The Key Findings:
- Estate agents expect national property prices to increase by an average of 2% over the next 12 months
- Six out of ten agents describe current residential property prices as expensive
- 43% of agents believe prices are increasing but will level off soon
- 48%, believe credit conditions have deteriorated
- Report includes affordability scenarios for Cork, Galway and three Leinster commuter belt counties
- According to these a couple on a combined salary of €89K who want to buy a new house and have the 10% deposit will afford to buy in three of five locations
- However, couples will still face shortfalls of over €83,000 in Wicklow and €32,000 in Kildare
Friday July 21st 2023: Estate agents who are members of the Society of Chartered Surveyors Ireland (SCSI) expect national property prices to increase by an average of 2% over the next twelve months.
According to the latest SCSI Mid-Year Market Monitor six out of ten agents believe current residential property prices are expensive while three out of ten believe they are fair value.
When asked where they believe we are in the market cycle, 43% believe prices are increasing but will level off soon, 14% believe prices are falling but will level off shortly while 11% believe prices are starting to fall. A further 14% believe prices have peaked and should start to decline.
John O’Sullivan, Chair of the SCSI Practice & Policy Committee, said the continuing moderation in the rate of price increases is welcome as are signs of an improvement in affordability in some parts of the country.
“The vast majority of SCSI agents and valuers expect property prices to rise by an average of 2% over the next year for three main reasons; the continuing shortage of supply, interest rate increases and changes in the wider economy. While the supply situation has shown a modest improvement – 71% of agents reporting low stock levels compared to 81% a year ago – the number of properties available for sale is still far below pre pandemic levels. Currently property website MyHome.ie has around 14,000 listings for sale. Pre covid this figure was 20,000.”
“The rise in construction costs is also affecting the supply of new homes leading to concerns regarding the viability of certain projects. While the Government target for new home supply this year is 29,000 residential units, this is still well below the level required for Ireland’s growing population and 38% of agents believe the low level of supply will continue to underpin prices. Interest rates have increased dramatically over the last 12 months with 48% of respondents to the survey saying credit conditions have deteriorated. Right now buyers are keen to complete transactions and to lock into better fixed rates ahead of further potential increases. The other reason agents are forecasting a modest increase in prices is the state of the wider economy with general inflation hovering between 5 and 6%. When viewed in that context the projected increase is actually a reduction of 2 or 3% in real terms.”
“With more people continuing to work from home many buyers are continuing to consider properties outside of the larger urban centres as long as they have a good broadband connection” Mr O’Sullivan said.
Current Affordability Scenarios
With property prices nationally having increased by 126% from their trough in early 2013, the SCSI included five scenarios involving couples earning average salaries of €89,000* in the latest monitor. The scenarios demonstrate the affordability gap, if any, which exists between the total mortgage purchase limit available to a couple on average incomes looking to buy their first home and average new house purchase prices in three different locations.
|Average Purchase price of new 3 bed semi||€383,000||€431,000||€488,000||€385,000||€382,000|
|LTI Max Loan Limit||€356,000||€356,000||€356,000||€356,000||€356,000|
|Total Purchase Limit||€394,300||€399,100||€404,800||€394,500||€394,200|
Fig 1 – Five scenarios. The purchase prices listed here are average purchase prices of 3 bed semis based on current new housing developments in the five relevant counties.**
According to these scenarios a couple on a combined salary of €89K who want to buy a new home and who have the 10% deposit having availed of the Help to Buy relief, will afford to buy in three of the five locations, namely Meath, Cork and Galway.
However prospective buyers in Wicklow will face a shortfall of over €83,000 in Wicklow and of almost €32,000 in Kildare.
John O’Sullivan said the figures showed that affordability and viability remained the critical issues for the Irish property market.
“These figures show that while it is undoubtedly a challenge, it is possible for couples on average salaries to buy a new home in various parts of the country. It is also heartening to see that affordability has improved in Meath over the last 12 months. (Cork and Galway weren’t included last year).
“The Government’s First Home Scheme (FHS), a shared equity scheme, where the State and participating banks pay up to 30% of the cost of a new home in return for a stake in the property, has only been operating for a year but is already making an impact.”
“However, the scenarios show that new homes remain totally out of reach of people on average salaries in the commuter belt counties of Wicklow and Kildare – where prices can be similar to Dublin – and this is no doubt a huge issue for young people looking to purchase a home in those counties. In addition, there are thousands of people on salaries below this level across the country who are not able to buy and who will require support.”
“Unfortunately, with rising construction costs continuing to put pressure on the viability of new projects and interest rates set to rise further it looks as if the situation across the country is not going to change significantly in the short term. From a homebuilder’s perspective, if people can’t afford new homes that raises questions over their viability and overall housing supply.”
“The SCSI has pointed out previously that soft costs make up around half the cost of delivering new homes and has urged Government and local authorities to drive down prices by reducing these costs where possible. The Government has waived development levies on new homes for a period which is a positive step, but more work remains to be done in the areas of planning, procurement, and utility connection charges. The SCSI also welcomes the fact that work will begin soon on several large-scale developments. For example, the LDA will go to tender shortly for a panel of developers to build 5,000 cost-rental and affordable units over the next four years” Mr O’Sullivan said.
The SCSI tracks members’ views on the activity of landlords placing their investment properties on the market for sale.
The number of agents reporting landlords were placing their properties – many would just have one – peaked in Q4 2022. Since then, the figure has reduced slightly.
John O’Sullivan says while the figure may have reduced in the most recent quarter, landlords are continuing to leave the market.
“According to agents the four main reasons landlords are leaving are; rent legislation is too complex and restrictive, net rental returns are too low, landlords are coming out of negative equity and they are coming under pressure from lending institutions to liquidate assets.”
“Complex and restrictive rental legislation can impose significant regulatory burdens on landlords, including requirements related to property standards, tenant rights, eviction processes, rent controls, and other compliance measures. These burdens can create additional costs, administrative complexities, and legal risks for landlords. We have a chronically undersupplied and dysfunctional rental market. That is going to continue until we reverse the exodus of landlords from the market by making it more attractive to them and potential new entrants.”
To see the full report, go to www.scsi.ie
For further Information
Contact Kieran Garry
*This average salary is taken from a sample public servant role (e.g., combined wages of two gardaí/nurses after 10 years’ service or two executive officers after c. nine years of service). Their total Loan-to-Income (LTI) maximum loan limit is €356k (4x gross salary). As first-time buyers they require a 10% deposit.
**The analysis excludes the First Homes Ireland scheme which could provide buyers with up to 20% funding towards the purchase price for those drawing down the Help to Buy scheme also.
Note to Editor
SCSI Residential Property Price Monitor July 2023
The SCSI Residential Property Price Monitor is a quarterly sentiment survey of SCSI members conducted jointly with the Central Bank of Ireland, consisting mainly of estate agents, auctioneers, and surveyors. While the principal focus is on participants’ house price expectations, the survey also canvasses opinion on the factors underlying these views, and on members’ assessment regarding the level of transactional activity in the market.
The survey is a snapshot of respondents’ expectations at a particular point in time. The survey was conducted in June 2023 and received 104 responses. The SCSI would like to thank all members who share their market insights and expertise to inform our independent market reports.