Not for the first time, the property market appears to be defying gravity. Despite a blanket ban on viewings due to Level 5 Covid-19 restrictions, property transactions are accelerating.
Based on data from the Property Services Regulatory Authority (PSRA), Davy stockbroker calculates that there were 13,100 transactions in the first quarter of 2021, worth about €4.2 billion. In volume terms, this was up 12 per cent on the same period last year.
When the first lockdown came into force last year, with a similar ban on viewings of residential properties listed for sale, transactions fell off a cliff. So what’s different now?
One explanation might be that the transactions relate to sales agreed at the end of last year. It typically takes eight–10 weeks from the “sale agreed” point to the completion of the transaction. Solicitors then have 44 days to file the stamp duty return, which is the basis for the Residential Property Price Register, which gives us the official data.
So conceivably, transactions from December could still be percolating through the system in March, but the bulk of sales in the final quarter of last year would have come and gone by now, suggesting back-dated transactions aren’t sufficient to explain the current pick-up.
The Davy figures also suggest transaction volumes were 10 per cent down in January but up 21 per cent and 22 per cent in February and March respectively. And the April numbers – at this stage – indicate more of the same.
This points to an acceleration in activity.
Viewings
Under Level 5 guidelines, physical viewings are “only permissible at the point where a tenancy agreement is being entered into or where a contract for sale has been drawn up”. In other words, you can’t see the property until the sale is agreed.
Is it conceivable that this many people are agreeing to buy properties sight-unseen or on the basis of virtual viewings? Or are estate agents bending the rules on viewings?
There are anecdotal reports of prospective buyers being told that if they happen to be in the area, the key will be in the door; also that smaller agencies are just ploughing on with viewings regardless. There are also claims that some estate agents are allowing certain buyers – and not others – to view prior to a sale being agreed.
According to Davy chief economist Conall MacCoille, “estate agents have clearly adapted to the third lockdown, maintaining activity levels despite restrictions on viewings and travel, via virtual viewings and other initiatives”.
Virtual viewings, usually a video of the property, are a workaround but hardly comparable to physical ones. Even if some agents are gaming the rules, it doesn’t explain the acceleration in transactions.
The country’s largest property agent Sherry FitzGerald says it witnessed “the strongest closing quarter” of sales in a decade in the final three months of last year. The industry – as it always does – links the current pick-up to the gap between supply and demand.
According to data taken from property websites daft.ie and myhome.ie, there were just 15,500 second-hand residential properties listed for sale in January this year, the lowest level recorded in 10 years.
There’s also the hiatus in construction during the first quarter of 2021, which has slowed the supply of new homes.
Supply is the perennial reason given for all that’s wrong with property here, but there are other factors at play. We had the same supply gap in 2018 and 2019 and price growth nationally fizzled out – prices even fell in Dublin.
‘Excess savings’
Some have linked the current pick-up in transactions to the increased incidence of remote working , which is plausible but only to a point.
Perhaps the best explanation is the build-up of savings. There was a net inflow of money held on deposit here amounting to €15.7 billion between March last year and February this year. The Central Bank says about €10 billion is what it would classify as "excess savings" – in other words over and above what we could have expected in the absence of Covid.
Large-scale income supports are undoubtedly driving this. This, along with ultra-low mortgage rates, has turbo-charged property markets here and elsewhere.
Research from Spain’s Caixa Bank suggests the reduction in average mortgage financing costs across the euro zone – from 5 per cent in 2007 to 2 per cent in 2019 – is driving excess demand for property as an investment asset.
The Government, the Central Bank, the Economic and Social Research Institute (ESRI) may be predicting a consumer boom once the yoke of restrictions is lifted but property appears to have jumped the gun.
Fiscal stimulus from Government and “pent-up” demand from consumers with cash savings have created a property sugar rush. But sugar rushes tend to be short-lived.
Cheap money provided by central banks in the wake of the 2008 financial crisis inflated asset values, particularly property values. The same appears to be happening now.
The removal of financial and fiscal supports, however, stand as a key reckoning point somewhere up the line, and while Minister for Finance Paschal Donohoe has pledged repeatedly that there will be no cliff fall, he has also stated he wants to keep Ireland in the middle of the pack in terms of the deficit. Make no mistake he will move with the tide.
The Bank of Canada last week become the first major economy to reduce emergency levels of monetary stimulus on foot of stronger-than-expected recovery from the pandemic, a move than many commentators viewed as the beginning of this shift away from supports.
