A recovery in Ireland..... Really??

Whereever you look at the moment there is conflicting evidence in the economic recovery of Ireland. House prices we are told are showing some signs of recovery, although this is largely based in the prime Dublin locations yet the country as a whole is back in recession. It's very easy to put a positive spin on stories and bring the small positive to the centre of an overwhelmingly negative situation. Economists have been doing it for decades, some like David McWilliams with a touch of flair and accuracy but the majority of them with about as much success as me predicting the future value of the Nikkei 225. They are often aided and abetted by certain strands of the media that are looking for a good story, almost at any costs.

 Personally I think people respond better to being told the truth rather than being led down the garden path. It is easy to be fooled though. There is a lot of property being sold at the moment, typically it is large lot sales to either very wealthy individuals or large funds that are specifically set up to look for distressed assets that can be turned around. Even financial traders from the bond markets are getting involved, buying a loan book from one of the newly nationalised banks often has a far greater return than anything they can access in their own trading markets. The debt is considered as good as the government and for some there is a profitable play to be had. Whilst the state of the economy is part of the information used to make a decision, the focus is solely on how much money can be made.

 All markets are efficient. The stock market is an exceptionally efficient vehicle. It has bull runs as it races higher and bear stages as it collapses back to normally. It can be over bought or over sold but is always waiting for a correction back to normal levels. The property market is no different, the depth and length of the correction is directly correlated to the extent to which it was overbought. Japan, unfortunately became the poster child for an economy and property market that became the most overheated of modern times. The decades that followed saw deflation, stagnation, currency speculation and consistent economic uncertainty. It is only now, over twenty years on that they are truly seeing signs of turning the corner.

 Why would Ireland be any different. Its a far smaller nation and the correction phase should be easier but there is no way that we are at the bottom yet. The investors mentioned above would agree, they're not interested in picking bottoms in the market, they're only interested in looking at yields versus the cost of carry of the money and what can be achieved elsewhere. If a purchase ticks all of those boxes it will be done, if not it simply won't happen.

There are three phenomenons still to hit the Irish property market, all with negative effect.  Many of the buy to let investments that are in negative equity, all the consensual sales that distressed borrowers have to engage in and all the repossessions that are starting to increase in numbers have to come to the market. It is as simple a case of supply and demand that you will ever see. As more residential property makes its way onto the market, the prices have to fall. Interestingly I have the benefit of working in Northern Ireland over the past twelve months and the observations I would have is what has occurred in that market is now happening in the Republic.

I don't know what its like where you live but in Galway the 'For Sale' signs are popping up everywhere. Gone are the dilapidated signs that have been there for the last four years, mildewed and overgrown with weeds. The new signs are all bold colours and sparkling clean and announcing that there is business to be done. But its not nice business is it. Most are distressed sales, properties where receivers have been appointed or a series of investments that have seen the borrower lose almost everything. It certainly goes against the psyche of the Irish nation. Repossessions have never really been part of the home-owning process but they are now a real and present danger. One hundred and sixty homes were repossessed in the first three months of this year. On its own it doesn't seem like too big a number but its a significant increase on previous months. Add in those properties that have been sold with the consent of the borrower and lender and the number would be significantly higher.

The only ones really benefiting are the estate agents, they had a great time during the boom and for those who survived the initial years of the gloom, its not too bad now either! They provided you with mortgage solutions when you were looking to buy the property. Now that you are down on your knees they are looking to find you a buyer for that very same house at a fraction of the price. It was and is a fee fest, whether you are a solicitor, accountant, insolvency practitioner or estate agent, you get paid whatever the situation. The very real danger is that they are not always acting as aggressively as they should in the interest of those in difficulty. All have a huge interest in staying 'on side' with the banks, after all that is where the majority of their work is coming and will continue to come from for the next five years in this country.

The new Insolvency legislation will advance this sale process further but only if bought into by the banks will we see a re-basing of household debt in Ireland. The problem though is that the banks will retain the say in most applications to the courts and unless they are coerced into the process by the regulators or Central Bank, it will not work. For now though, with repossessions on the increase, it is more important than ever that you stay engaged with your lender and seek good independent advice.  The idea of holding onto your property portfolio if it is in negative equity, simply will not be allowed to happen.  As time moves on and interest rates rise which will happen at some point, the pain threshold will increase yet again – not a nice thought really for everyone.