation of ‘accidental millionaires’ – people who bought their houses in the 1980s and early 1990s – whose house values had risen so much that they were sitting on a goldmine without the mortgage. Fast forward seven years and they are today’s cash buyers. They may have traded down in the boom, made a few quid and have no debt.

BECAUSE they don’t have to borrow, they are already at a 5pc advantage over the young family that has to borrow from the banks at 5pc interest.

Therefore, what counts for them is the prospect of further rises in prices and the yield that the rent of the house gives them. Remember, they are getting close to 0pc on their deposits so whatever the house is yielding is greater than the amount they are getting in the bank.

So let’s look at the yield the cash buyer is now getting. I figure this out by taking the average price of a house in Ireland. I then calculate how much rent the house gets a month and multiply this by 11 months.

Table 2 Independent

The reason we don’t take 12 months is because there is always a risk that the property won’t be rented all the time. Then I calculate what that annual rent is as a percentage of the original price of this house. This gives us the dividend, or the annual return, to the investment.

Taking the Daft.ie data published yesterday, we see some very interesting trends. Now these figures are crucial to the cash buyers, or the part-time investor, who has always been a presence in the Irish housing market. Look at table 2 to see all these figures.

We see some strange anomalies. Although houses in south Dublin are far more expensive – €90,000 on average – than houses in Cork, they are better value.

This is because rents are much higher and much firmer in south Dublin than in Cork. In fact, Cork is the most expensive place for the cash buyer in Ireland. In contrast, north inner city Dublin is the best value of all the urban centres because whereas prices have fallen there, rents have remained strong.

This is because Dublin city is still a place that is growing and living in the city, whether it is northside or southside, is still living in the centre of a thriving city.

The story of the Irish property market as it unfolds is the story of two very different generations – one very lucky; one very unlucky.

Who would have thought that your financial prospects in a country could have been dictated by such an arbitrary factor as the year you were born?

David McWilliams writes daily on international economics and finance at www.globalmacro360.com

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  1. Bamboo

    Thanks David, Great detailed explanation of the luckies and the unluckies.

  2. Bamboo

    I am curious about the new kids aroound the block – the youngest generation in their late teens and early twenties – freshly out of the leaving cert, new graduates. What are the options for them? Can the new graduates get employment and earn enough salary so that they can leave the nest? Or are they leaving the country to find employment elsewhere with financing from parents? Would they have enough to pay their monthly bills? Or are they the new hidden homeless, continuously “in between jobs”, moving from one poky room to the other.
    It will be a serious make or brake time for this new generation. I hope to God it won’t end up in tears again if the obsession with property and their wobbly ladders is artificially hiked up again.

  3. atchman

    Ah so it’s to do with the year one is born, and there was me thinking it was down to misguided policies and reckless mismanagement of banking systems that was to blame ..sheesh! Just bad luck I guess :(

  4. tomahawk

    ‘Who would have thought that your financial prospects in a country could have been dictated by such an arbitrary factor as the year you were born?’…..
    Or…..’Who would have thought that your financial prospects in a country could have been dictated by such an arbitrary factor as the family you were born into?’
    Or…’Who would have thought blah blah
    Move along..Nothing new here!

  5. ducksfeet

    I am confused, sorry, not an economist but like reading David’s blog.

    On the negative equity – the suggestion is that if house prices keep going in Dublin then people who bought at the peak (like us in 2005) will be out of NE in 10 years or so. But surely these people (me) have been paying off their mortgage for the last 10 years and so what they owe now is obviously a lot less.

    We always figured we were ‘stuck’ because of negative equity but seeing what houses are selling for on our street now we reckon with what’s owed on our mortgage – we’re effectively breaking even or maybe better by 10 or 20K today.

    Obviously if you looked at what we paid for our modest semi back in 2005, we wouldn’t be getting anywhere near that but we won’t be in the red if we sell today.

    So I don’t understand the suggestions above about how long it’s going to take people to ‘get out’ of negative equity.

    Could someone explain? We were starting to be optimistic….

    • kinsele2

      I’m confused on where wage increases come into the equation. If the national average wage is staying where it is or falling but house prices are set to increase by 200k in Dublin, won’t everyone be worse off? And how can a first time buyer in their 20′s living on their own steam get anywhere near this market.
      Also the 5% bank interest rates really annoys me, if you take a mortgage today of 180k over 30 years, by the time it’s paid off you will have paid 144k in cash in interest (according to mortgages.ie).

