Amidst all the doom and gloom of the past week or so – I am just about all NAMA’d out at this stage – there was a little glint of light in the sector that has been at the core of most of our home-grown difficulties: property.
On the edge of Mullingar, a smart looking development of one, two and three bed apartments priced at €69,950, at €82,400 and €98,000 were sold off to people who queued for hours for a chance to be the first viewers and to snap up the unit of their choice.
According to newspaper reports, the remaining 28 of the 63 apartments that the development’s receiver John McStay was selling off at cut-down prices were picked up by eager buyers, many of them young people living in the area.
The average second hand apartment in the Mullingar area is now for sale for around €100,000.
The prices that Mr McStay achieved for the Tailteann Court units shows what the market is genuinely willing to pay. Give the strength of interest; they might have even paid a little more.
The reason this is good news is because it proves that there is always a willing buyer – if the price is right.
The huge glut of unsold properties all around the country will find buyers once the price is genuinely affordable, based on the buyer’s income, their level of savings and their access to borrowings if they need a mortgage.
The buyers of the Mullingar apartments would have still needed between circa €7,000 and €10,000 as a down payment and to cover their legal and other fees. Most would have needed a mortgage.
Mortgage finance – when it can be secured – is still priced as low as 2.75 per cent (from AIB) making their monthly repayments perfectly affordable for even modest earners.
Press reports suggest that the one bed apartment purchasers will only be paying €265 a month (over 30 years) for their property.
Even with the cost of mortgage protection insurance and management fees, this represents good value.
Even a buy-to-let investor, assuming they could rent these apartments for €450 to €500 a month might just about be able to eke out a small profit.
No one knows how much longer it will take for the property market to meet rock bottom – as represented by these Mullingar (and some other) developments.
But if you use Mullingar as a benchmark you can see why there is a case for saying that property prices always, eventually, revert to their historic mean.
In the case of residential property in most western Anglo Saxon countries, it is reckoned that over the long term (c100 years) the price to income mean works out at a factor of 3.3.
In other words, if the average industrial wage is say, €35,000 (which is near enough Ireland’s) then the average dwelling should cost in the region of c €115,500.
Many neighbourhoods are a microcosm of the social and income strata of their town or a city.
Rich doctors, lawyers and stockbrokers are as tribal as the next group but even with their elevated salaries, the properties they live in are also subject to the ‘mean’ historic valuation.
If that neighbourhood’s ‘average’ salary is €300,000, then the reality is that their houses are probably really only worth in the region of €990,000, not the crazy, pumped up multi-million million values that were being achieved at the peak of the property bubble.
The huge glut of unsold (and withdrawn or withheld) properties show that we haven’t yet reached that point. It will come.
If you are in the market for a house, be patient. Line up your down payment and your loan finance well in advance.
Mortgage advisors say the higher the down payment, the more likely you will be to get loan approval. It goes without saying that you will need a clean credit record and a secure job.
The brokers are also saying that many lenders are now not approving the total sum being applied for – another reason to make sure that you have a good size down payment and that you are patient enough to wait for the price of the house you want to fall.
Since mortgage interest rates are now on the rise – AIB expect theirs to go up another per cent this year, aim to get the longest term fixed rate loan as possible before they become unaffordable or disappear altogether. Mortgage switching is now nearly impossible.
A broker I spoke to said that in his experience AIB and Bank of Ireland/ ICS are “the only lenders in the game right now”.
However, if the banks are recapitalised, and sellers finally accept that they need to price their properties based on the historic income to price ‘mean’ formula or on what sort of annual rent it can command (which is then multiplied by an average return on capital factor of 13) then, and only the, will we see the start of the resurrection of the property market.
Maybe the Mullingar experience will be the catalyst the market needs.
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