Demand may be in process of peaking and is unlikely to decline significantly in next two years

Stronger demand outlook suggests house price inflation is likely to average 7 per cent in 2005

Surge in housing wealth in Ireland has been dramatic with an estimated net worth of homeowners increasing by about €30 billion in 2004; more than four times the rise in GNP.

Housing wealth likely to be a key driver of Irish economic outlook in coming years.

The south coast of Ireland tends to have a milder climate than the rest of Ireland, experiencing warm summers and milder winters brought in by the Gulf Stream current that flows past its shoreline.  The climate, coupled with the breath-taking scenery and strong sense of heritage and culture, has made Cork an attractive location not only for Britons searching for a rural retirement idyll but also for the French and Dutch who have long been attracted to county.

The Irish too, taking advantage of improved roads, domestic flights offered by Aer Aran, and generous tax incentives are beginning to search closer to home for holiday home investments.  With prices as low as €110.000 for a two bed roomed chalet on Dingle Peninsula, investing in a holiday home in Ireland, need not break the bank.  Generally, chalet style homes will be cheaper to buy than stand alone properties on their own land.

Most people want to buy a traditional style home with views of the sea or unspoilt countryside. A typical three-bedroom property with sea views could cost anything upwards of €480,000, while a property with spectacular country views could have a price tag in excess of €280,000. The difficulty and one of the factors contributing to the high property prices in Ireland’s most scenic locations, is the shortage of properties that come on the market.  It seems that when people buy in Ireland’s most scenic locations, they don’t want to move!

With many of the people buying holiday homes in Ireland having roots in the country, they tend not to get too involved in renting out the property.  For those who want to invest in a holiday home to let when not in use, the letting potential of properties located in areas such as West Cork, Kerry, Connemara or quaint port towns such as Killibegs, is good.  A four bed roomed house with good sea views could expect to take in €1000 per week in the summer season. 

Quite often, buyers find holiday homes too small and see extending the property or building a new home as the best option. It is worth bearing in mind the difficulties that may be encountered taking this route. Strict planning regulations make it almost impossible for foreign investors or indeed Irish nationals from outside the county, to build a property on purchased land.  Planning regulations favour locals building new homes in the area. It may be more difficult too for foreign buyers to obtain planning permission to significantly alter or renovate an existing property, though once a property is owned, it is easier to secure planning. 

With the demand for second homes remaining steady, there is no sign of prices slowing down. Last year property prices in West Cork rose between 8-9%. The situation is similar for many of the other tourist hotspots. Rental incomes aside, anybody making a smart investment in some of Ireland most desirable scenic locations can expect to see significant return on investment over the coming years.

Rural Bargains - Generally, the east coast, including Dublin, and the major cities such as Galway and Cork tend to be hugely overpriced.  Avoiding these areas and investing in Ireland’s midland counties where prices are more realistic is a safer option but no necessarily the most profitable.  If the worst-case scenario happens and the property market in Ireland plummets, those investing in price-inflated properties will suffer most.  Those who invest in rural Ireland’s cheaper properties will escape largely unscathed.  Not everybody, however, looks at property purely for its investment potential. For those making a complete relocation and buying a permanent home, swings in the market are irrelevant.  Many come to Ireland to live a quality life in a quality environment and never intend to sell.  These are the people who can be choosy about where and what they buy since they are likely to sit out any crash in the market. For many investors too, rural Ireland and the ‘hunting, shooting, fishing’ lifestyle that it conjures up in the imagination is the preferred option.  Although prices in country areas have increased over time, they still lag behind the inflated city prices and it is possible to find a ready to move into home in Ireland for as little as €70,000.

For those who have the inclination and resources to renovate, the skeletons of former Irish cottages can be picked up throughout the midlands for as little as €35,000. 

For the budget investor, however, even in rural Ireland there are areas to avoid.  Trying to buy property in Ireland’s established tourist hotspots puts you in competition with the wealthy elite who has the cash to lay claim to some of Ireland’s most beautiful landscapes.  Killarney in Co Kerry, Killibegs in Donegal,  Kinsale in Cork and  Connemara in Galway are likely to break the bank of any small scale investor.  However, the Irish tourist board are making considerable efforts to promote new kinds of tourism in Irelands midland counties. In particularly counties situated along the river Shannon, such as Roscommon and Leitrim.

