By Andrew Bushe and Harry Keaney
A record £5.3 million selling price for a seven-bedroom house in the posh Dublin 4 area has demonstrated that official property inflation figures of 20 percent a year are nonsense. Indeed, it just goes to prove yet again that the old real estate adage "location, location, location" is truer than ever.
Meanwhile, first-time buyers are often finding themselves squeezed out of the market, a matter now of concern to Irish immigrants in the U.S. thinking of returning to take advantage of the skills shortage in the Celtic Tiger economy.
When the Dublin 4 house — in leafy Herbert Park, Ballsbridge, dating from 1910 — first went on the market last month, the guide price was a mere £2.5 million, still a record for the area.
Auctioneer Tommy Day of the Lisney firm had presumably based this on the fact that a similar house two doors up had been sold for in 1998 for £1.56 million.
The house itself had last come on the market in 1985, when it fetched £182,000; the almost 30-fold increase in value has far outpaced most stock market investments.
Follow us on social media
Keep up to date with the latest news with The Irish Echo
Huge interest at the viewing mean the "guide" price on the day of sale had moved up to £3 million.
"The bidding was coming so fast that I put the property on the market at £3.5 million. We were surprised, quietly delighted," said Day, whose firm stands to make about £75,000 in fees.
The unidentified buyer is reported to be a wealthy Irishman with business interests in the U.S. who plans to spend at least a further £500,000 upgrading it.
The house, which is on a quarter-acre corner site with Argyle Road, had been leased out to the Moroccan embassy since the mid-1990s.
"There is a distinct shortage of detached properties in Dublin 4. The last property that made serious money in the area was in Ailesbury Road two years ago that sold for £2.95 million."
Day said no other detached properties had come to auction since then in the city’s upmarket embassy belt. "It’s supply and demand."
The record price for a Dublin home was set two years ago when British-based businessman Terry Coleman paid £5.9 million for the semi-detached Sorrento House in Dalkey.
He has since been refused planning permission to extend it.
Although the wealthy are able to pay high prices, some first-time buyers have already been squeezed out of the market, according to the head of research at the Irish housing agency Threshold, Clodagh Memery.
This is particularly relevant to Irish immigrants in the U.S. thinking of returning to settle in Ireland. It is also a matter of concern to those trying to lure home immigrants with much-needed skills in Ireland.
Memery added that some first-time buyers have already been squeezed out of the market.
"House prices have increased by an average of 20 percent for the last number of years. This level of increase is not sustainable, especially when wages are not increasing in tandem," she said.
Memery said first-time buyers are constantly being pushed to get finance for even the most basic of houses, causing them to borrow from a number of sources to meet the mortgage requirements.
She warned that this is leaving more and more people overexposed to market fluctuations, especially when car loans and credit cards debts are added into the mix.
Ireland’s main bank, Allied Irish Bank, has also predicted that house prices will continue to rise. And it too says young people are being squeezed out of the market.
Meanwhile, Professor Kieran Kennedy, head of the Economic and Social Research Institute, recently launched the ESRI’s economic review of the new millennium, which warns that rising house prices, not inflation, is the real threat to the Irish economy at present.
And Professor John FitzGerald, a co-author of the ESRI report, said that plans to fund an international recruitment drive should be abandoned for the simple reason that bringing in more new people and firms is increasing the pressure for a massive property correction down the line.
Memery was responding to the latest edition of the Irish Permanent House Price Index, which showed the rate of house price increases has slowed to 18.9 percent in February 2000, from 19.6 percent in the 12 months to January.
The index showed that during February, the average price of houses for first-time buyers rose by 0.8 percent and for second-time buyers by 1.0 percent.
The research found the average price paid by a first time buyer in February 2000 was £100,031, compared to £85,424 just 12 months ago.
The average price for a new house in February 2000 was £117,070, from £101,911 in February 1998.
Month-on-month growth slipped to 1.1 percent from 1.7 percent in January, according to the survey, which is compiled in association with the Economic and Social Research Institute.
Not just Dublin
Increasing house prices are not just confined to the Dublin area any more. The research found that prices outside the capital continued to rise faster than within, with the cost of houses up 0.8 percent in Dublin and by 1.5 percent in the rest of the country.
Professor FitzGerald said the danger of an "asset bubble" emerging in the housing market cannot be ignored. In his view, that is the single biggest threat to the booming economy that continues to boom, even if at a slightly slower pace. It will take 10 years before house prices start to fall, but he could not hazard a guess on the extent of the fall, FitzGerald said.
He pointed out that in the U.S., Alan Greenspan is worried about the stock market, where investors are pumping their money. In Ireland, because we have no choice, people have to put a huge amount of their money into houses.
Right now, property in Ireland is dearer than in other major European cities and that simply cannot continue indefinitely, he said.
According to AIB Corporate and Commercial Treasury, house prices will rise by a further 15 percent this year and by 10 percent in 2001.
But it argues that the housing market is underpinned by a number of factors, including strong growth in employment, rising disposable incomes, and relatively low interest rates.
"We expect the demand for property to continue to outstrip supply, with house prices increasing by about 15 percent in 2000 and 10 percent in 2001," according to AIB economist John Beggs.