What does the international bailout of Ireland's public finances, impending general election and warnings of debt default mean for the Irish housing market? Probably not much in the long term.
After Ireland's upper legislature passes the government's finance bill on Saturday allowing a Euro67 billion bailout by the EU, IMF and Britain to go ahead a general election will be called, probably for late February.
Ireland's next government, most likely a coalition of conservative Fine Gael and socialist Labour, will want to re-negotiate the bailout package agreed by the outgoing coalition government of conservative Fianna Fail and environmentalist Greens. They want those “punitive” 5.8 per cent interest rates charged by the EU on loan repayments cut. Bank economists warn those high interest rates invite default. Rates must be halved to 3 per cent at least, to keep the Irish on board US bank, Citi, says.
If Ireland defaulted on debt repayments this would infuriate the EU, so this is unlikely, but not impossible, especially if anti-EU, ultra-nationalist, far-left Sinn Fein gets a grip on the balance of power in the next Irish Parliament.
Although damaging initially, debt default may make little difference to the housing market in the longer term says Brian O'Driscoll, head of residential research Ireland at estate agency Savills says.
“There would be a couple of years of complete and absolute instability in the market and then it would stabilise,” he says, “It would not be an absolute disaster.”
The Euro6 billion of tax rises and spending cuts in the government's bailout budget does little for housing. Although stamp duty was cut from a top level of 9 per cent to 1 per cent for homes valued under Euro1 million and down to 2 per cent for homes valued above that figure, this will not be enough to compensate for job losses, wage freezes and tax rises arising from the budget which leaves Irishmen and women with less to spend on home buying.
The Irish property market's biggest problem is the tens of thousands of homes lying empty, especially in the new build “ghost housing estates” outside Dublin O'Driscoll says. Last year University College Dublin calculated 170,000 homes were empty following massive over-construction during the boom years of the mid-noughties.
The lack of mortgage funding is another drag on the market O'Driscoll says.
“In 2007 there were 15 mortgage lenders, now there are three and they are nationalised or being nationalised,” he says, “You won't get a loan unless you work in government or have rock solid employment. Lots of categories of business are deemed to be unacceptable. Without a fluid mortgage system it is hard to have a fluent property market.”
O'Driscoll considers consensus opinion among forecasters is for property prices to fall -10 to -15 per cent by the end of 2012. Prices of some new build homes outside Dublin may drop -40 per cent in 2011.
Prices will keep falling until the economy and mortgage lending expand substantially, and the supply of excess housing is soaked up he warns. Dublin's suburbs will remain the country's least weakest market.
Ireland's property slump began in June 2006 since when values have halved and buy-to-let investors have become nearly extinct. Only 250 investors bought Irish property in 2010 compared to 30,000 in 2006, a contraction of 99 per cent.