      Looking at the figures though seems you could sell your semi-d in Dublin in 5-6 years and move to Meath / Galway to a nicer house and a decent profit.

      • 28pages

        and one must earn maybe 200k gross ,in order to net 144k

        just more disorder in the crumbling system,this time in the form of asset bubbles

        just more deceit and lies

        i now deem all our incompetent Govt’s actions as sinister,until proven otherwise

      • McGoo

        Ducksfeet : You should check with your lender exactly how much you still owe on your mortgage. Usually, mortgages are structured so that for the first few years you are mostly paying interest, not capital, so the amount owing does not go down much.

        Kinsele2 : You’re right, houses are still overpriced, and rising prices is a bad thing. However, the era of 20-somethings buying a house in Dublin is probably over for the foreseeable future, unless the supply/demand/credit/wages balance changes dramatically.

  6. Milton Friedman

    Good point but negative or positive equity is irrelevant if you live in the house and are making the repayments. You might feel poorer/richer but only if you have to crystalise a loss is it a real issue.
    You may be paying more to live in the house than you would have to have done if you bought later, but interest costs are now lower so affordability is better.
    You might check your math though. Prices have not fallen as far below peak as you show. Dublin is 33.1% down on your figures, it may then need a 49.6% rise from the current lower value to get back to where it was but it’s not fallen 49%.

    I suggest that Rational people should rent in Dublin and buy in Cork. Discuss?

  7. michaelcoughlan


    A very good follow up on the previous article on commercial property. Two points though; The massive foreign reits are squeezing out more people than older cash buyers. Also your info on prices was from daft which are only asking prices. If you took the data from the site which registers actual sale values your yields will be a lot higher and property values lower.

    Factor in the fact that sale prices are waaaaaaaaaaaay below production costs means no new supply for a loooooooooooooooong time increasing upwards pressure on rents.

    Government policies are only making the problems worse charging taxes on loss making properties.

    Best regards,


    • GF

      “..sale prices are waaaaaaaaaaaay below production costs…”

      I agree with everything you say Michael, but was hoping you could explain the above line to me as not sure if you were being sarcastic or just repeating it.

      My concern is that loads of builders/developers are stating, as if complete fact, that the cost of building is €X.XX per square meter.

      This is based on boom price building, and their own inflated massive projected profits, salaries of trades (that have dropped completely), materials (bricks etc.) that have since dropped in price, and much more (forgot to mention land prices).

      I just wonder if the cost of building is anywhere close to what they state. I have three separate friends/family building their own homes is different areas of the country – the cost to them is NOTHING CLOSE to what prices the developers (and NAMA) come out with, we are talking 40% of what they claim for top of the range building and fixture and fittings (much better than the lads will build.

      “These houses are selling for below cost, it can’t go on” is spin, pure spin, to give people the idea that this badly located three bed semi, poorly built with no sound proofing, poor insulation (etc.) is actually cheaper than it would cost to build yourself now. You have to buy it. You have to. It is below cost. It can’t go on. It’s below cost. What are you waiting for. The person who built this is getting sick into a bucket. But not you, not you when you buy at below cost prices. This can’t go on. Have you made your decision yet. Can I help. Did I mention it was below cost and this pricing simply can’t go on.

      What amazes me is that no one questions this continuing nonsense. PRODUCTION COSTS should not include the developers 48 FOOT BOAT and FERRARI. Nor should it include his daughter’s €80k salary for sitting at a desk twice a week for an hour.

      Sorry I could rant about this forever… I will stop, but just wondering, have you made a decision yet?

      • michaelcoughlan

        Hi GF,

        Thanks for your response. It has caused me to reflect on my post and clarify. Manny apartments are now being sold as evidenced in the fire sales in Dublin etc. Some prices are as low as €40k per apartment say in Galway city a great town altogether. That’s way below construction cost.

        Take a one off 2500 square foot house outside Dublin. Material prices are rising not falling due to commodity prices rising from speculation in stock markets. Wages have leveled out and are not dropping but skilled labour is still pricy. Vat rates have risen. That house will still need upto and over €100 per square foot to build and finish not including site value of say €50k which is €300k total. There are many 2500 square foot houses for sale for a lot less than that.

        I’m not focusing on the large developers because the good qualified guys had all stopped and left the industry prior to the bust. All that was left developing and investing were ego manics or misfortunes like gardai, dentists, accountants, teachers etc who had no skills and it never crossed their minds that the work is skilled and should be left to professionals.

