Deterioration in market conditions this year has outweighed all expectations with the pace and impact unforeseen by most experts. At the peak of the market in 2006, Irish spend on property (at home and abroad) hit a phenomenal €54.4 billion. Dropping to €45 billion in 2007, this total remained strong, but reflected the beginning of a slowdown in the new homes market, which was being driven in turn by increasing interest rates. What has happened this year has changed all that, with spend expected to be down an estimated 73% (or €40 billion) in 2008 from the peak in 2006 says Ms. Henry.
Angus Potterton, Managing Director says the government and banking sector must act now in order to find a solution to the lack of liquidity. There are signs that something will be done to recapitalise the Irish banking sector but every day that goes by puts more companies out business, pushes up unemployment, reduces tax revenue and brings us deeper into recession. It is imperative that the government and the banks take immediate action, not just for the 250,000 people in the property and construction sector but for the wider economy he says.
Joan Henry states that the evidence of the huge decline in spending is clear across all sectors of the property market and is most obvious in the new homes area. The total spend on new homes is expected to fall from an estimated €23 billion in 2007 to just €6 billion this year. Spend in the Irish investment market is expected to be down as much as 75% from last year’s €2 billion. Spend on domestic land is expected to fall by a staggering 80%. These numbers reflect both the fall in volumes of deals being done and also obviously a significant drop in the value of individual deals being done.
Looking to 2009 it is likely that the first half of the year will see similar low levels of activity to those experienced in the second half of 2008 with maybe a marginal improvement in the second half of the year. It is likely to be into the second half of 2010 before any significant improvement in market activity is experienced and it is likely this improvement will be seen in the City Centre first of all says O’Connell.
The main positive note from Property Outlook is that the market is expected to have bottomed out by 2009. Given the extent of the adjustment in the property market and the pain being taken this year, coupled with decisive action by central banks to free up the liquidity situation, we expect the market to bottom out by 2009 and for activity levels to pick up throughout next year, albeit at considerably lower values and volumes. concludes Joan Henry, Head of Research at Savills.
