Business

The Downside of Dublin’s Hot Market: Sellers Can’t Meet High Demand

Irish passports have been in demand since Brexit, as banks look to move some operations from London. Now, apparently, luxury homes in and around Dublin are also a hot commodity.

Brokers point to a wave of overseas interest in Dublin homes from as far away as Hong Kong and Russia. But well-paid financial exiles from London and elsewhere may struggle to splash their bonuses on a top address in the fair city because years of under-development following the global financial crisis has led to a supply issue.

“There are 70 cranes over the city and 68 of them are for offices,” said Barry Connolly, who runs the central Dublin office of Savills. “So there will be lots of new offices for these people to work in, but the issue is the supply of homes to accommodate them.”

In Dublin’s affluent southern suburbs of Dalkey, Killiney and Sandycove, there are fewer than 40 properties on the market for more than €1 million, according to daft.ie, a property listings website.

These underlying market dynamics explain the rampant house price inflation in the capital.

According to the Savills June report on Dublin residential property, house prices nationally rose by 7.8% in 2016 compared with 4.6% in 2015. In the year to April, the growth rate has accelerated with prices rising 10.5%.

Meanwhile, Savills predicts home prices to “continue rising at a robust rate” in the near future.

Supply not keeping up with demand

It’s been only six years since Ireland faced the potential collapse of a banking system riddled with bad property loans. During that time, construction sites came to a standstill and half-finished housing schemes became known as “ghost estates” as developers went into hibernation.

Yet demand for new homes has continued to grow by the year, contributing to a nationwide housing shortage that has fueled inflation in the private rental sector.

Developers have only recently started to resume construction, spurred by the increasingly confident consumers of Europe’s fastest growing economy. New projects include the Beacon South Quarter development of 68 luxury apartments in Sandyford built by Ires Reit, a unit of Canadian fund Capreit and one of the biggest landlords in the city.

Cluain Aedin is another new development of large luxury detached homes on Carrickbrack Road in the prime North Dublin location of Sutton and with views of Dublin Bay.

However, there were just 15,000 homes built across Ireland last year according to Savills data—65% below the 20-year average for the country. Perhaps more interesting is that 42% of them were one-off dwellings (plots where a single home is planned to be built) which are less likely to come up for sale.

The housing shortage is being exacerbated by strong population growth in the capital, which grew by 22,000 in the year to March 2017. This implies a need for more than 8,000 additional homes just to stand still, according to Savills. However, government data suggests that only about 4,400 properties are being built in Dublin annually.

Investors looking for a return

Dublin may benefit from rising demand for high-end housing should large banks with operations in London decide to move some operations to Ireland.

Brokers say the mismatch between supply and demand could stoke inflation in the property market if Dublin does indeed attract some big-name financial sector relocations from London.

That possibility is already creating a buzz from foreign investors.

“One in three inquiries we are getting are coming from overseas,” Mr. Connolly said. “We are getting lots of calls from Hong Kong and Russia. It is not just people looking for a high-end home but from investors looking for a return.”

Meanwhile, brokers are busy calculating what Brexit may mean for Dublin property demand, as reports have linked companies that include J.P. Morgan, Morgan Stanley with a possible move to the Irish capital. The possibility of those relocations may also spur demand from other directions.

Bank of America on Friday became the first Irish bank to choose Dublin as its preferred site to service EU clients as part of a Brexit contingency plan. Last week Barclays also said it was in talks with Irish regulators to expand operations in Dublin post-Brexit.

“I am meeting someone tomorrow who is moving his real estate business from London to Dublin, lock, stock and barrel—he’s moving the home, the family, the business—the whole shebang,” Mr. Connolly said in a recent interview. Mr. Connolly expects buying activity to pick up in the second half of 2017.

But the Irish property market has also experienced the downside of Britain’s surprise departure from the E.U., said Rena O’Kelly, a director at Knight Frank, who is marketing Dublin’s most expensive home, the 10,000-square-foot Gorse Hill residence in the south Dublin coastal village of Killiney priced at €8.5 million (US$9.75 million).

Perched high above the seafront and with views of both the Irish Sea and the Wicklow Mountains, it is one of only a handful of €5 million-plus properties that came to the market in Dublin in March this year.

MORE: Own a Medieval Stone Castle in Ireland For £1.32M

Such properties were in high demand in the two-year run-up to the June 23, 2016, referendum vote in the U.K. when many investors capitalized on a favorable exchange rate to move money into Irish property as London prices topped out.

But the rebound of the euro, which has gained about 3.5% against sterling in the last two months, may have dampened demand for some properties across the Irish Sea.“There has been an easing of that type of buyer,” Ms. O’Kelly said.

Still, she agreed that Brexit could start to have a beneficial impact on the market over the next six months if large-scale corporate relocations materialize.There is already strong demand for high-end homes in the city center where some properties have achieved prices well in excess of expectations.

Ms. O’Kelly cited the recent sale of a three-bedroom waterfront house overlooking the Grand Canal which started at €795,000 (US$912,540) and was bid up to a final selling price of €1.3 million (US$1.49 million).

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