Ireland’s property prices given artificial reprieve
By James Wallace - Friday, January 27, 2012 12:36
Ireland’s one-off reduction in stamp duty has given its commercial real estate market an artificial reprieve in its four-year decimation on capital values, IPD’s Irish index shows.
Last quarter, stamp duty fell by four percentage points to 2%, insulating the property marker from reporting another quarter of capital depreciation, which would have concluded four full years of price falls.
The ‘stamp duty effect’ led to a 20 basis points rise in values in the final three months of last year, according to the SCSI/IPD Ireland Quarterly Property Index which is based on a sample of 328 properties worth €2.3bn. However, removing the one-off impact of the reduction in acquisition costs, values would have fallen over the quarter by -3.8%.
Ireland’s commercial property market has fallen by 64.8% since September 2007.
Phil Tily, IPD Managing Director for UK and Ireland, said: “The raft of property reforms announced in December may take time to impact on Irish values. The decision not to implement rules regarding upward only rent review legislation and the removal of capital gains tax on purchases before the end of 2013 should restore a degree of positive investor sentiment towards the market.
“The stamp duty reform has had an immediate effect on values, but this is not due to improving occupier demand or yield shift. It is in effect taking 4% off any costs for the quarter.”
The Irish economy remains in a difficult situation, with rental values continuing to decline by -3.1% in the last quarter as austerity cuts take their toll on consumers and occupiers alike. In total rental values have fallen -46.6% since December 2008, leaving large proportions of current income unsecured by levels of over renting.
Hugh Markey, chair of the Commercial Agency Professional Group of the Society of Chartered Surveyors Ireland, said: “While 2011 was a challenging year for the commercial property market in Ireland, the decision by Government to reduce stamp duty and to provide certainty in relation to upwards only rent reviews in pre-2010 leases provides a degree of certainty in the market and is encouraging investment.
“However, access to finance remains a key issue in the market and it is imperative that credit becomes more accessible for suitable projects.”
Ireland’s 2011 annual performance
Total return for the year was -2.4%, matching the figure reported in 2010, while the level of capital declines, despite the respite in Q4, were in a similar order of magnitude to the previous year, at -11.4%. The uncertainty regarding rent review legislation and austerity cuts having had an adverse impact on property values property values for the majority of the year.
Retails recorded the steepest decline in values for the year, at -12.1%, followed by industrial properties, down -11.8%. Rental values fell 15.1% for both sectors, compared with offices, which recorded rental value decline of 13.9%.
Income return reached double digits, at 10% for the year. At these levels you might hope that investors become more attracted to property, given the greater clarity and reforms being implemented in the market. Initial yield in December was 9.4%. Transaction levels remained non-existent throughout the year.
Tily added: “Values have now fallen 64.8% since September 2007, and the huge discounts will have started to attract considerable attention to the market, but investors will inevitably have to be extremely careful with their asset selection.
“With 2012 earmarked as the possible year when NAMA will start to offload larger, more distressed sections of its loan book, it will be interesting to see the impact on the market in the coming year, and whether the discounts offered, and the new government legislations, prove sufficient incentive in the current risk averse investment climate.”
jwallace@costar.co.uk