HOOKE AND MCDONALD: TURTLES ALL THE WAY DOWN
Nov 24th, 2007 by Conor McCabe
The Irish residential property market has now reached a turning point and already there are encouraging signs of a pick-up in activity, with sales enquiries through Hooke & MacDonald increasing steadily. This momentum will follow through into the autumn selling period, boosted by the resolution of the stamp duty issue and as the interest rate cycle reaches a peak. (Hooke and McDonald, press release, August 2007)
Never let a press release get in the way of a marketing decision.
Over on www.finfacts.ie, it is reported that Hooke and McDonald have withdrawn from sale the apartments within the landmark Alliance building in Dublin’s Ringsend (see above).
The landmark structure forms part of a 7.8-acre site bought by developer Liam Carroll from Bord Gáis in the mid 1990s. Six hundred apartments were built here, along with the office complex now occupied by Google. A further 200 apartments were built in the former gasholder.The first 50 apartments were launched in June 2006 with prices ranging from €675,000 to just over €1 million. However, it is not clear how many of these were sold. The entire scheme has now been withdrawn from the market, according to the selling agent Hooke & MacDonald.
Only last month, Hooke and McDonald were telling us that the Irish property market is on its way back up, if not today, at least soon.
Hooke & MacDonald believe the European Central Bank could cut interest rates by half a per cent in 2008 and a further half per cent in 2009, resulting in the ECB base rate falling from its current level of 4 per cent to 3 per cent within the next eighteen months. Such a move will offer a major boost to both the economy and property market, with the latter likely to see a significant pick-up in buyer activity. (Press release, 4 October 2007)
Of course, Hooke and McDonald do not tell us how people are going to be able to get access to the type of credit needed to buy their €1,000,000 apartments, given the fact that easy credit has vanished up the American sub-prime arsehole. Nor do they explain how the apartments are worth €1,000,000, given that there’s around 10,000 empty new apartments in Dublin alone.
www.finfacts.ie also has an interesting quote from the head of marketing at Permanent TSB, Mr. Niall O’Grady:
There’s little surprise in the figures for October which confirm that there was little spark in the market during the traditionally strong autumn selling season. Clearly potential purchasers remain cautious and demand is sluggish. Deferral of purchase decisions is now beginning to impact on the rental sector where rents are rising steadily in response to strong demand.”
We reported here on Tuesday that according the the CSO, rents in Ireland dropped by 0.2% in September. At the same time, Daftwatch reports a doubling of the supply of rental properties on Daft.ie. The argument that Niall O’Grady seems to be making is that supply is setting the prices. The implication is that there is still a huge demand for property in Ireland, but that people have taken a ‘wait and see’ approach, and as a result they are renting, instead of buying, property.
The fact is that for the last ten years supply has far outstripped demand. The mortgage market in Ireland dried up around June 2006 because mortgages become completely unaffordable. On top of that, the international credit crisis - which is never mentioned by the marketing directors of Irish mortgage suppliers - has meant the end of incentives to supply easy mortgages. Irish property owners are sitting on property, instead of renting it out, it is true. However, even with that, rents, on average, have dropped.
This is a strange time for the Irish property market. The myth of supply setting selling price is beginning to transfer over to the rental market. We are hearing constantly the new myth that rents are going up, even though the facts say otherwise. I’m reminded of Stephen Hawking’s opening anecdote in his book, A Brief History of Time:
A well-known scientist (some say it was the philosopher Bertrand Russell) once gave a public lecture on astronomy. He described how the Earth orbits around the sun and how the sun, in turn, orbits around the centre of a vast collection of stars called our galaxy.At the end of the lecture, a little old lady at the back of the room got up and said: “What you have told us is rubbish. The world is really a flat plate supported on the back of a giant tortoise.”
The scientist gave a superior smile before replying, “What is the tortoise standing on?”
“You’re very clever, young man, very clever,” said the old lady. “But it’s turtles all the way down!”
In Ireland - when it comes to property - it’s not facts, but turtles, all the way down.
Great post Conor. This is desperation mode, and since they can’t make a buck shifting their overpriced shoeboxes, owners and estate agents are trying to at least make a little more money renting the flats.
it’s amazing how the irish media never let the facts get in the way of good spin.
i would not have been surpirsed if Hooke & McDonald announced they were taking the Alliance flats off the market because they were too attached to them, and wanted only to rent them.
We know that the Irish construction sector became far too important to the economy. In terms of jobs and investment. As mentioned before, when you mention the word “investment” in Ireland it is taken to mean “in property”. Because of its size in the economy, construction took on a life of its own and politicians (esp FF), already far too close to the industry, were afraid to take any corrective action. In fact, they kept blowing more air into the bubble. As demonstrated repeatedly on this site, property too became powerful in media circles owing to the percentage of the advertising market that it is comprised. It’s not putting it too strongly to say that property assumed an importance to the life of the nation that is terribly unhealthy. The question is: will the current downturn prove to be enough to correct this malaise? Or will it be no more than a blip after which it will recover its preponderant position in Irish life? So can we shake off this obsession with property or not?
Thanks Andrew and Tomaltach. I think that the international credit markets have been all but ignored in explaining the Irish property bubble. The explanations, mainstream media-based ones anyway, have given us everything from the famine to the Irish psyche to explain the Irish obsession with property. While it is true that there are historical reasons for this ‘obsession’, they have more to do with a 40-year government policy of privatising the housing market through grants and, until the 1980s, local government interest-free loans, than any farcical property-obsessed DNA explanation. That culture of home ownership (backed by substantial government assistance) has survived, but it operates now in uncharted, private market, waters. The bubble came about, in part, through the availability of easy credit which allowed investors in one hand to borrow to build (aided by massive government tax breaks and incentives) , and buyers to borrow to, well, buy. That’s a lot of money floating around with no correlation to the actual (earned) purchasing power of the Irish population. Once house prices breach 4 to 5 times the average industrial wage, you’re into bubble prices. In Ireland we have reached prices that are up to 13 times the wage earning power of firemen and nurses. Now what is going to sustain those prices when they are clearly unaffordable? That magic Irish-property-obsessed DNA? Well, for one thing, banks can’t give out those unsustainable mortgages as they themselves have been hit, and hit badly, by the international credit crisis. It’s very telling that the slow-down in the Irish property market occurred at around the same time that average prices in Dublin breached €425,000 - roughly the absolute mortgage that the average earner could squeeze from his/her bank. So, if the availability of credit was pushing prices up, and not demand per se, we’re into real property madness. And the biggest problem now is that the very people who got us into this mess have been elected for another five years, and are still financed by the same vested interests that saw the laws of this country cut to suit their (concrete) cloth.
Came across this while looking for something else; a report in the Tribune from about 18 months ago about the prospects for the property market this year and ‘going forward’ as these kind of people always say - it reads like something from another world…..
http://www.tribune.ie/2006/05/21/75354.html