        Your friends and family members are doing it themselves and saving the wages and vat element of the price of a building they would buy if built by a builder but they will still need to be skilled to comply with all the new regulations which are now in place.

        Its not spin re prices below costs because I would be back building (Trained construction project manager) if it was instead of being self underemployed and at home minding my kids for over 5 years now.

        I’m leaving it behind anyway because it will be no different the next time out. In my view we are in the Bull trap McWilliams identified with his super graph a few weeks back of the different stages of the boom bust cycle. The smart hedge funds McWilliams has highlighted are borrowing money in yen at close to zero buying property for peanuts here and will hold if for the short term to flog it back to us and catch us a second time when we have borrowed at 5% from our own banks to finance the purchases. It’s only after this second round of cannon fodder are mowed down and everyone is well and truly sickened altogether (possibly after we have been forced out the euro) that property in Ireland will be a good buy.

        If your family however are building the house of their dreams it’s still ok to do so so long as they take a long term view. Well located Houses for all the shite told about them have held up a lot better than many bank shares and other bubble type shares despite everything.



        • GF

          Thanks Michael
          Always enjoy your posts and that response was brilliant.
          Its great to hear a deep insight into points of view (my own) from someone who understands the intricacies of a subject matter.

          It’s a fair point regarding certain properties being sold at under cost (like those you mention at €40k), I suppose my vent (rant) was pointed towards the 2-Bed hell hole terraced houses built with cardboard (obviously not cardboard but you know that feeling you get inside a badly built home) that the experts [sic] tell us are under cost right now and you can snap them up for €380k. If that house truly cost €380+k to build (including land, vat, etc.) someone somewhere was making a killing.

          But to claim I could not build it now (i.e. the spin of it being below cost price) is ridiculous – I think (you may have persuaded me otherwise).

          It is very interesting to hear about the price increases in raw materials – I was not aware of that. Nor was I aware of the VAT increase on those materials, so I have learnt something new.

          I am just a bit shocked that house prices (albeit selected areas) are rising again at such a massive rate.

          How can 5% be a real return – i.e. over the long term house prices rise by 5% a year. That would mean house prices over double in value every 15 years? Actually maybe that is correct? Maybe historically that can be proven and if that is the case why would you invest in anything else when you also get the dividend of rent?

          Oh dear, maybe I should buy now… I think I have just worked out why people continue to do – because if you can hold the property for long enough, say 30 ears, you are going to get that type of return.

          Thanks again for your response, great to get that insight


  8. DarraghD

    Good article, I think though that something obvious is missing in this analysis. We have been through 6 years and more, of a recession that has obliterated wealth, which has left most people I know (I work in the private sector), pretty much without a brass pot to piss into. Savings have been nuked, incomes have been slashed, yet one special part of our national congregation have managed to largely insulate themselves from this, and are now perfectly positioned to buy property on the cheap…

    Up and down the country, we are hearing stories of people in their 50′s and 60′s, snappping up property with lump sums of cash. My view would be that it is our overpaid and protected brethern in the public sector, tens of thousands of whom have been incentivised to take early voluntary retirement, who generally retire with a lump sum that is at least 1.5 times their salary upon retirement if not greater.

    So those who can afford to buy with cash, I say are not “accidental millionaires”, but are actually retiring civil servants and the likes, who are retiring early on huge lump sums and overly generous pensions. And the same is generally true for those who are being granted new mortages, it isn’t the people working in small business in the private sector, who Irish banks now won’t touch with a barge pole, no it’s the public sector applicant who now can’t be touched in terms of their job security and salary/hours being cut, who is flavour of the month when it comes to whether you can borrow or not.

    So I argue that it isn’t age, it’s whether you are private sector or public sector, that really is what makes the decision for you, regarding whether you will be able to buy a house or not.

  9. Bamboo

    Extremely good point DarraghD!!

  10. Adelaide

    A sobering article from Constantin Gurdgievin in Sunday Times Business looked beyond the official unemployment figures. He calculates the true unemployment figure to be double the official one, that our real youth unemployment figure is on par with Spain/Greece, and that of all the unemployed 2/3′s are long term. His fear, as no country can sustain such a huge drag on its economy for long, without drastic employment generation, is the country risks both social/economic meltdown.

