Is EU’s ‘comeback kid’ heading towards another property bubble?

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This definitely puts a damper on their revival story

ireland-property-bubble

Widely recognised as the “comeback kid” of the Eurozone after the Global Financial Crisis prompted a crash in the property market, Ireland is once again experiencing high house price growth after the market bottomed out in 2013, reports The Telegraph.

With prices rising 2.3 percent month-on-month and 9.5 percent year-on-year in August, according to Central Statistics Office figures, outside experts are warning Ireland tread with caution to avoid repeating past mistakes.

The Paris-based think tank Organisation for Economic Development and Coordination (OECD) warned that another property boom could “increase vulnerabilities, especially if it were associated with further indebtedness.”

More: Is the Irish comeback complete?

The government should look to install cooling measures in the market and encourage the diversion of growth to the rental market.

“To avoid repeating past mistakes, now is the time to build resilience against future nasty surprises while ensuring the recovery is sustained, and its benefits broadly shared,” said Angel Gurría, secretary general of the OECD.

In Dublin, particularly, the combination of a high cost of living with house prices rising for the 32nd month in a row, according to the Irish Times could spell trouble and even put off foreign investors.

Housing supply in Ireland has been muted which some believe has also contributed to the rising prices, according to the Irish Examiner.

“An ongoing issue of concern within the economy is the slow rate of supply response within the housing sector. This has seen the cost of housing increase significantly with both house prices and rents increasing markedly,” Kieran McQuinn of the Economic and Social Research Institute.

But the country is still a long way from a bubble just yet as residential property prices nationally are still 35.4 percent lower than their 2007 peak, according to Central Statistics Office.

More: Asian investors tempted by Irish commercial property

Additionally, events are on the horizon which should put some downward pressure on pricing.

“One has to assume that the tighter lending restrictions imposed by the Central Bank and the end of the CGT property purchase incentive scheme as announced in last October’s Budget will weigh negatively and bring prices down to more affordable levels,” said Alan McQuaid, chief economist at Merrion Capital.

Also, the number of planning permissions is picking up, indicating that new housing supply should soon be entering the market.

“The pick-up in planning permissions, albeit from historically low levels, should also dampen house prices. Lower prices will be welcomed by IDA Ireland. The agency has had some difficulty in attracting new foreign direct investment into the country because of soaring commercial and residential property values,” added McQuaid.

 

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