Monday, 22 February 2010

Ireland's property crash - too much positive thinking is bad for you.

It was not that long ago that B-B-B-Bertie was giving after-dinner speeches on how to emulate Ireland’s economic miracle – a topic quietly dropped since the miracle turned out to be a credit-fuelled mirage, which the few of us with brains in our heads pointed out even as the whole misguided bandwagon hurtled towards the precipice.

As we all now suddenly know, and some of us always knew, the phenomenon was caused by a devil’s brew of Government property-based tax shelters/breaks and careless lending by the financial institutions, which we all have to pay for now (including those of us who did not get sucked into the “be an instant property tycoon” nonsense).

Not so “legions of taxi drivers”, as reported in last week’s Irish Times, who bought investment properties in Bulgaria. Properties in a development in Varna, it seems, “where nothing was built before the Irish came a-buying” have dropped in value by 80% in two years. Now, according to the same source, Bulgaria has “probably the highest proportion of recently-built ghost-towns on beautiful beaches, mainly funded by Irish investors.” So everyone’s a loser then, apart from those who built the apartments, blighted the landscape, and made a killing. Sounds familiar.

Likewise, a two-bed apartment, part of an investment-boom development in Wexford, sold last week for €65,000. Other would-be tycoons trying to flog similar apartments in the same complex had been looking for €149,500. Maybe it’s time to reconsider that asking price, folks?

And if you thought the Bulgarian 80% price drop was dramatic – if not unexpected – how about this? Yesterday’s Sindo reported on a Commercial Court case in which Bank of Ireland was pursuing a developer for “unpaid loans” on two parcels of land: one in Kildare, and one in Athlone. The Kildare plot had been valued at €17.5 million during the height of the boom, and the Athlone one €31. According to current valuations revealed to the court they are now worth €4 million and €600,000 respectively. I suppose that makes the Kildare transaction a relatively shrewd purchase. The sitting judge, Peter Kelly, was “shocked”, remarking that this experience suggested that land prices had fallen by “only” 70-80%.

In the light of the above, it is ironic that there has been a recent spate of seminars by our self-appointed “movers and shakers” (or schemers and shysters, as I’d prefer call them) exhorting us to be “positive” and “confident” as a means of getting the country out of the economic mess it’s in. Do these people seriously believe they have earned the right to be taken seriously?

Maybe too much positivity and confidence, along with a large helping of Government encouragement, incompetence and stupidity, was the catalyist for the case studies presented above?

Back to Gombeen Nation main page


ANNA said...

My understanding is; German banks had huge deposits saved by solid- slightly older Germans who had paid off their large loans mortgages etc, i.e. not making much interest for banks . So they could make more money by lending to other countries - eg Ireland where a younger population Would need loans for houses cars etc. the German banks would make interest on loans to Irish banks- and Irish banks could lend recklessly*
(* This latter bit was not in the German banks plan tho) . It seem ALL bubbles are funded by Easily Available credit. I mean scumbag developers could not ask for huge sums of money Unless banks could actually Provide Some poor wretch with a huge mortgage.
It wasn’t just that Pat and Mary recklessly spent Hans and Helga’s savings- we wouldn’t have Had to get such huge loans if property prices had been reasonable.
Yet the Government never queried why house prices were so high in the first place?
From the 60’s developers esp round Dublin built up massive land banks, so when those were released, they could charge what they liked for land.
(In another country either buying such large land backs wouldn’t be allowed- or at lest the sale price when released would be restricted)
So land became 50% of the value of a house (in other countries it could be as low as 10%)…then builders could add on their own inflated value for the cost of the house, solicitors, estate agents, valuers add their inflated fee etc….And when no one here could afford to buy why not give easily available German credit to get Irish people to buy (again price inflated) properties abroad.
Never ONCE did these scumbags think of the national interest- or desperate young couples struggling with huge mortgages and children.
It makes me Very angry to see so many enslaved in poverty by the few greedy.
Yes, lessons need to be learned!! We’re ALL being told we were too charmed by BLING in the rich years! STUFF THAT! Is ‘bling’ just wanting a roof over your head?
No the lesson is: Get the greedy scumbag class-and associated MENTALITY Out of Irish life.

The Gombeen Man said...

