The reduction in stamp duty in the Republic of Ireland, from 6% to 2%, has led to a temporary respite in the decline in Irish property values.
Values grew in Q4 2011 by 0.2%, according to the SCSI/IPD Ireland Quarterly Property Index, the first positive value movement in four years. However, had the reduction in acquisition costs, of 4%, not occurred, values would have declined by, roughly, -3.8%.
Phil Tily, IPD managing director for UK and Ireland, said: “The raft of property reforms announced in December may take time to impact on Irish values. The decision not to implement rules regarding upward only rent review legislation, and the removal of capital gains tax on purchases before the end of 2013, should restore a degree of positive investor sentiment towards the market.
“The stamp duty reform has had an immediate effect on values, but this is not due to improving occupier demand or yield shift. It is in effect taking 4% off any costs for the quarter.”
The Irish economy remains in a difficult situation, with rental values continuing to decline by -3.1% in the last quarter as austerity cuts take their toll on consumers and occupiers alike. In total, rental values have fallen -46.6% since December 2008, leaving large proportions of current income unsecured by levels of over renting.
Hugh Markey, chair of the Commercial Agency Professional Group of the Society of Chartered Surveyors Ireland, said: “While 2011 was a challenging year for the commercial property market in Ireland, the decision by Government to reduce stamp duty and to provide certainty in relation to upwards only rent reviews in pre-2010 leases, provides a degree of certainty in the market and is encouraging investment.”
However, access to finance remains a key issue in the market and Marky argues that it is imperative that credit becomes more accessible for suitable projects.
Annual performance – 2011
Total return for the year was -2.4%, matching the figure reported in 2010, while the level of capital declines, despite the respite in Q4, were in a similar order of magnitude to the previous year, at -11.4%. The uncertainty regarding rent review legislation and austerity cuts had an adverse impact on property values property values for the majority of the year.
Retail recorded the steepest decline in values for the year, at -12.1%, followed by industrial properties, down -11.8%. Rental values fell 15.1% for both sectors, compared with offices, which recorded rental value decline of 13.9%.
Tily said: “Income return reached double digits, at 10% for the year. At these levels you might hope that investors become more attracted to property, given the greater clarity and reforms being implemented in the market. Initial yield in December was 9.4%. Transaction levels remained nonexistent throughout the year.
“Values have now fallen 64.8% since September 2007, and the huge discounts will have started to attract considerable attention to the market, but investors will inevitably have to be extremely careful with their asset selection.”
With 2012 earmarked as the possible year when NAMA will start to offload larger, more distressed, sections of its loan book, Tily argues that it will be interesting to see the impact on the market in the coming year – and whether the discounts offered, and the new government legislations, prove sufficient incentive “in the current risk averse investment climate”.
The SCSI / IPD Ireland Quarterly Property Index is based on a sample of 328 properties covering €2.3bn at the end of December 2011.
Graphic: Source: SCSI/IPD Ireland Quarterly Property Index