    With this in mind one may ask what’s driving up house prices? David nails it. Speculators. Like London, it’s a speculation bubble facilitated by near-zero interest rates. As Biffo never said, “The fundamental are NOT sound.”

    • Deco

      Perth, Australia.

      Irish people sleeping outside at night. No money for rent.Some are living in sheds. Too proud to come home. They would be better off on the dole at home.

      When they come home, it will have a shocking effect on unemployment statistics.

      So far the missing element, has caused Ireland’s unemployment statisitcs too look artificially look good.

      • michaelcoughlan

        Hi Deco,

        Have you a link for the info on Perth. I have a smug asshole mate living there (I hope you are reading this Paul) and when I contacted him recently about a bust in Perth he dismissed the idea out of hand.

        • Deco

          This information came from a man who had been there to visit his son.
          Needless, to say – the story will not get covered on Pravda Six one news.

          China’s construction boom is grinding to a halt. Less material required to feed it.

          Also there are behaviour problems with some of the young Irish in Perth. Mid week hangovers make people less employable.

  11. douglaskastle

    One bit that always seems missing in this analysis is that the money the boomers have right now will eventually be inherited. Admittedly some people, my parents included, are trying to spend as much as they can, but those houses are not going any where, they can’t migrate.

    OK now that said, does that money get inherited by the struggling negative equity generation and even if it does will it happen in a timely enough manner to help them or will their opportunities and the lives they are trying to provide to their children have passed by.

    I am aware that that everybody gets to inherit big money, I am talking about the economy as a whole.

  12. ps200306

    There’s a whole bunch of things wrong with this analysis. The rental yield in general in Dublin is nothing like 6% or 7%. It’s true for houses in place like Crumlin where the prices aren’t completely insane but the rents are as high as elsewhere. Even at 7%, when you factor in 50%+ income tax, house and (new) water tax, insurance, maintenance, and either property management charges or your own time spend on being a landlord (plus a mountain of hassle) … the net returns of a couple of per cent simply aren’t worth it compared to sticking the money in the bank, even at today’s low rates.

    In the bubbly parts of Dublin — the ones that have been making the headlines — gross yields are nothing like 6%. Those prices are rocketing for one reason only: lack of supply. There’s always going to be *some* people with money, that was true even in the 70s and 80s. And those people want the SCD houses which are as rare as hen’s teeth these days. You have to see the current run-up in prices against the backdrop of mortgage lending being down 95%! The actual number of transactions for the last several years has been tiny. Ok, they were up last year, as some cash buyers got drawn out into the open.

    Also, this tiny incremental number of transactions got the vested property porn interests salivating again, and banging on about a house price “recovery”. (I still will never understand how pricing most of the population out of the market is a “recovery”). That will suck in a few more “investors” who think the days of 10% capital appreciation are back for keeps. I mean, even David here is prepared to speculate about sustained 10% increases for 5 years plus. Are you nuts? That’s the same thinking that back in 2005 had the average house price about to be €1m by 2015, at which stage our GDP would outstrip the US!!!

    Please! Look at the state of the country — GDP anemic or falling, banks on life support (and may be about to be unplugged), next IMF bailout probably round the corner, unemployment falling but still massive. Who on earth would want more of our productive capacity sucked into property? Thank God we are being saved from ourselves at the moment, by lack of credit. At least the next round of idiots getting drawn in by dreams of a capital appreciating southside dream pad are small in number and rich in cash they can hopefully afford to lose. We’ll never learn :-(

  13. willie


  14. Pat Flannery

    Re your Global Macro 360 article:

    “Now that inflation is well below target, why doesn’t it cut rates?”

    Why is it an accepted tenet of economics that low interest rates and increased money supply is the only way to create demand and thus inflation? Economists need to understand that the problem is not a reluctance to loosen but what happens to the money when it is loosened.

    You believe David that “some liquidity scheme to help the banks” would “compel banks to lend”. Would that it were true.

    And there lies the problem. You need to come up with a new economic tool that would “compel the banks to lend”. This one is failing. Right now all they do is play the market with every penny you give them.

    Time for new thinking.

    • StephenKenny

      I think that the difficulties that we have probably are around the rising visibility of the results of the 20 years of massive mal-investment: The banks have become slick retail outlets for selling mortgages and insurance policies; the tax laws, zoning laws, and general legal system favour property trading and building, and multinational corporations, at the expense of everything else; the newspapers, television, and radio perpetuate the idea that public sector, financial services, and property are the only providers of worthwhile jobs; and so on. (Retail has become minimum wage).

