Tuesday, July 30, 2013

30/7/2013: It ain't recovery until prices start rising, folks...

You know the myth - the one spun by the realtors and the likes of the various business development bodies around the country - that goes something like: "Irish recovery is showing green shoots, as foreign investors are flocking to the Irish market, kicking tyres and snapping all commercial property they can get their hands on".

As usual, there's a basic logic flaw with much of the internal Irish commercial / business world. Normally, when someone is flocking with suitcases of cash to some destination to buy, demand goes up, and prices rise. In the short run, this logic might fail to hold if there is a supply rise of involuntary sales of properties in the market. In the long run, this demand-price relationship must hold, because both voluntary and involuntary supply of properties adjusts to move along with prices. In other words, even idiot bankers would begin to withhold property from the falling market when there are willing buyers kicking tyres in hope of gaining more on sale.

It has been years, that's right - years - since the reports of the alleged 'tyres-kicking' foreign investors first started to percolate. And yet... oh well... just look at prices:


Yes, per Central Bank chart (above), commercial property is still shrinking in terms of prices. The rate of shrinkage is moderating. But that is not the same as saying that prices are rising. They are falling, falling at a diminished rate, but still falling.

The 'recovery' is much more likely in the housing market, where cash-rich farmers (having made their dosh on pre-bust sales of land and still awash with CAP cash), cash-rich and property-secured senior professionals and retirees (having made their surplus money on pre-bust sales of homes in Donneybrook etc) and cash-rich Googlites and Namanoids (the sub-sects of the South Dublin younger professionals in cushioned jobs) are all chasing prime properties in the upper middle class segment of the market. Aside from that, things are not exactly hunky-dory, like...


Still, the housing market is telling a much better story of a 'recovery' (albeit it is still not a true recovery, yet), than the fabled foreign-investors-teaming commercial property markets... The old Widow Scallan's reincarnation as an ex-Spar 'prime retail' space is out for grabs... There's (allegedly) American investment funds-led bidding war going on across the country... so hurry up...
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