"The property market seems to be crazy at the moment and frankly it's disturbing," said Paul, who declined to give his last name, in fear of jeopardising his attempt to buy a property.
Similar stories are being repeated across Dublin, and they paint the city as one of Europe's fastest recovering property markets. The resurgence holds out hope for other struggling markets in the Eurozone, such as Spain and Portugal, say mortgage brokers and estate agents. Some believe 2014 will be the year that some of these other markets stabilise and even turn a corner to return to growth.
Though few would welcome a return to the irrational housing boom of the mid 2000s, a wider resurgence in property prices across the Eurozone could help underpin economic recovery, boosting household confidence and spurring growth in the construction sector.
Dublin’s property dance
Dublin’s estate agents report surging demand and very limited supply of properties for sale. For one, there is pent-up demand from families who are starting to feel more confident about economic progress and are seeking new homes. Expats, who left in the wake of the crisis, are returning and need a place to live. Others want to buy rental properties that will return more on their cash than a bank savings account.
Yet several factors are conspiring to keep prices high and supply low. Many homeowners still owe more on their mortgage than their property is worth (called negative equity), so they are reluctant to sell and move on. “If someone was told their house was worth a million euros($1.4m) and now you'll get 350,000 euro ($482,600), they are never going to sell unless they have to,” said Marcus Magnier, head of residential and country property at Colliers Ireland.
Only about 1% to 2% of homes are currently on the market, compared with historical levels of 4%, agents say. The construction sector also remains depressed. In 2006, 88,000 new housing units were built, said John McCartney, director of research at Savills Dublin. In 2013 fewer than one-tenth that number were built. Adding to the headwinds, deep-pocketed investors and wealthy individuals are offering cash, which sellers prefer.
Multiple offers on Dublin properties are now the norm, say agents, and competition is fierce. Rachel Fenning, 31, is looking to buy a three bedroom house in Dublin with her husband, and has a healthy budget of up to 450,000 euro ($620,500).
"We rang out about one house that went on the market at 380,000 euro ($524,000). But after about a week on the market, offers were already up to 470,000 euro (($648,100)," said Fenning. "The last couple of viewings we went to, we were one of 40 couples looking around. There was no space to walk around and view the house."
Though parts of the Irish property market remain deep in the doldrums, the resurgence is seen in other regions of the Republic of Ireland. Cork and Galway, for example, are seeing healthy single-digit gains in prices over the last year, say agents.
However, Dublin is leading the charge, particularly in the city's more desirable residential areas. Prices climbed 17.7% in 2013, according to a house price gauge from estate agent DNG, with agents reporting continued strong demand so far this year even though Ireland's Central Statistics Office recorded a 1.3% fall in Dublin property prices in January 2014. Many local agents view the monthly decline as a blip amid what they say is a still strongly rising market in Dublin.
The city delivered the second-best property price increases in 2013 after Jakarta according to estate agents Knight Frank's Prime Global Cities index, which tracks the performance of luxury housing across 30 world cities.
One attraction is Dublin’s rental yields, which are higher than in the rest of the Republic of Ireland. A property in Dublin typically yields almost 6%, before costs, among the highest in the EU, and above yields of below 5.5% in the rest of Ireland, said John McCartney, director of research at Savills Dublin.
Magnier, of Colliers Ireland, said that homes in upmarket residential areas in Dublin are changing hands for 5 million euro ($6.9m), prices that were unheard of a few years ago.
“We had an offer on a house in a prime road last week at 8 million euro ($11m) and that was rejected,” he said.
Some of the factors spurring the Dublin market could also be translated to property markets in Spain and Portugal. Agents in Dublin report strong demand from returning expats who left the city amid the financial crisis. A similar return of expats in Portugal and Spain would help return those property markets to health, property experts say.
Cash on hand
Homebuyers face strong headwinds, however. For one, mortgage approval is slow as cautious banks examine borrowers' savings and their ability to repay. This delay means that many sellers are favouring cash buyers, estate agents say.
Unfortunately for homebuyers who must rely on a bank loan, there are lots of cash buyers around. O'Kelly estimates up to 40% of their buyers are all cash. While Magnier says over half of its buyers are all cash or mainly cash.
Individual buyers around Dublin are also facing face stiff competition from deep-pocketed investors who are pursuing rental yields that trounce savings rates of around 2% that they earn from their cash in the bank.
Many buyers like Paul are wondering when they will be able to get back on the property ladder, as they are being outbid by an army of cash buyers. Many other would-be buyers are finding it tough to even build up a deposit.
“I know plenty of people in their early 30's who can't save enough for deposits as they are paying huge rent,” he says. “I think that there is a generation out there who will never scrape enough together for a house.”