It is still possible to pick up properties in these counties at an absolute steal by today’s standards.  The properties are likely also to have excellent rental potential from the tourist industry and are well suited for letting to fishing enthusiasts because of the many lakes and wetlands that surround them. Supply a boat with your property and you can very much guarantee being booked out for the summer. Renting a three bed-roomed property in Roscommon, you might expect to earn somewhere between €450 and €700 per week in peak season. 

You’ll find properties equally as cheap in some parts of County Sligo, eastern Mayo and Tipperary. As a rule, the further the property from the sea, the cheaper the price tag!  So even in counties with coast lines, the further you move away from the coastline, the cheaper you can expect the properties to be.

The most affordable of all the counties is County Tipperary.  The largest of the inland counties, Tipperary is lacking the key attractions that make for good tourism, lakes, rivers, and mountains.  It does have it’s own charm and is certainly the place to look if you are seeking ‘the peace and tranquillity of rural Ireland’.  It’s not over-run by tourists and it still has the air of a well-guarded secret. In Tipperary it’s not unheard of to pick up a property for €25,000.

Investing in Dublin  – What’s up for Grabs - On the back of attractive tax breaks introduced in the 1980’s to encourage the regeneration of Dublin’s run-down city areas, apartment complexes began to spring up in every nook and corner of the city.  Prior to that, apartment living was virtually unheard of in Ireland making up only 13% of all sales in 1980.  Now, apartments in Dublin account for 1 in 4 of all new homes built and make up half of all sales in Dublin. And the supply continues to increase dramatically every year. In 2004, 26,000 houses and apartments were built in Dublin.  This represents an increase of more than 140% on figures from 1994. A low interest rate environment has kept demand for new housing in Ireland strong.

With more people jumping onto the property ladder prices have increased in line with demand.  A two bed roomed apartment in Dublin’s more exclusive, but not necessarily central, developments can go of up to €450,000.  Similarly, a one-bed roomed apartment located within 2 miles of the city centre can go for €400.000. 

Since their arrival, apartments have always been the favoured option with investors in Dublin.  Being low maintenance, they are a relatively hassle free investments.  Also their typically central locations make them attractive to the young Dublin workforce looking for a centrally located property to rent. On the downside, the oversupply of apartments in Dublin, coupled with the favourable interest environment pushing more people onto the property ladder, has meant that rental yields from properties in Ireland have fallen from boom time figures to under 3%.  In fact, rental yields have decreased by 19% since their peak in 2002.  In many ways the fall in rents is not too surprising since rental prices rose phenomenally prior to 2002.  This year a property that might have taken in a rent of €1000 per month last year is now bringing in €800.

So, the big question for investors a property purchase in Ireland is, will the rental income cover the cost of the mortgage repayments?  In the current climate, probably not but choosing whether or not to invest in the buy-to-let property market is a decision that will depend on how long the investor is prepared to wait for a return on investment.  While it was possible for investors to make a property pay quickly in the pre-2002 environment, now investors are forced to rely on capital appreciation to give the returns they expect. 

Even if the rents don’t entirely cover the costs of the property, those prepared to sit on their investments for up to ten years will still receive an excellent return.  With capital appreciation on Irish properties at around 13% last year, investors can expect a property to almost double its value in the space of 5 years.  Even if as suggested house inflation is estimated at 7% , the capital appreciation on the cumulative price over a ten year period makes it a worthwhile buy.  Significantly, 32% of all houses built in the greater Dublin area in the first half of 2004 were sold to investors, indicating that despite a decrease in rents, investment interest remains strong.  This suggests that investors capital appreciation rather than rental yields is motivating most buy-to-let investors.

While property in the city centre or within a short commute distance are expensive, there are still areas of the city that offer good value, particularly around Drumcondra and old Finglas on Dublin’s northside and Ballinteer and Cabinteely on the southside.  The key to finding cheap properties that will still rent out at a rate that will cover the investment costs is research, local knowledge and networking.  Buy-to-let properties in the range of €190,000 to €300,000 are the safest option for those who want rents to cover the cost of mortgage repayments. 

It is worth noting also that despite apartments being the first choice with many buy-to-let investors, houses offer more potential for income since they can be divided in two or more rental units.  Houses will also appreciate at a higher rate than apartments. House prices have increased on average by 86% between 1999 and 2004.  In comparison, apartments have increased in price by 68% over the same time period.

