Institutional Investors not to Blame

Institutional investors have commonly been credited with causing the rise in property prices. However, stockbroker Davy, claims otherwise and says they are not to blame. The report by Davy credits the inflation in house prices to be caused by the Bank of Ireland’s strict mortgage-lending rules. The pressure on the housing market has caused many people to become interested in the rental market causing pressure there too and a 7% rise in rentals.

Institutional investment has been rising exponentially in Ireland. It has grown in sales to a total of 1.1 billion Euros in 2018 up 200 million Euros from the previous year. These figures may seem high, but only account for 30% of total property investments in 2018 and do not have a big enough impact on the market to make a tremendous impact. Additionally, most of those investment occurred in Dublin where the top 25 transactions account for 2,370 units worth 954 million Euros in 2018.

Davy analyst Conall Mac Coille commented, “People have, however, confused the chicken with the egg,” and “Institutional investors have been attracted here by high rents, and are now providing equity funding for the development of new apartment blocks, which is part of the natural supply response to cool of rents.” Institutional investors are part of the naturally economic cycle that follows a rising housing market. They come in and produce many more housing options which in return drives down demand and increases competition for sellers drawing down prices.

The report also cited that Ireland is seeing bigger corporate investors verses the older, small-time ones that they were accustomed to. These bigger players have better access to funding and are more qualified and in a better situation to build larger apartment blocks. The report stated, “Because institutional investment in the PRS market is typically financed through equity rather than bank funding… this reduces the risks to financial stability and potentially dampens residential property cycles.”

Institutional investors are credited with building large blocks of apartment to ease the housing shortage especially in urban areas such as Dublin. These institutional investors have the means to supply buildings and do not need to get bank funding. By using their own equity to raise money, this reduces the risks to financial stability.

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