Why investors are targeting second-hand homes in regional towns, inflating prices and outbidding first-time buyers

Auctioneers and estate agents have had one of their busiest August months ever Investors now targeting cheaper regional homes to beat rent-cap rulesIpav predicts inflation will hit 10pc in 2024, double last year’s growth of 5pc

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Investors outbid first-time buyers for second-hand homes in large regional town as house prices expected to increase by 10% by year’s end.

Huge price increases at the lower end of the housing market are driving house-price inflation, with annual price growth forecast to hit 10pc by the end of this year.

First-time buyers struggling to afford houses are now looking at smaller homes and cheaper rural markets, according to a market analysis by the Institute of Professional Auctioneers and Valuers (IPAV).

Meanwhile, investors purchasing second-hand homes in large urban centres such as Waterford, Kilkenny, Athlone and Portlaoise are inflating prices through bidding wars.

Such investors are targeting regional towns for second-hand homes which have not previously been let, enabling them to command full market rents instead of rental rates capped by rent-pressure-zone legislation.

“If they have to pay an extra €5,000 to outbid somebody on a mortgage they will pay it, because yields are in the region of 15pc,” IPAV chief executive Pat Davitt said.

“It presents another obstacle for the first-time buyer attempting to acquire a home.”

Mr Davitt said a new government approach was needed to deal with the country’s persistent supply and affordability struggles.

IPAV’s property price barometer shows residential property prices rose by an average of 8.2pc in the first six months of this year compared to the same period last year.

Prices of flats and two-bedroom properties went up by 9.3pc on average.

On average, it now costs €353,118 to buy a home, a rise from the July to December 2023 period when the price was €335,520.

Dramatic growth in Donegal meant prices grew there by more than twice the national average in this period, up by 18.7pc.

Longford, Roscommon and Leitrim — typically among the cheapest markets — all experienced double-digit growth between January and the end of June compared to the same period last year.

This shows a shift by buyers to seek out affordable options away from the country’s major urban centres.

Mr Davitt said growth was set to hit 10pc on average this year, with markets across the country undermined by supply deficits.

Instead of waiting for a three-bedroom semi, people buying smaller units so they can get on with their lives

“People are looking at how much they have and what that will buy them. They are looking for cheaper options,” he said.

“Instead of waiting for a three-bedroom semi-detached house, people are moving on and buying two-bedroom apartments or smaller units so they can get on with their lives.

“August this year has been like no other August. It is traditionally a quiet month to catch up on work, or for staff to go on holidays, but it has been so busy.

“That is outside the period covered by these figures, but if things continue like that there is no reason why prices won’t move on by another 5pc in the second half of the year.”

Prices grew by 5pc in the first half of this year compared to July to December last year.

Smaller homes have had the greatest percentage price increases in the first half of this year.

However, those bidding for the cheapest homes are likely to come up against investors buying properties they intend to make available for rent. Many of these are in areas where prices have yet to return to their 2007 peak.

“More affordable prices, especially for apartments in rural Ireland, have not been taken full advantage of previously. Prices are still quite low and people are beginning to realise there is value there,” Mr Davitt said.

“In some parts of the country, like Athlone, you might be able to get a huge price for an apartment, but it’s still not where prices were in 2005. There are still some places in negative equity because the increases we are seeing are coming from a low base.”

This makes them attractive for investors who are aware of poor supply, high demand and the country’s growing population.

Ireland’s population grew by almost 100,000 last year, according to the Central Statistics Office.

We need a new approach — for individuals and families, for our economy and the cohesiveness of society

The Government said last month that work started on the development of about 35,358 homes in the first seven months of this year. Experts suggest 33,000 to 35,000 homes will be delivered this year, but this is not enough to meet demand.

The Housing Commission, a panel of experts assembled to advise state housing policy, has said delivery needs to be ramped up to about 60,000 units a year.

“Small investors are now looking to get back into the market because market rents are so high. It might not be a feature of every market in the county, but where it is they will win the bidding wars,” Mr Davitt said.

“If you had a two-bedroom apartment in Mullingar, for instance, you could put that on the rental market at probably €2,500 per month. That’s €30,000 per year, which means about 15pc on your investment.”