The Buying Process - Most new builds offer very little if any scope for negotiation on the asking price of the property.   When buying a second hand property, there is generally some room for negotiation, though because the current market is so active, the chances of snapping up a property at below the asking price is slim. 

Despite agents setting prices 0.5 to 1.5% higher than the desired purchase price, haggling is a luxury that many buyers cannot afford.  More often than not, in the current climate, houses will achieve the asking price and sometimes a few thousand more than the asking price.

When making an offer, be sure that the terms of the offer are clearly understood by all parties. Some offers may be made subject to agreements such as additional work being carried out or furnishing being included in the sale. Not being clear about the terms of the offer may result in additional expense along the way. An offer will usually be subject to a contract and a survey. If the survey reveals problems that you were not made aware you are free to revise or withdraw your offer. There is no binding obligation on either side until contracts are exchanged.

You may be asked to pay a booking deposit at this stage in the region of 2-3% of the property price. This is an indication that you are serious and is refundable in full if the sale does not proceed to exchange of contracts for any reason. Unfortunately, even at this stage the vendors are not obliged to sell to you at the agreed or any price. Despite placing a booking deposit, the vendors can still accept another offer or increase the price at will. This is known as gazumping and is a common practice in a buoyant property market. At this point, you should instruct your solicitor to check the title to the property, any planning issues that affect the property and other details that may be relevant. At this point a mortgage lender will insist on a survey, usually by one of their approved surveyors. This survey, generally costs  €100 to €150 including VAT and is solely for benefit of the lending agency. 

It is important to realise that this survey is solely for the purpose of assuring the lender that the property is adequate security for the loan. It should not be relied on as an assurance that it is either worth what you are paying for it or that it is free of significant defects. This is a very superficial survey and buyers would be well advised, particularly with older properties, to commission a more detailed survey. This should point out any significant defects in the property and provide an estimate of what it might cost to correct them. 

On receipt of a satisfactory valuation report from the surveyor, the lending agency will write to buyer with a loan offer detailing how much they are prepared to lend on the property, over what term, the interest rate, the repayment terms and so on. Once the document are signed and returned to the lender along with signed direct debit mandate, evidence of a Buildings Insurance policy covering the property and evidence of Life Insurance covering the borrower, a date will be arranged with your a chosen solicitor to forward to him/her a cheque for the amount borrowed (the advance). 

The buyer’s solicitor will agree a date with the buyer and the vendor's solicitor for exchanging contracts. This will usually be done at the solicitor's office. At this stage, the solicitor should be entirely satisfied with the terms of the contract, including fairness of the contract, outstanding planning issues that might affect the property, the vendors title to the property and so on. 

Solicitors will generally set a date with the buyer and the vendor’s solicitor, upon which to complete the sale. At this point, the purchaser will also be required to pay the balance of the deposit, usually 10% of the purchase price, less any booking deposit that have already paid. Once contracts are exchanged, the agreement is binding on both parties and, if either party fails to complete the transaction, they can be held legally liable. Failure of the buyer to complete at this stage will result in the loss of the deposit paid. If the vendor fails to complete, the deposit will be returned and the buyers is entitled to sue the vendor for any losses incurred. 

On the completion date the appointed solicitor should have received the advance from the lending agency and the keys to the property. The balance of the purchase price will be paid. The solicitor will hand over the full purchase price to the vendor's solicitor and the transaction is complete!

Once a sale is completed, the purchaser's deeds, showing the new ownership details and mortgage details, if relevant, must be registered with either the Registry of Deeds or the Land Registry. Before this can happen, the deeds must be presented to the Revenue Commissioners who will determine how much, if any, stamp duty is due. Stamp duty is due when deeds are presented to the Revenue Commissioners after the closing of a sale. However, the solicitor will calculate how much stamp duty is due and request this from the purchaser prior to the closing of the sale. Stamp duty is calculated as a percentage of the purchase price, between 3 and 9% depending on the value of the property. Some buyers are exempt from stamp duty on transactions up to a certain value. The amount is paid to the Revenue Commissioners who place a stamp on the deeds. Without this stamp, the deeds cannot be registered.

Tracey Meagher is a property advisor and journalist, living and working in Ireland.  She offers email consultation to novice overseas property buyers and as well as editing PropertyNewsdesk.com

She can be contacted on tracey@propertynewsdesk.com