      The system on longer supports other activities in any way, so the idea of lending to them is now, essentially, meaningless. If it’s not financial services, large retail, or property, you could almost say that it is no longer part of the economy.

      Mal investment has many faces, and this is just one I guess. A lot of things have to change before we can get out of this.

  15. Deco

    In the aftermath of the IMF bailout, I was told that the banks (then under state [ taxpayer] ownership, had a to prioritise their allocation of mortgage credit. The top priority – to establish a base under the Dublin residential property market – which was of systemic importance to the entire banking system. Yes, folks – every factor influencing the state of the real estate market in Dublin/the east region had to be upheld at all costs.

    Think about that !!!

    The search for suckers never ended.

    The crunch will come with respect to property tax. Watch as politicians in expensive areas who never stooped so low as to oppose bank bailouts, or bondholder repayments, suddenly declare that they are opposed to having their constituents pay property tax for the upkeep of the residents of Tallaght, or Tuam. It is not that oppose property tax – but rather that they do not want it affecting the cost of property.

    Because property cost has enormous impact on the psychological conditioning of those in the well heeled suburbs.

    [ Note - I use the term property "cost" - not property "value".]

    Well….it could be worse…it could be much worse. Just look at London/SE region of England. For there the nonsense about real estate is far far worse.

  16. 28pages

    and in the news – the Saudis declare me now as “a terrorist!”

    Release the withheld 28pages and we’ll see who the terrorist really is !!! What a cover up !!! more lies !!!


    this Michael Krieger has often actually something worthwhile to say!maybe check him out…

    • michaelcoughlan

      whatamess is it?

      • 28pages

        whatamesss it truly is Michael.An ungodly mess!? And understanding it “is like trying to solve a Rubix cube that’s fighting back”.

        “More than 6.5 million people have been displaced within Syria and more than 2.6 million have fled the country in search of refuge. The UN Refugee Agency expects this number to rise to more than 4 million by the end of this year. More than 587,000 Syrian refugees have fled to Jordan, more than 649,000 have fled to Turkey, and nearly 1 million have fled to Lebanon, where Syrian refugees now constitute a quarter of the fragile country’s population”, as the Guardian reported recently… whatamess,indeed!

        Then further down the rabbit hole, we discover the full spectrum dominance of the exchange stabilization fund!

        We can however counter all this plundering ,looting and lies ,with a hi-tech society ! hi-tech industry facilitating our aggressive reconstruction of our physical economies ,with mega infrastructural projects like NAWAPA XXI – a gateway to a fusion economy … a symphony of our creative spirit !


        or else ,its gonna be more imperialist insanity and cruelty at the hands of oligarchy !

  17. Bamboo

    The last couple of weeks we are getting to a stage that comments are closely related to the topic. You may have a point but be honest, do you think this is somewhat over the top?

    • 28pages

      Im trying to be as honest as i possibly can sir

      “The 100th monkey effect” may even hold true with our apes in Govt ??!!

      but lets stop monkeying around …

      humanity can wilfully choose another path

      a path made of scientific principle …

      perhaps you can inform us all then Bamboo about the ESF and how this organisation in the shadows ,is perhaps single handedly, determining these property bubbles,globally ?

      the floor is yours….

  18. Deco

    Latest bombshell, is NAMA’s sale of it’s NI proprty portfolio.

    The effective loss to the PAYE taxpayer exceeds 75%.Sold to a US private equity firm. All gone in one lump. No effort to find buyers for individual properties.

    Somethings stinks about this.

    0% haircut for the bondholders.
    75% haircut for the PAYE taxpayers.

    National debt spiralling out of control.

    MoF is another clown. Just as useless as Lenihan.

    • 28pages

      thanks Deco

      i might say im gobsmacked ,but i’m not….

      So… Cerberus Capital Management eh…hmmm…at a glance at these PE vultures of distressed European property, i see Dan Quayle@Bush,JP Morgan,and none other than George fu**ing Soros ! !!!Bonbon said it always eventually leads back to the Brutish empire.

      Correct again bonbon

      “Cerberus” (of Virgil’s Aeneid fame) was a sibling of our own modern day Chimera ,that is empire! Cerberus was a three[not always] headed hound/beast guarding the gates of hell !!

      aptly named company,what ?

      “what wicked webs…”

    • paddythepig

      0% haircut for depositors too.

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