Investing

 

After a mediocre 2016 for the housing industry, 2017 looks like the time to invest. Last year saw high rents due to lack of housing and increased building costs. However, property prices are set to rise by at least 8% in 2017 as the launch of the new help-to-buy scheme, plus looser mortgage lending rules and constrained supply drive price growth across the country. The new scheme will hopefully encourage first time buyers as it will provide these buyers 5% back on the cost of their property.  

Understanding the economy:

The Irish economy is primarily based on foreign trade, industry, and investment. The country is major high-tech manufacturer and is one of the world’s biggest exporters of pharmaceuticals and software.

GDP:

 

Ireland is considered to be one of the fastest growing country in the EU. Despite 2017 starting off with a trough, it has been predicted that Ireland will grow 5% by the end of the fiscal year. Many other countries in the EU have a similar growth rate to Ireland, between 1% and 3%. However, Ireland’s growth is usually one or two percentage points higher than the majority of the EU countries. The graph below depicts the growth rate over the past few years but there is a clear spike in 2015.

The following four reasons attribute to the massive spike in GDP in 2015.

 

  • A giant leap in exports – Irish exports increased by about 20% in 2014 to over €111 billion in 2015. Pharmaceuticals, chemicals, medical equipment and cosmetics were the most popular products leaving Ireland’s shores.
  • Irish people are increasing spending – Consumer spending in the country was in rude health in 2015, at €22,6 billion a 3.5% jump from the year before. Over €2.4 billion of that was ordered online and delivered directly to Irish homes. Household expenditure, the largest component of GDP increased to 44%.
  • The Irish government is spending less – Ireland’s 2015 government expenditure dropped by almost 7% compared to 2014, with the vast majority going on welfare, health, and education.
  • People really enjoy investing in Ireland – compared to last year, capital investments jumped a massive 28% compared to 2014. A late 2015 venture capital report by Inter Trade Ireland said that the number of venture capital funds operating in Ireland had more than doubled, while the average size of funds had jumped from €20 million to €100 million.

Unemployment rate:

 

Ireland’s unemployment rate fell from 6.4% in May to 6.3% in June 2017 and from 8.3% in June 2016. The rate now is the lowest it has been since 2008. Unemployment Rate in Ireland averaged 10.80 percent from 1983 until 2017, reaching an all time high of 17.30 percent in December of 1985 and a record low of 3.70 percent in December of 2000. emigration has been a factor to some degree in keeping unemployment down since the financial crisis, the labour market has improved dramatically over the past three years or so, reflecting the strengthening of the economic recovery.We are looking for a net jobs rise of 45,000 this year

 

Interest Rates:

Negative interest rates are encouraging people to put their money back into the economy.

The interest rate is based off of Euribor (Euro Interbank Offered Rate). Currently the Euribor rate is -.056%. That is a negative interest rate! You must be thinking- this doesn’t make any sense.  However this is great for investing purposes. If you chose to put some money into a bank it would typically make a couple dollars every year because it earns interest. With a negative interest rate you would actually be losing money. So instead of letting your money sit in the bank and lose money you can invest in real estate! Often times the bank adds a small amount of fixed interest to the Euribor. Still, Irish rates are fairly low, ranging from .5% to 1.5%.

 

Inflation:

 

Irish consumer prices decreased by 0.4 percent in the year to June 2017 after rising by 0.2 percent in the previous month. It was the first drop in consumer prices since November last year and the sharpest decline since April 2015, as cost fell for food and non-alcoholic beverages, clothing and footwear, and furnishings and household equipment. Annual core inflation rate, (excludes energy and food), fell to -0.4 percent from a flat reading in May. On a monthly basis, consumer prices edged up 0.1 percent after a 0.2 percent decrease in May. Inflation Rate in Ireland averaged 4.68 percent from 1976 until 2017, reaching an all time high of 23.15 percent in October of 1981 and a record low of -6.56 percent in October of 2009.

Ireland graph1
Ireland Real Estate Graph

 

Understanding the Housing Market:

There was a smaller rise in property prices between 2016 and 2017 than there was between 2015 and 2017,  but it appears that prices will continue to grow for the rest of 2017.  Nearly all cities in Ireland are experiencing an 8% rise in property prices except for Dublin. In Dublin, prices increased by 3.7%, compared to 1.4% in 2015.  The reason for Dublin’s growth percentage is most likely from Ireland’s central bank limiting its loan-to-value ratios. Additionally, less than 1% of properties are for sale in Dublin, while 21,000 new properties are for sale all over Ireland.

 

Rental yields:

Ireland has one of the best rental yields as shown in the graph below. Note that the yields are taken before taxes.

Ireland graph 2

According to the Global Property Report, the smaller the apartment, the higher the rental yield will be.

Ireland graph 3
Ireland Real Estate Comparison

At Crossborder, we see Ireland as a fit and smart investment. As expressed, negative interest rates and rental yields make Ireland an excellent decision. For help in obtaining a foreign mortgage from initial inquiry to final signature, contact Crossborder for free and learn what options are available.

 

Comments are closed.