Housing demand continues but affordability deteriorating

• Lower price inflation in sector, but not a price correction
• UK REIT Programme offers significant opportunities for Irish investors

Price inflation in the housing market will fall from 14 per cent this year to 3 per cent in 2007, according to Dr. Dan McLoughlin, Chief Economist in Bank of Ireland.

Speaking at the Deloitte Property Seminar, Dr. McLoughlin said that housing demand will be driven by a surge in employment and immigration, but that the ability of people to afford housing will drop, leading to a slow-down in house prices. However, he added that there will not be a price correction in the property market, but rather reduced price inflation. He also predicted that the European Central Bank will increase interest rates to 3.5 per cent in early 2007, but they will peak at this level.

Dr. McLoughlin said that commercial property returns of 28 per cent will be seen this year, but added that it was important to note that the market is at a cyclical peak and similar returns may not continue into 2007.

Commenting on property investment in Ireland, David Clarke, Head of Private Client Property Investment at Goodbody Stockbrokers, said, “Property investment in Ireland is still an attractive option, and will continue to be so in 2007, albeit growth will continue at a slower place. We believe developers will increasingly look to joint ventures, the benefits of which being effective use of capital, pooled risk, operational control and ultimately healthy profits.”

The Deloitte seminar also heard that Irish investors looking to expand their property portfolios must give serious consideration to investing in the UK REIT  (Real Estate Investment Trust) scheme, which is due to commence in January 2007, particularly if investments in Ireland will not be as profitable in the coming year. A REIT is a company carrying on a ‘property rental business’. Profits and gains from the business will be exempt from tax provided 90 per cent of such profits are distributed to investors.

John Kilby, Real Estate Partner, Deloitte UK, said: "REITs will be a valuable tool to access the UK property market and will certainly be interesting to Irish investors. In addition, expected changes to legislation surrounding the regime will remove significant barriers to entry - recently the UK Government announced that the restriction on individuals owning more than 10 per cent of a REIT will be lifted. This will give a tremendous boost to the market as many real estate companies have significant individual or family shareholdings and this will make it much easier for them to convert. To date, approximately 14 listed property groups have already made positive statements about plans to enter the REIT programme from the time of its commencement.”

Speaking at the seminar, Padraig Cronin, Head of Property at Deloitte said: “The property market in Ireland may not experience the same level of growth in 2007 that it did in 2006, but opportunities still exist in the domestic market for investors. That said, a close eye must be kept on schemes such as the REIT programme in the UK so that opportunities abroad are not missed.”

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Notes to Editor:

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