Monday, March 07, 2011
The real estate market in Ireland is deeply distressed. The mother of all bubbles popped, bankrupting the country’s banking system. When the liabilities of privately-owned banks were transferred to Ireland’s balance sheet, Ireland needed a bailout (from both the European Union and International Monetary Fund) to make good on loans that German, French and British banks had made to Irish banks.
It’s not pretty. Ireland is in a fiscal tailspin—a total contrast to the heady years of the Celtic Tiger.
Most of the country’s financial woes can be traced back to real estate…over-ambitious developments, over-priced properties, and banks willing to lend astronomical sums based on projected sales figures. Official stats indicate that prices have fallen by more than 40% since the peak in 2006. This is misleading however. There is no functioning market…so it is impossible to put a precise number on how far values have fallen.
Fire sales have been few and far between. Few have been willing to sell for what the market would pay. For the banks, recognizing market valuations would mean huge write downs and major (further) recapitalization of their balance sheets.
Last year I told you to watch out…that fire sales would come. This process is now getting started.
Ireland’s first sale of distressed properties is to be helped by British auctioneer Allsops. These guys specialize in fire sales of bank- and receiver-controlled properties.
As reported in the Irish Times, more than 80 properties in Ireland’s major cities will go under the hammer in Dublin’s Shelbourne Hotel on April 15th.
Maximum reserves (the reserve may actually be lower on the day) start at 35,000 euro ($48,975) for a two-bed condo in the midland town of Portlaoise. A similar condo in the same development even now is listed for 170,000 euro ($237,882). That gives an indication of the current gulf between what sellers are asking and what the market can, or will, pay.
In central Dublin’s Temple Bar area, a studio apartment comes with a maximum reserve of 80,000 euro ($111,945). This apartment is a short stroll from Trinity College, The Royal College of Surgeons and the chic shopping areas of Grafton Street, as well as the main public transport routes. Overlooking Essex Street in the heart of Temple Bar, you are surrounded by buzzing pubs and restaurants.
Out in the leafy suburb of Rathfarnham, a two-bedroom penthouse has a maximum reserve of 145,000 euro ($202,901). At a dinner party on Saturday night, I heard how friends of our hosts bought one of the other penthouse units for 750,000 euro ($1.05 million) right at the peak. Ouch!!! This penthouse comes with tenants in place and a gross yield of 9.1%, if it sells for the reserve price. Gross yields above 10% can be found with smaller and more centrally located apartments in Dublin city center.
You can view full listings and reserves here: http://www.allsop.co.uk/283/Irish-auctions.
This auction will start to put a floor on prices. I expect more will follow, including the fire sale of homes in scenic parts of Ireland that were used as second homes.
Speaking of scenic areas…The pretty town of Clifden is located on the coast of County Galway. Here 102,000 euro ($142,649) might be enough to scoop a large terraced house that’s laid out as three apartments. You’re close to the town square, pubs and restaurants, and at the top of Beach Road which leads down to the water.
Remember, much of the housing stock in Ireland hasn’t sold because it’s over-priced…perhaps in an area with over-supply…and some is simply poorly-constructed. As with any other distressed market remember the golden rules:
-Buy quality (location, construction, amenities and fit-out)
-Don’t take on any construction risk…buy completed units
-Don’t take on any project risk…make sure the condo building or private community is functioning. You don’t want to be one of 10 owners in a 100-unit condominium.
This process is just getting started. Watch this space if you missed out on that cottage in Ireland for a song…and have been biding your time.