A taste of things to come here in Ireland
According to David Mc Williams’s latest article” Collapsing house prices? We ain’t seen nothing yet”
A comprehensive report on the Irish property market is out and it confirms the total destruction of wealth of a certain generation. According to the wonderfully detailed work done by Ronan Lyons at Daft.ie, asking prices countrywide fell by just over 4pc in the second three months of the year.
The average asking price nationally in the second quarter of 2010 was just over €224,000 — 36pc below its 2007 peak. The acceleration in price falls will come as little surprise, but the question now is how can a generation whose balance sheet has been so totally vaporized ever start spending again?
David has given some examples of what an investment in such a property to –day would yield (approx 7 %) for an investor and thus come to a realistic current price for the said property namely €135,620.
But as I have already highlighted my specific and well tested way of calculating the proper price of any property .(See http://thepressnet.com/2010/04/05/lenihan-raising-house-prices/) (namely 10 X times the annual rent less costs like taxes and fees) will give you a very close figure to the most realistic price for a property
So if we were to look at what an investor should receive if they were to invest now at these prices with a possible rent of 900 euro per month perhaps coming in from this investment your total return would be 900 X12 (months) = 10,800:00
Less property tax (currently 200:00 Euros)
And maybe even management fees in the case of apartments in the city approx 2,000 so all told I would say you would have a net return of 8,600 Euros you might also consider income tax at 30%.but even if there are no management fees you will certainly have to pay income tax
In any case I would come to a figure of 8,600 X 12 months = 103,200:00 been the maximum I would pay for that property but in the current climate and baring in mind that there are over 250,000 housing units unsold and we have approx 60,000 people leaving the country ,and the government pushing rents down by as much as 30% in some areas ,unemployment true figures heading up to 20% plus, I would expect that these prices still have a long way to go and I’m afraid to say lower much lower, with a bottom of around 65,000 euro per unit
These prices would then bring us back to the average prices we currently see in places like Germany and France
David is usually accused of being a profit of doom ,well I would consider his latest announcements on house prices as been quite optimistic very optimistic
Here is a video clip I picked up describing the current situation in the US and I believe it would support my expected outlook of things to come