NewsEasy Properties, for Easy Money?

January 21, 2014

There are many different types of property investors actively seeking a bargain in Ireland at the moment, from professionals looking for safely ‘park’ their cash for the next few decades right through to the large institutional investors who are looking to buy up entire blocks and developments. While the profile of investor might vary, their expectations of the Irish market offering are actually quite similar. So too are their expected sources of stock. The vast majority of investors, the big guys and the little guys – and a noticeable few homebuyers – are looking to NAMA and the other banks to turn over the goods. The little guys are more likely to be disappointed. NAMA from the start had little interest in selling off single units or even the smaller portfolios of retail units in regional town, usually with an apartment for two overhead. They had their eye on bigger gains that were easy wins, like the sale of overseas prime commercial assets. And was a good strategy to start with, the country needed those early wins. Now that the Agency’s attention is focused more on the domestic market, private investors might have been forgiven for thinking that opportunities might present themselves but this is not likely to happen for a while yet. The focus remains on shifting the maximum amount of stock, at the maximum price – arguably in excess of today’s true market value – with the least amount of risk. All of this works in favour of the institutional investors or new entrant REITS (Real Estate Investment Trusts) who are destined to hold Irish property, becoming major landlords and effectively changing the face of tenancies over the long term, from an Irish model to one akin to existing German lifetime tenancies.

Central BankThe questions facing private investors now must surely be i) can they compete with major players to buy – particularly in light of credit shortage and rising house prices? ii) can they compete in terms of the tenancies offered? and iii) is there a place for on-off private investors in the marketplace long term? The issue of competing for properties now is one that can be dealt with in a straightforward, albeit unsatisfactory way; on-off investors will simply not be offered the same deals as the institutional investors and NAMA is unlikely to be a primary source of bargains. This leads investors back to the non-NAMA banks, particularly those openly rushing from the Irish market and this is where multi-lots auctions, similar to those help by Allsop Space, Real Estate Alliance, iam-SOLD and O’Donnellan & Joyce come into their own.

Recent focus and media hype on the emotive topic of home repossessions might lead buyers to believe that grabbing a bargain would be easy. In practice, this is rarely true. Very few homes have been repossessed, in fact, relatively few properties – whether homes or investments – have been seized over the past few years. Most recent figures from the Central Bank, published late last month, suggest that there were approximately 911 properties in the banks’ possession at the beginning of the last quarter. A total of 223 properties were taken into possession by lenders during that quarter, of which 63 were repossessed on foot of a Court Order, while the remaining 160 were voluntarily surrendered or abandoned. Of that total figure, only 133 properties were disposed of. While a rise in the number of house repossessions is inevitable in the coming months and years, disposal is still an uncertain conclusion. If we take it that disposals rise in proportion to repossessions, then private investors are certainly in a position to buy up that stock. Of course, it is expected that they will be competing not with institutional investors but rather home-buyers when it comes to buying up the housing stock. But is this the best way for investors to bag a bargain? In my opinion, no; Investors need to be getting to the properties at an earlier stage to really see the benefit. Given that the target properties are not those that the owners are clinging to as family homes but rather, investments properties or starter homes that the owners are ready to walk away from. With these particular properties, there is a unique point of vulnerability with a mortgaged property, after arrears start to accrue, perhaps after proceedings have been threatened or even instituted but before any Court Orders have yet been made. During this point, the owner is in legal possession of the property but in effect, the bank is most definitely calling the shots. No sale can be agreed without the consent of the lender. During this very brief point, the owner and the bank have the same objective; sell the house for the best price. After this point, without prior resolution on debt forgiveness, the owner has very little to gain. During this point, the owners are still in a position to negotiate with the bank, the bank has yet to incur the legal costs associated with full recovery proceedings and can therefore reasonable accept a reduced amount. This is the very point where investors should be making their offer, which, if successful, should be lower than the price the bank needs to achieve after legal proceedings. Private investors who know their areas and who can take the time to find out about the sellers are in a strong position to secure a bargain here and if they have the patience to wait the many weeks bank consent may take, it is likely that their patience will be rewarded. This method of buying with suit certain types of investors better than buying at auctions, where the title risk is greater.

So, yes, there are still plenty of opportunities for private investors but they may not be found ready packaged and being offered for sale by the banks. Investing is a business, if you are not prepared to work at it, it simply may not be the business for you.

Carol Tallon