| Calling the property market |
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| The state of the Irish property market continues to be a source of fascination for most, and as record prices are still being achieved, it seems that the warnings given by such bodies as the Central Bank and the OECD, in addition to the surveys by The Economist which predicted that the market would fall by 20 per cent, are just that - warnings - with no signs of becoming a reality. |
The forecasts given by economists responding to the eighth annual FINANCE property survey (See pages 4-5), reinforce the robustness of the Irish residential market, and predict that growth will be in the region of around 25 per cent over the next five years, with no ‘bubble’ set to burst. While this level of growth is moderate compared to the price increases of the past decade, it is still significant.
However, there are potential clouds on the horizon, and one of the main criteria for this level of growth to be achieved is that interest rates remain low. In general, interest rate hikes are the main cause of property bubbles bursting, and almost all of the economists responding to the survey express some degree of concern on this issue.
While rates look set to remain at their historically low levels in the short-term, as growth picks up the European economy, rates could climb, putting pressure on mortgage holders to meet repayments.
Over-supply is another factor, with the current level of completions at some 65,000-70,000 per annum. This potential problem could be compounded by the decreasing levels of investor participation in the Irish market, as falling rents and difficulties in renting some properties cause investors to look at overseas markets.
Another cause for concern would be an employment shock, potentially caused by the decreasing competitiveness of the Irish economy.
Hedge funds
With the global hedge fund industry now worth over $1 trillion, the level of involvement from the Irish financial services industry in this huge market continues to grow.
Dublin-based managers continue to emerge, and the two remaining stockbrokers who do not run hedge funds for their high net worth (HNW) clients - Merrion and Goodbody - are currently readying the launches of their respective hedge funds. As yields from property fall off, hedge funds are set to grow in popularity amongst Irish HNW individuals. (See page 1)
Pension fund managers are also looking to get in on the act, and the fact that the Irish Association of Pension Funds organised a seminar for its members - the Irish Alternative Investment Forum illustrates the level of interest this product is generating. However, one issue expressed by Gerry Ryan, who is responsible for administrating eircom’s €3 billion pension fund, is the level of due diligence required before trustees commit to alternative investments. He urges managers offering these products to consider this extra cost when developing such products. (See page 11)
On the administration side, Dublin continues to enhance its reputation as jurisdiction of choice for servicing hedge funds, with the news that UBS Fund Services, a division of the Swiss bank, which is also one of the world’s leading prime brokers, is to open an Irish operation, employing up to 40 people. Most of the world’s top administrators now have a Dublin base, and the number and volume of funds being serviced continues to grow. (See page 3) |
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| Article appeared in the May 2004 issue.
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