Another scary statistic I forgot to mention, Anna:- Irish people now owe €66bn in mortgages, with 30,000 defaulting on loans according to a Central Bank report. This figure is higher than the total net income of the country!!! Now, among that figure will be greedy idiots who were busy building up a portfolio of worthless properties, and played a huge part in inflating the bubble.

Anna said...

Let history record that the total debt the Irish nation now has
(Personal + corporate) is BIGGER than that on the heads of any other developed nation (and maybe any nation in recent history)
ANYWAY! Part of that foolish development was a slew of surplus hotels-
I’m just back from a week end in Limerick, …stayed in a 4* hotel; swimming pool, gym, Jacuzzi, sauna etc…. €48 night…. previously I entered these places as kitchen skivvy….until I can afford to go abroad again, I’ll be 4*ing around the country….

The Gombeen Man said...

Sure you might as well. Got to be some upside in all of this!!

Ella said...

HI GM, thanks for bringing this to my attention. It's a start, ok more than a start! The courts and the banks are now acknowledging that land/house prices have dropped, I just need the vendors in Dublin to recognise this too and I might be able to upgrade my humble abode to something a little grander. (I'm only talking about a 3rd bedroom and an ensuite here) I'll happily sell my gaff at 80% reduction from peak prices if what I'm purchasing is also down 80%.

Anonymous said...

So much greed and well deserved consequences . What ever happened to being happy with a decent home and standard of living in a country with decent public services .Ireland is the fat kid at the party who ate too many sweets .

Anonymous said...

nice one Gombeen Man.

I want to post something from last weeks paper:

Ireland cannot be regarded as a wealthy country because it failed to invest in the right areas during the boom years, the country's largest stockbroking firm declared yesterday.

We "misallocated investment'' by investing too much in property and not enough in infrastructure like roads, rail, schools and telecoms, a report from Davy Stockbrokers said.

"Infrastructure should be far better than it is today,'' according to the report by economist Rossa White.

The level of income per head raced ahead during the Celtic Tiger, but has since slipped back because of the savage recession.

"Yet Ireland was never wealthy: those years of high income were largely wasted,'' said Mr White.

fur coat no knickers?

How sad that this co-incided with first sight of any form of prosperity in Ireland. This really only existed in the late 90's where in my opinion people working for multinationals started to do a bit better for themselves. Nobody wanted to be left out and the process of screwing people to make a buck went into overdrive.

They did not know why it started so did not know how to tell if it was going to end, a bit like a cargo cult. We saw a strange side in others over the last 10 years.

I have no idea how those who gained little by this can face repaying the price of their house and often the same again in interest.

To add to one of the comments: the increase in the price of oil also led to a lot of money looking for a home. It cost almost nothing to borrow money. Wall St. bankers invented complex computer models that could predict the 'usual risks'. The banks took massive risks using their clients money as if it was their own. Reckless gambling led to a massive failure of the banking system when they started to uncover the crap they had been trading each other.

Anonymous said...

Very very sad and lamentable. It was obvious buliding houses in the middle of nowhere - with luxuries such as street lighting, sewerage etc not connected - was way beyond gobeenism. Many many unfortunatets bought houses over a hundred miles from their work. It was madness!

Just to add very few people (no matter what political party)at the time, in power or not did'nt want to hear that.


The Gombeen Man said...

@ Ella. I'll go along with that. Surely the less we have to borrow the better and, sure, you might get less when selling, but you pay less when buying. Only thing is, there are too many half-wits who think they can sell for 2006 prices and buy at 2010 valuations.

@ atoast2toast. Thanks for that, very interesting reading indeed. Yes, the place is just as bad as it always was. The boom was just one big Mastercard splurge on frivolities.

@ Dakota. Yep. Around Dublin 15 and out towards Clonee you even have aparment/housing estates where there is no footpath!!! Sometimes I think it's just a nation of half-wits who get what they deserve. Present company on Gombeen Nation excepted, of course. ;-)

Anonymous said...