Prices in this sector rose by more than 20pc in Donegal. Another 14 markets around the country also saw double-digit apartment growth. None of these was in Dublin.

While many agents around the country have noticed emigrants returning home to buy, they have also commented on the increased prevalence of non-nationals buying and settling here.

The cost of a three-bedroom semi-detached home rose 7.3pc between January and the end of June compared with the same period last year. A four-bed semi-detached rose by 8pc on average.

The IPAV property price barometer found growth in Dublin was modest, especially for larger homes, but still significant.

Prices across Dublin are up by about 5.3pc when the first half of this year is compared to last year.

Prices in Dublin 24, which includes Tallaght, and Dublin 9, which covers places such as Drumcondra, are in line with national averages, but all other markets in the capital have seen smaller increases.

Apartments in Dublin 4 rose by just over 1pc, the smallest increase seen in any market across the country. No markets saw prices fall.

“We need a new, whole of government approach — for individuals and families, for the health of our economy into the future and for the cohesiveness of our society,” Mr Davitt said about the housing market.

The rural market: ‘It is more affordable here. People are getting better value for their money’

Property prices in Donegal have increased at percentages outstripping any other part of the country over the last year.

Austin Reynolds, of Sherry Fitzgerald Paul Reynolds in Letterkenny, said constrained supply and excessive demand were as much a feature here as anywhere else, so some buyers were looking at how holiday homes can fill the gap between supply and demand.

“There is strong demand. We had a bumper June and July. August was good, not as busy as June and July but that would usually be the case,” Mr Reynolds said.

“The holiday-home market has been steady, but there are people who would not ordinarily look in those areas who are looking at holiday home destinations as a primary residence.

“A lot of people originally from here are returning. Many are working remotely or are able to be based here. They are coming for a greater quality of life, the beautiful scenery, beaches, amenities in the towns.”#

Prices in Donegal rose 18.7pc in the first half of this year compared to last year.

Mr Reynolds said the defective concrete crisis played a role in the recent price growth, feeding demand. This issue is expected to continue affecting supply and demand for some time.

He said the low prices in Donegal, relative to other parts of the country, were also a draw for buyers.

“It is more affordable here. It’s a cost-effective place to live,” Mr Reynolds said.

“You can buy a detached house on a half-acre site or in close proximity to a town, or even in a town, for between €400,000 and €500,000. So people are getting more for their money.

“In certain sectors there is an under-supply of houses, such as three- and four-beds next to urban centres. So when people see supply is not there they look to new builds, but the reality is they are much more expensive for people than second-hand homes.”

The urban market: ‘Housebuilding needs to ­triple here just to meet demand for homes’

A lack of supply is having a dramatic effect on house prices in Limerick, where agents believe the delivery of new homes must be tripled.

Lisa Kearney, Rooney Auctioneers head of residential and new home sales, said Limerick needed at least 2,000 new homes a year.

“In 2022, only 722 new homes were built in Limerick, a figure that increased slightly to 794 in 2023. However, the first quarter of 2024 saw a slight decrease in new builds compared to the previous year, highlighting the ongoing shortfall,” she said.

“Limerick requires between 2,000 and 4,000 new homes annually to meet the current demand, yet the supply remains insufficient.”

Prices in Limerick were 12.5pc higher in the first half of this year compared to the same time last year, according to the IPAV. Apartment prices grew by 15.6pc in this period. Four-bed semi-detached homes also saw big growth, up 12.6pc. Prices for three-bed semi-detached houses grew by 9.3pc on average.

Ms Kearney said significant investment in the region from multinationals, including Verizon, Nordic Capital and Eli Lilly had intensified demand for rentals and people looking to buy.

“There is an urgent need for policy reform and action to address Ireland’s ongoing housing crisis, with a specific focus on the challenges faced in Limerick,” she said.

“The scarcity of housing is exacerbating challenges for both buyers and sellers. Many potential sellers are hesitant to put their properties on the market due to the difficulty in securing a new home.

“The lack of new homes has led to 67pc of first-time buyers purchasing second-hand properties in 2023.

“While schemes like Help-to-Buy and the First Home Scheme have been successful, they do not extend to second-hand home purchases, a gap that urgently needs to be addressed.”

Source: Wayne O’Connor, Irish Independent, 8th September 2024