Safe as houses: Ireland’s residential property makes a speedy recovery

The residential property market in Ireland held up well during the pandemic and now, as the country looks to move to a post-pandemic economic phase, it’s set for healthy growth.

The Covid-19 pandemic affected all areas of the Irish economy last year, but some sectors were impacted more than others. Residential property – a strong sector in recent years – was one of those to escape relatively lightly.

Overall, in 2020, property prices remained relatively stable, according to the GeoView Residential Buildings Report published by GeoDirectory and EY-DKM [www.ey.com/en_ie/news/2021/01/residential-property-transactions-fall-by-over-20-percent-2020]. The average price in the year to November 2020 was €294,184, down just 0.7% year-on-year – although that average was boosted by more than €60,000 by Dublin prices.

Property prices in Dublin averaged €442,711, up 0.8% compared to the equivalent 2019 figure. The only other counties to register prices higher than the national average were Wicklow (€381,441) and Kildare (€318,744).

Unsurprisingly, the lowest average property prices were found in rural parts of Ireland. Longford, with an average of €122,989, was the cheapest, followed by Leitrim (€126,316), and Roscommon (€128,920).

However, the pandemic affected the Irish residential property market significantly in other ways. The number of residential property transactions in the country in the 12 months to November 2020 was down 21.1% year-on-year. In all, there were 35,542 residential property transactions in Ireland, with a drop in purchasing activity recorded in every county, although Dublin had the sharpest drop, down 3,981 transactions year-on-year.

Despite the disruption caused by the pandemic to the construction industry last year, there is still a strong pipeline of building activity. The GeoView report found there were 16,735 residential buildings under construction in December, an 11.6% increase year-on-year. Of those under construction, the highest number – 2,737 – were in Dublin. Although it should be noted that this figure was down 34.1% on the previous year.

Annette Hughes, director, EY-DKM Economic Advisory, said the increase in the number of buildings under construction was welcome: “The core challenge for the housing sector now is maintaining growth against the background of Covid-19.

“With the level of household deposits up by €13.5 billion (14.4%) since the start of the pandemic, the expectation is that this elevated level of savings will support the economic recovery and housing market transactions post Covid-19. Thus, it is imperative that the focus remains firmly on improving housing supply to avoid house price inflation.”

Rising prices

Currently, Irish property prices are rising steadily, according to figures from Trading Economics [tradingeconomics.com/ireland/housing-index]. In March, they were up 3.7% year-on-year, following a 3% rise in February. In all, that marks five consecutive months of house price growth in Ireland, as the country and its economy gradually recovers from the Covid-19 pandemic. The rise in March was the biggest monthly increase since March 2019. Prices are also increasing for apartments – up 3.4% in March.

The increase in property prices is most marked outside the capital. In Dublin, house prices increased by 2.5% in March – up from 1.4% in February – while in the rest of the country prices went up by 4.9%, up from 4.5% in February.

The rise is being attributed to pent up demand – the pandemic curtailed a lot of property sales during much of 2020 – as well as increased savings by buyers in the past year.

Recent acquisition activity

There has been plenty of acquisition activity in the Irish residential property market in the past year. One of the most significant deals in the past 12 months came in April when German firm Union Investment acquired the planned 8th Lock residential quarter in Dublin from British and Irish developer Ballymore for about €200 million.

This deal saw Union Investment make its first investment in the Irish residential market and was also the first in the country to involve forward funding by an end investor. This means that the buyer is involved from early in the process and makes payments according to the progress of the construction. Previously, forward purchase structures have been favoured.

Martin Schellein, head of investment management Europe at Union Investment, said: “Ireland has the youngest population in Europe and is experiencing strong demographic growth. With multinational companies continuing to base themselves here, there is high demand for affordable housing, especially in Dublin.”

Elsewhere, in May, two investment firms, SFO Capital Partners and Round Hill Capital, teamed up to purchase the Bay Meadows development in Dublin 15, which comprises 112 family houses.

The companies have purchased the development, which is a mix of 2-, 3- and 4-bedroom homes, with the intention to rent out the houses. The first phase of the development has just been completed, with the second phase set to be ready to rent out early next year.

Round Hill Capital had earlier in the year bought most of the houses in the 174-house development in Maynooth, County Kildare. This transaction was the catalyst for a change in government policy whereby purchases of more than 10 houses at once will attract a stamp duty of 10 per cent under newly introduced legislation. This does not apply to apartment purchases.

Investing in Irish residential property

While there have been large deals, there have also been plenty of smaller acquisitions of one or two properties as a buy-to-rent or to sell on for a profit, which shows there are opportunities to invest in Irish property at all levels, whether investors are domestic or international.

Property can be bought personally, through a company or a real estate funding vehicle. Each option has its own tax implications, so careful consideration must be given to which is right for you.

For instance, there are real estate investment funds, which usually have three main investment strategies. These are ‘hold and rent’, where property is bought and rented out; ‘Hold and sell’, where large property portfolios are acquired and then sold off in smaller lots or individually; ‘develop and sell/rent’ where plots of land, or part-finished developments are bought and then either new developments are started or existing ones finished, after which the properties are sold or rented out.

Other incentives to invest in Irish residential property include low interest rates, which is useful if borrowing money. The stable economy in the country is also a factor – it is not prone to sudden collapses, so the property investment is likely to appreciate in value over time.

Future prospects for Irish residential property market

With the recent uptick in residential property prices coinciding with Ireland’s gradual unlocking from COVID lockdown restrictions, along with the strong pipeline of new developments in the next couple of years, the residential property market in Ireland looks set for steady growth.

If, as is hoped with the rollout of the government’s COVID-19 vaccination strategy, Ireland moves to a post-pandemic phase, the economy should recover strongly and, along with it, confidence among house buyers and the private rental sector.

This should also mean there are plenty of investment and acquisition opportunities for individuals, investment companies and others in residential property in Ireland, and, with it, the potential for decent returns on the investment.

Advice

With the strong rental yields available in the sector and the potential for further capital appreciation going forward, there should continue to be strong interest in residential property in Ireland. For those looking to invest in residential property or establish a property holding structure in Ireland, then it is crucial to get the right advice – especially in regard to the tax regime.

To get the right advice, those looking to invest, acquire or establish should seek out advisers with specialist knowledge of the sector in Ireland.

Malone & Co. can assist on all relevant aspects of residential property investment from sourcing suitable acquisitions to ensuring any transactions are structured in the most tax efficient way that best suits the objectives of the investor.