Property

Reviving Investment In Dublin

Reviving Investment In DublinSituated at the mouth of the Liffey River and once a Viking settlement, Dublin now ranks as among the world’s great cities. The capital of Ireland as well as its largest city — at only a shade over 500,000 — Dublin has a genteel, quietly sophisticated vibe to complement its more raucous image. Its historical and contemporary significance can’t be brushed off, and it is indeed major centre for education, healthcare, arts and culture, public administration, and industry.

Unfortunately inaccurately entangled in many minds for The Troubles, Dublin is correctly recognised for its literary heritage and robust modern entertainment customs: nearly half the city’s population is under 25. It’s one of the most musical locations anywhere in the world, with theatre and visual arts running a close second.

Dublin is among Europe’s (and the globe’s) most affluent cities as well as one of its most expensive, and since the mid-1990s the city has attracted scads of modern industry. Originally a force for light industry — textiles, food processing, brewing and distilling — the economy has increasingly headed down the services road. The so-called Celtic Tiger boom slipped just around the time the rest of the world struggled through the financial disaster of ’08, and ultimately the banking sector required a €90 billion EU bailout. Up to that point however, dozens of information and communications technology and pharmaceutical multi-nationals set up operations in Dublin, among them Yahoo!, eBay, Google, Microsoft, Amazon, Symantec, Oracle, Dell, Facebook and Pfizer. And since it opened in 1987, hundreds of banks, insurers and other related service operators have called the city’s International Financial Services Centre home. Also, St James Gate Brewery still pumps out 80 million hectolitres of Guinness each year the way it has since 1759.

With its financial ducks now in a row (according to Central Bank Governor Patrick Honohan), the next target is the property sector. The overall picture suggests that, like many prime locations, a blip on the radar could be temporary. The Central Bank of Ireland estimated the GDP would grow just 0.8 percent in 2011 and 0.5 percent in 2012 and Colliers International expected household spending would remain weak for the year. However, Colliers also noted that, “Despite continued economic challenges, Ireland continues to attract inward investment by technology, media and telecoms companies attracted by highly competitive corporate taxation rates and a flexible and skilled workforce.” Always a good thing. Colliers predicted the residential market would see ongoing demand for well-located, quality houses priced between €500,000 and €1,000,000 and that sales transactions would rise by around 20 percent.

Flash-forward to the end of the year and things indeed appear to be improving. Irish property agency Lisney reported improving buyer sentiment and speedier turnaround times. And contrary to popular belief, “The biggest problem facing the market at present is the lack of supply. Up to the end of August, the number of properties available to purchase had been falling by between 2 and 5 percent each month,” said Lisney’s Q3 residential report. “Apartments remain the most difficult sector of the market. That said, demand improved in Q3, particularly for units in good city centre and edge-of-city locations that are well-connected by public transport … Owner-occupiers make up the majority of activity, however, investor interest is improving, especially for lower value units due to the high returns that are available.”

One of the biggest factors at play in Ireland at the tail end of the year was the country’s impending budget and a new value-based property tax expected to be enforced starting in July — partially to meet bailout obligations. In the end, the government handed down a 0.18 percent tax on homes valued up to €1,000,000. “There are manifest signs that the country is emerging from the worst of the crisis and that the efforts of the Irish people are leading to success,” Finance Minister Michael Noonan was quoted by the BBC, continuing, that 2012 saw the “first signs of stability in both the residential and commercial property markets in six years.” The budget included tax exemptions for new and/or unoccupied homes to 2016. First-time buyers will also be exempted for 2013.

In a statement in response to the budget, property giant Knight Frank was mostly positive, stating the measures would help tidy up ghost estates, and that “By European standards, the new property tax compares favourably and will give a necessary broader sustainable tax base to funding local authorities.” The only caveat was a purely market value-based tax that could, “Result in a disproportionate urban based tax.”

Whether that will lure investors back remains to be seen, but Lisney points to the strong rental market, where rents have risen over the last year (over 2 percent in key urban areas) and should continue to go up. With residential investors exiting the market at present, rentable stock is drying up. “One and two-bedroom apartments in the city centre are letting within a matter of hours if they are priced correctly. Clearly this lack of supply will create further problems in the future as Ireland continues to seek inward investment and highly-skilled international workers.” But it could mean attractive yields for investors willing to ride out the storm. And maybe have a Guinness while they wait.