Irish house prices will outpace all Europe over next 2 years
December 27, 2017
This is supported by figures released by Ireland's largest property website Daft.ie, whose data had nationwide average house prices surging 8.9% y-o-y in Q3 2017, up from an annual growth rate of 7.6% in Q3 2016.
In Dublin, Ireland's capital city, the residential property price index was up by 8.42% (7.8% inflation-adjusted) during the year to October 2017, almost double the y-o-y growth of 4.46% in the same period last year, according to the CSO.
- In Dublin City Centre, the average asking price skyrocketed by 17.4% to €306,574 (US$361,742), during the year to Q3 2017.
- North Dublin City's average asking price rose by 10.7% y-o-y to €325,635 (US$384,233).
- North County Dublin's average asking price rose by 9.6% y-o-y to €303,467 (US$).
- South Dublin City's average asking price rose by 8.8% y-o-y to €388,486 (US$458,394).
- West County Dublin's average asking price rose by 8.4% y-o-y to €299,726 (US$353,662).
- South County Dublin's average asking price rose by 6.1% y-o-y to €558,961 (US$659,546).
Local housing markets outside Dublin also continue to experience robust house price increases. Outside Dublin, average residential prices rose by 7.1% (6.49% inflation-adjusted) during the year to October 2017, according to the CSO Ireland. Based on Daft.ie's figures:
- In Carlow (located in Leinster, eastern Ireland), the average residential asking price was up 12% y-o-y to €175,488 (US$207,067) in Q3 2017.
- In Cork County (located in Munster, in Ireland's south), the average asking price rose by 8.8% y-o-y to €209,596 (US$247,313) in Q3 2017.
- In Galway County (located in Connacht, Ireland's western region), the average asking price rose by 8.6% y-o-y to €186,929 (US$220,567) in Q3 2017.
- In Waterford City, the average asking price increased 6.7% y-o-y to €204,062 (US$240,783) in Q3 2017.
- In Limerick City, the average asking price rose by 8.6% y-o-y to €177,771 (US$209,761) in Q3 2017.
- In Monaghan (located in Ulster, in the Republic of Ireland's north), the average asking price rose by 12.4% y-o-y to €163,719 (US$193,180) in Q3 2017.
Apartment prices in Ireland rose by 9.9% during the year to October 2017 (9.3% inflation-adjusted); house prices rose by 7.6% y-o-y (7% inflation-adjusted) over the same period.
House prices in Ireland are forecast to rise at the fastest pace in Europe over the next two years, according to the ratings agency Standard & Poor's. S&P expects Irish house prices to rise by 8.5% this year and by another 7% in 2018, amidst a strong labour market and housing supply shortages in key areas, particularly in Dublin.
In Q3 2017, the Irish economy posted stellar annual growth of 10.5%, up from 5.8% in Q2 2017 and 5.6% in Q1 2017, according to the CSO. The economy expanded by 5.1% in 2016, a massive 25.5% in 2015 (largely a fictitious figure), and 8.3% in 2014.
Excellent yields on small apartments in Dublin
Gross rental yields on apartments remain excellent in Dublin, in certain areas and for certain sizes. Across the range of apartment and house sizes, Dublin 1 earns the best returns.
How much will you earn? One-bedroom apartments will earn relatively more than two-bedroom houses (in terms of return-on-investment), and those in turn will earn relatively more than 3-bedroom houses, etcetera. To earn higher returns, buy smaller units.
As is perhaps to be expected, the highest yielding apartments are those in the lowest-cost areas. It was ever thus! These areas also tend to be those where prices are least volatile, thus least exposed to a downturn.
- In Dublin 1 a 1-bedroom apartment bought for around €200,000 can rent for around €1,380 per month, earning a yield of 9.35%. Please remember that these yields are gross; net yields will be less.
- In Dublin 7 a 1-bedroom apartment bought for around €180,000 can rent for around can rent for around €1,300 per month, earning a yield of 8.7%
- Large houses (4 and 5 bedrooms) tend to earn relatively low yields, except in Dublin 1
Round trip transaction costs are moderate for buyers of residential property in Ireland. See our Ireland residential property transaction costs analysis and our Residential property transaction costs in Ireland compared to other countries.
Taxes on rental income and capital gains are moderate
Rental Income: Gross rental income is taxed at 20%, withheld by the tenant. The taxpayer may file a return and claim relief for expenses related to his property.
Capital Gains: Capital gains is imposed at a flat rate of 33%. Taxable capital gains are generally computed as selling price less acquisition costs, adjusted for inflation, and improvement costs.
