Property Investors & Apartment Oversupply | Posted 5.2.11
Many property investors now find themselves in serious negative equity, owning their mortgage lenders amounts ranging from 150,000 euro to 250,000 euro in excess of the current market value of their properties.
In Ireland, investors during the boom generally bought one or two bedroom apartments, a segment of the market which has declined in value at a greater rate than owner occupied 3 bedroom semi-detached houses. Another fact that property investors have to contend with is an large oversupply of apartments, meaning that their apartments will be slow to regain value in the long term.
As if the drop on prices and over supply were not bad enough, looming on the horizon is an eventual increase in mortgage rates. There may be several stages to this, as individual lenders increase their standard variable rates followed by more increases as the European Central Bank increases its base rate from its current very low level.
Section 23 tax relief, which allowed property investors to offset between 75 percent and 90 percent of the purchase price against rental income tax, is also under review by all the main political parties, and may be reduced or phased out over the next few years.
Two pieces of good news for some investors include anecdotal evidence suggesting that there is a reasonably steady demand for city centre apartments and that the steep rent declines (estimated by the Central Statistics Office at reducing by over a quarter since 2008) may now have leveled off.
Overall, the next few years may well see an overall decline in the number of property investors in the Irish property market.
This article is based on a recent report in the Irish Times Newspaper.
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