“Ireland is different” has long been the mantra of Ireland’s ‘property only ever goes up’ brigade. Now it turns out we are different; We’re worse.
The “Ireland is different” call rings so hollow because it is said of everything that experiences an asset bubble. The 1920’s bull run was ‘different this time’ because America had entered an era of perpertual prosperity. The 1990s dot.com bubble was ‘different this time’ because we had entered a new technological age. In fact, the whistling of the tune is so recurrent in asset bubbles that it actually serves to identify them. So too did Ireland follow exactly the steps threaded by every housing bubble that preceded it.
But now Ireland’s property developers have begun doing something never witnessed in any other property bubble. Rather than selling new properties on construction into a soft market, they are letting them out en masse! Large developments like the Ringsend Gasworks have, on failing to attract buyers, been retained by their constructors for wholesale letting.
This is a towering act of bravado or incompetence from Ireland’s developer riche. Developers typically require fast sale of completed housing as the financing costs of holding on to the properties is enormous. If developments don’t sell, the developers can quickly be sunk by the weight of their loan repayments. By retaining their properties for rent rather than selling them at reduced margin, they are betting that rental income and future capital appreciation will more than cover their loan commitments. This in a rental market with historically low yields below the cost of borrowing, and collapsing house prices! What is more, the act of letting so many properties will in itself further suppress rents, where inventory is already at record high levels.
The property developers are taking an enormous gamble, but they aren’t doing it alone. They simply don’t have the cashflow to finance such an arrangement on their own; The banks are backing them because the banks can’t afford for them to fail. The Irish banks have all their chips on property and know that bankruptcy of a major property developers would cause them serious hardship. In this, the banks are complicit in the gamble and are betting your money too as a depositor.