Great comment Anna.You Alluded to the fact that the site costs of 50% of the house also cause more costs to the unfortunates.The developer will mark up his land costs to give him a consitant mark-up under the "old" days.He will borrow the money to buy the land and will mark up the interest he is paying.In fact directly and indirectly the land costs will cost the purchaser perhaps 70% of the total cost of the house.Before the BS started circa 1996 they were building 30,ooo houses a year and were able to make a profit.One more thing we are supposed to be all "broke" but the fiat monetary system is that if I owe the banks 1 million somebody elce somewhere must have 1 million in their bank account.Every DR must have a CR and vica-versa.Keep up the good work GM

Anonymous said...

Anonymous, I would like to correct your statement regarding the fiat money system, that if someone owes a bank 1 million it means that someone else somewhere must have 1 million in their bank account. Not so! Banks have the authority to 'create' money out of nowhere, as a debt and only have to have a small percentage (like 10%) on deposit. They just type it into your bank account and do not 'take' it from someone else's.

Anonymous said...

Hi Gombeen man I wonder can you help me with something I was wondering if you think house prices have further to fall or should I wait until all the houses from NAMA flood the market. Would that happen do you think and if it does would the price of house be cheaper.I have saved and saved for so long but I can not afford a house in the right location. Sometimes I get afraid that something will happen in the property market that will never allow me to buy. What do you think?

The Gombeen Man said...

Hi Anon.

Well I'm only an ordinary joe blogger when it comes down to it, and I can't give you a definitive answer. Nor should you act purely on anyone else's advice without thinking it through for yourself.

I wish I did know the answers, as I've been saving with a view to trading up for years - so I know where you're coming from.

All that said, I personally can only see that domestic bank lending rates are going up, as it's costing more for Irish banks to get money from the ECB. That means people can pay back/borrow less.

People are going to lose more from their paypackets in pension contributions, possibly further tax increases, and all against a backdrop of job uncertainty. That means people have less to spend.

Banks are being a lot more (belatedly) selective about lending. That means there are less people who can actually get the money (a high proportion of sale-agreeds are falling through).

Considering all that, I think that they will drop for a while yet - but don't blame me if I turn out to be wrong! I'll be as pissed off as you if I am!

But if I see somewhere I think I would be happy to stay in for foreseeable future, at a good price (by today's standards), I would think about it. It might be worth less in two years - or it might be worth more, though I doubt it - either way if you're happy there you'll still be better off than if you bought 2 years or more ago. Bottom line - will you be happy enough if it's worth less next year? Bear in mind, if you plan to live there a long time, you've got to take the long-term view.

You might have a look at this too, it's a recognised formula of housing affordabilty called the Median Multiple Ratio, which is worked out to be (house price = 3 times yearly disposable income). Have a look at the link below.

Good luck with whatever you decide to do.


Anonymous said...

Thank you Gombeen Man for taking the time to answer me. I will take everything you have said on board and of course I will have no one to blame but myself no matter what I do. The problem that I have found is that houses that were on sale in the boom for boom prices are for sale today in the same estates around the country for much more in a lot of cases. There are auctioneers on websites in Louth, Meath and Monaghan with the same property today that they had for sale two years ago and they have not budged in price. There is a lot of hype about how much prices have dropped and I have found that in a lot of cases they have not dropped at all they are still as crazy as ever. In my opinion auctioneers should be regulated they are a law unto themselves.

The Gombeen Man said...

No worries, Anon.

With regard to those idiots looking for 2006 prices today, you'll notice that their houses have been for sale for a long time. They will never get those prices for them, as those inflated prices were the symptoms of the economic mess that this dump is now in.

I'll be doing another blog on this. Hang in there, take your time, and you will get the place you want. We are not returning to the old days. Well, maybe we are - 1990 ;-)

Happy househunting!

Anonymous said...

House Prices will fall for at least another 30% but nobody knows when prises will stabilise in Ireland maybe 2012 but the problem is with falling house it just as hard to get a house as it was in the boom time because the bank wont give out mortgages no matter how much a couple earn they cant get a mortguage

Anonymous said...

taxi drivers buying property..
most of the lads i know in the business cant afford a tank of fuel
dont believe the shite you read in the paper

The Gombeen Man said...

My own old man was a taxi driver, granted it was some time ago, but rich we weren't.

However, when we were looking to trade up some years back, the estate agent cited a postman client of theirs with a portfolio of five investment properties.

My point is that the Government tax breaks suckered in people from all walks of life. And the more unaffordable they found property to "buy" (get into debt for) the further away were their "investments".