Owen Reilly 2022 review

With the pandemic receding in 2021 and the Dublin residential property market proving to be very resilient despite lockdowns and viewing restrictions, the prospects for 2022 were positive though we predicted a modest increase in property values. Events again took over with Russia invading Ukraine causing inflation to surge and the cost-of-living crisis to deepen. These events in turn caused the ECB to increase interest rates for the first time in a decade.

Over the twelve months of 2022, our average selling price was €645,601 or €646 per sq. ft. Our average selling price was 4.6% above asking prices and 67% of our properties were agreed above asking. 75% of our buyers were owner occupiers, 64% were Irish and 49% required no mortgage.

In the first six months it was very much a seller’s market with low supply, low interest rates, a strong economy underpinned by a booming technology sector, and pent-up demand from the pandemic. Values were rising by more than 1% per month. In April, when the supply of properties for sale reached a record low, our average selling prices were 7.6% above asking and over 80% of our properties were sold above asking. 62% of our buyers were buying with cash as many Irish people returned to Dublin, their return accelerated by the pandemic. In the second half of the year there was a significant increase in the supply of properties for sale with many sellers attracted by the price their neighbour achieved, interest rates started rising, sentiment was negatively impacted by economic uncertainty and there were job losses in the technology sector with fears of a major correction. Despite these headwinds, our average selling prices were 5% above asking prices in Q4. Only 27% sold above asking in November, so unquestionably price inflation has cooled.

On average Dublin property prices in our core market are 5% higher than a year ago. Demand was strongest in the < €450,000 market where first-time buyers were most active, many of whom were motivated to buy by how dysfunctional the Dublin rental market is in terms of lack of supply, cost but also lack of quality. In the autumn there was a notable cooling in demand and price inflation at the top end of the market after a remarkable couple of years. In the first six months the value on some luxury properties increased by more than 10%. This slowdown is due to more sellers coming to market, rising interest rates and a more cautious approach from buyers. Family homes in turn-key condition sold well and will continue to sell well in 2023 if priced accurately. We have found properties requiring refurbishment have proved much more challenging to sell in recent months and we believe the values on these properties is now correcting given the inflated cost of renovation.

One challenge for the market, especially the apartment market, is the reduced demand we are seeing from investors. They accounted for 25% of our buyers this year compared to 31% in 2021 and 54% in 2018. Given more than half of our sellers are landlords exiting the market, the amount of available rental stock continues to deplete, deepening the accommodation crisis. Many landlords were disappointed there was no incentive for them in the last budget and combined with continued interventions by the government with increased and unfavourable regulation, the number of landlords looking to sell has accelerated in recent months. Demand from investors is still robust but another reason we are selling to less investors is that they won’t buy a rent capped property i.e., where the rent they can demand is below market rent. Another unintended consequence of rent pressure zone regulations, but it does create opportunities for owner-occupiers with less competition from investors. The majority of our investor buyers are buying through their pension or company structures.

In the Dublin rental market, the crisis continues. This time last year I wrote the following “A worrying trend in the rental market is the number of small landlords selling who accounted for over 60% of our sellers. With rental demand back to pre-pandemic levels, this depletion in rental accommodation will deepen the accommodation crisis in Dublin before the anticipated reopening of offices next year.” Today there is less rentals available. Rising interest rates and construction costs have combined at the worst possible moment. Activity in the build-to-rent sector has completely frozen, with numerous forward purchase sales of new apartment developments falling through while sellers and buyers enter a ‘price discovery’ phase. It is thought many of these proposed developments are unviable without state intervention as we have created an apartment investment model that seems to only work if interest rates are nearly zero.

Rental demand in the first nine months of the year was driven by the technology sector and new employees in Amazon, Salesforce, and Tik Tok. In recent weeks, we have observed a slight slowdown in tenant demand because of the recruitment freeze in many of the large multinationals in Dublin.

Our average monthly rent was €2,607, a 20% increase on 2021. However, rental inflation for the year was 13%, a depressing statistic and confirms the governments complete failure given we are several years into this crisis. Our typical tenant was 32 years of age and on a salary of €78,000 p.a. 67% of our tenants work in the technology underlining the importance of this sector. Only 16% of our tenants were Irish compared to 30% in 2021.

Given the uncertainty and headwinds, the prospects for the selling market in Dublin are very unclear. We believe the only increase in property values will be where first buyers are most active, i.e., up to €450,000, helped by the central bank allowing first buyers to borrow four times their salary. However, this growth is likely to be nominal and in the region of 1-2%. We don’t believe property values will increase much at all in the middle market (up to €1 million) and we believe a correction is already happening at the higher end of the market. As always it will be an interesting year and we look forward to sharing it with you.