To say that it has been a rollercoaster decade for Irish property is the understatement of, well, the decade. From the soaring highs of 2006 to the crashing lows of the recession and a surging market once more, it’s difficult to identify a middle ground amidst the market volatility. However, throughout all the flux, property has always been an option for investment. But the real question is: if you’re interested in this market, what property should you invest in?
First of all, you have to consider whether you want to invest in residential or commercial property. Generally speaking, commercial property will be more expensive to purchase (even though a small unit in Dublin city could be as low as €150,000 to €200,000) but will cause you less trouble in the long run – your stable tenant will be on a long-term lease, so don’t expect your rent to fluctuate wildly. Maintenance for commercial units is generally covered by the tenant as part of the lease.
Another factor to consider in your decision to purchase commercial property is the Brexit effect, as the weakening of sterling will see fewer UK investors snapping up Irish units. However, it is possible that many European and American firms could move their UK operations to Dublin after Article 50 is triggered given our attractive corporation tax rate of 12.5%, so timing is of key importance here.
Another factor to consider in your decision to purchase commercial property is the Brexit effect, so timing is of key importance here
But for the purposes of this blog post, let’s switch the focus to residential property. With regard to an initial outlay, a residential investment will probably be more attractive than commercial, but you’ll have to consider the longer-term management it will undoubtedly need, as the tenant turnover – and subsequent need to monitor developments – will be greater than that of a commercial property.
Of course, when we think about a residential investment, this can either be an apartment or a house. As with all business decisions, it’s best to have a plan before acting. What are you looking for? Is it an initial yield, capital growth or a combination of both? What is your timeframe for these? What costs are you prepared to pay in order to realise these targets?
Many factors will influence the costs you will incur. How old is the property? What condition is it in at the time of purchase? If you’re thinking of purchasing an apartment, what is the condition of the common area and how well has it been maintained over the lifetime of the development? For example, we have seen apartment owners stuck with the costs of substantial repairs and upgrades because building standards were not met during construction.
Also, where is the property located, and will another development add significantly to its resale value? A good positive example of this is the extended Luas line in Dublin, which will open in December this year. This will link the existing Green Line from Bride’s Glen to the north side of the city and beyond to Broombridge, taking in Cabra and Phibsborough.
Of course, this Luas extension will have a big effect on rental values, which could jump by as much as 15-20% once the line opens.
However, in our experience, one of the greatest costs that apartment landlords are generally not taking account of when they are considering investment is the charge that must be paid to the owners’ management company. This is used to take care of the common areas of the development, including lighting, waste disposal, life maintenance, insurance, legal issues, parking, etc. It is important to remember that this charge can equal up to two months’ rent per year.
It is not uncommon to hear landlords complaining that their sales agents have misinformed them about these service charges, so if you’re planning on investing in an apartment, be sure to go through all charges with a fine toothcomb with your solicitor, and read the small print. Of course, these charges will generally never incur as a house owner as houses will be bought freehold.
To summarise, if you have the capital to spend and aren’t looking to make an immediate return, then a commercial investment is your best bet. If you’re targeting residential property for a quicker return, be sure to factor in all charges before making the choice between a house or an apartment, and know the area in which you’re buying!