We are please to bring you some interesting analysis on the residential investment property market in 2012. A big thanks in advance to MyHome.ie who made this possible by giving access to their data. You can get the report here or by clicking on the image to the right.
It was created by Karl Deeter of this firm and Frank Quinn, a lecturer in valuations at Senior College Dun Laoghaire. The valuation models used are Discounted Cashflows, the Investment Method and one developed by Karl which is an after tax comparison against bank deposit returns.
Tom Dunne of Dublin Institute of Technology Bolton Street kindly critiqued the report.
The general findings were that property is still overpriced in our main cities for investors (buyers face different costs/taxes/incentives). This over-valuation will adjust but one big inhibitor to investing in property at present is the taxation of it.
The coverage thus far (eg: Indo) has rightly pointed out that taking the ‘index’ price and average rents shows prices are too high. However, this dynamic is not always the same for owner occupiers, for instance, at the Allsop/Space auction today we saw properties starting off over-valued (see the page one the report tracking this) that were bid up beyond ‘fair value’; which to some degree demonstrates a ‘premium’ that exists in some neighbourhoods which are dominated by owner occupiers.
We hope you found this report useful as part of the ongoing effort to understand our very complex property market.
Karl
interesting read. Quick question – did you factor in any asset price appreciation in the study, even just the rate of inflation? Nominal interest rates on a deposit are essentially just supposed to account for inflation for the most part (assuming a risk free deposit system – don’t laugh!), where as in the long run, ceterus paribus and all that, property should increase by a minimum of inflation, on top of getting the rental yield. It would be interesting to see how the figs look if you assume a 2% annual increase in asset prices, and therefore how much they are “over-valued”.
Hi Owen C,
We put in a 1% inflation from year 5 (of 10 years) on the DCF, the investor method is really a yield exercise and my home-brew calculator on deposits is a cashflow v cashflow proposition that doesn’t look at capital position at all.
I totally agree though, that the market may change and typically it does, we probably won’t go downhill forever! In that respect I suppose we were of the view that if you have faith in capital appreciation that all of our work on yields or after tax returns on a proxy don’t matter?
And yes, I did laugh at the idea of a ‘risk free’ Irish bank! Thanks for dropping by, come back again soon!
karl