Inheritance: Inheritance is taxed at a flat rate of 33%, with certain non-taxable amounts deductible before the tax is levied.
Residents: Residents are taxed on their worldwide income. Numerous tax credits and deductions are available to residents; of which the actual values depend on the taxpayer’s personal circumstances.
Buying costs are moderate in Ireland
Round-trip transaction costs are around 4.94% to 13.205% of the property price. The buyer pays the stamp duty (1% to 2%), legal fee (1% to 1.5%, plus 25% VAT), and registration fee.
Strong but fair tenant protection in Ireland
Ireland has strong tenant protection laws.
Rents. The parties are free to negotiate rents, but the amount must not exceed the open market rate. The rent may be reviewed and can only be adjusted once a year. Rent disputes go to the Private Residential Tenancy Board (PRTB).
Tenure Security. Security of tenure is effective for four years; during the first six months, the landlord can terminate the leasing contract without specifying grounds but once a tenancy has lasted six months, the landlord can only terminate the tenancy for the next 3 1/2 years citing just causes.
Tax inversions artificially inflate Ireland’s economic growthIreland’s stellar economic growth for Q3 2017 has confounded expectations again, with official figures showing that real GDP expanded by 10.5% from a year earlier - almost double the 5.8% y-o-y growth recorded in the previous quarter. This was mainly driven by companies nominally relocating in the country, such as Perrigo Co. and Jazz Pharmaceuticals Plc. They are attracted by the country’s very open economy and by its relatively low tax inversion rate of 12.5%. These corporate inversions result in little real change in output, just a change in where the legal ownership of the output is located.
However, these growth numbers have downside risks. First, tax inversions only artificially inflate the size of Ireland’s economy. When a corporation’s headquarters become resident in Ireland, all of its profits (including profits generated abroad) are counted as part of the country’s gross national income - which dramatically increases the country’s economic growth without corresponding increases in employment. Also, this increases Ireland’s contribution to the EU budget, which is based on the size of a member’s economy. The growth figures are also misleading and will create confusion about the real condition of the Irish economy, and increase people’s skepticism with regards to the reliability of economic figures.
Nobel Prize award-winning economist Paul Krugman described a similar phenomenon as “Leprechaun economics”.
“Today’s national accounts for Ireland are once again remarkable for their volatility,” said Dermot O’Leary, an analyst at Goodbody. “This volatility is caused by the presence of large multinationals in Ireland, bringing about issues such as intellectual property imports and exports, royalties and contract manufacturing.”
The Irish economy expanded by 5.1% in 2016, after growths of 25.5% in 2015, 8.3% in 2014 and 1.6% in 2013, according to the International Monetary Fund (IMF).
Overall inflation was 0.5% in November 2017, up from -0.1% in the same period last year, according to CSO. Nationwide inflation rate is expected at 0.4% this year, an acceleration from -0.2% in 2016, -0.02% in 2015, and 0.3% in 2014, according to the IMF.
Unemployment dropped to 6.1% in November 2017, from 6.3% in the previous month and 7.5% a year earlier, according to the CSO. This is also substantially lower than the 13.3% average from 2009 to 2014. Ireland’s average unemployment rate was 4.4% between 2000 and 2007.
Ireland had the euro zone’s highest budget deficit in 2010, at 31.2% of GDP. In November 2010 it had no choice but to seek a €67.5 billion ($82 billion) bailout from the European Union (EU) and the International Monetary Fund (IMF). In exchange, Ireland committed to a harsh austerity program.
The country spent around €80 billion to establish the National Asset Management Agency (NAMA) to buy toxic loans, primarily to improve the availability of credit to the Irish economy, and to remove non-performing loans from bank balance sheets.
In June 2012, 60.29% of Irish voters agreed to the European fiscal compact of May 31, 2012, allowing Ireland to access to the European Stability Mechanism, a €500 billion ($618 billion) bailout fund.
By 2011 the Irish budget deficit had fallen to 12.5%, and to 8% in 2012, comfortably within the 8.6% target set by Ireland’s international creditors: the EU, ECB and IMF. The budget deficit declined again to 5.7% of GDP in 2013. At end-2013 Ireland became the first country to exit the eurozone bailout programme.
In 2016, the budget deficit shrunk to 0.5% of GDP, down from 2% in 2015 and 3.7% in 2014, amidst strong economic growth and robust corporation tax payments.
The deficit is expected to fall further to 0.3% of GDP this year and to 0.2% in 2018, according to government estimates.
Likewise, gross public debt is expected to fall to 69.9% of GDP this year, from 72.8% of GDP in 2016, according to the European Commission.