The Irish Property Market in 2021
The pandemic of 2020 led to unprecedented changes in the property market – but not all the ones you’d expect. Read on to see what happened and what we forecast for the Irish property market in 2021.
What a difference a year makes! 12 months ago our Irish property market predictions were pointing to steady market growth as a result of a confident economy, falling unemployment and seeing the back-end of Brexit.
But the COVID-19 outbreak in early spring took the year in a direction that most of us could not have imagined.
The subsequent public health crisis and its effect on families, communities, small businesses, employment and lifestyle left the housing industry facing several challenges. Chief among them was the fact that under lockdown, construction was curbed, employment stalled or detoured to a nationwide work-from-home model, and in-person property viewings came to halt.
So how did the housing industry cope with this Santa sack-load of crazy and what is the likely impact of those events on the 2021 Irish property market?
Whether you’re planning to buy or sell your home next year, read on as we go through some of the market milestones of 2020 and what the experts and recent data say we should be looking out over the next 12 months.
2020 House Prices – Did they Rise or Fall?
At the beginning of the year, we noted that estate agents were forecasting a modest rise in house prices of 2.4% nationally and 1.6% in Dublin.
However, by mid-march, the Irish government had introduced restrictions aimed at containing a novel coronavirus, including a nationwide lockdown on homes and businesses.
This forced the shutters down on several sales with April property purchases in the usually healthy Dublin market dropping by 66% when compared to the same month of the previous year.
Predictions abounded that with fewer folk willing to buy, house prices would take a giant tumble and both KBC and the Economic and Social Research Institute (ESRI) warned of a 12% property price nosedive.
What Actually Happened:
As it turned out, house prices remained relatively steady during the year. A 3% dip during the first lockdown was followed by an increase of around 2% in Q3 and steady-as-she-goes prices from there on in.
By the end of the year, the asking price had risen to a nationwide average of around €270,000 – almost €20,000 up from the €250,700 average price of a house in Ireland at the same time in 2019.
The staggering job losses and economic uncertainty of the year’s pandemic forced some potential house buyers to shelve their plans. But others, likely with mortgage approval already in the bag and fearing adverse changes in the future, motored on and as a result, kept the market active.
Low interest rates, mortgage moratoriums and other financial aid put in place at the start of the pandemic didn’t just prevent some households from plunging into debt, it also allowed many people to save an extra few quid to put towards a home deposit.
The fact that there was a reduction in consumer spending on such items as holidays, socialising, and eating out also meant that people lucky enough to have held onto their jobs during the 10 months of the pandemic typically saved more too.
Estate agents reported that a large number of 2020’s property purchasers were first-time buyers.
It’s possible they were spurred on to make the move to buy a home by the fact that mortgage approval, though down by 15% in volume, was easier to obtain as central banks cut interest rates.
In fact, according to The Banking & Payments Federation of Ireland (BPFI) in November 2020 alone, 5,198 mortgages - the highest number on record – were approved.
On the higher-end of the market, those opting for homes were often cash-buyers with some estate agents stating that 80% of those purchasing over the 2.5 million mark did so with cash.
There were other reasons too for the relative buoyancy of the housing market.
- Supply of Houses Dropped, So Demand Soared
As building sites closed and nervous vendors held off on selling, the number of houses that were actually on the market fell. And with that lack of confidence not so apparent among buyers, this had the effect of keeping house prices relatively steady as there was greater demand than supply.
- Unexpected Property Buyer
Of course, there were some local home purchasers still hedging their bets but another unexpected property buyer turned up in the shape of the Irish ex-pat.
A combination of Brexit, Trump in America and the possibility of not being able to see family the longer the pandemic continued prompted many Irish nationals to buy a one-way ticket back to the homeland and in the process gave the housing market an unanticipated boost.
Recent Central Statistics Office (CSO) figures showed that the number of people returning home to Ireland during this period was at its highest since 2007.
- A Move to the Country
In addition, months under lockdown left some urban dwellers aching for the green, green grass of home – or at the very least, clean air and a private garden.
As a vast majority of businesses made the abrupt shift to remote working, potential home buyers suddenly didn’t have to factor in an easy commute to the office as criteria for where they lived.
Sales of properties in more affordable areas outside Ireland’s main cities rose as people began moving back to their hometowns or made the decision to move to bigger homes in less expensive rural areas.
So what does all of this mean for 2021?
2021 Irish Property Market Prediction #1: Demand Will Continue to Outstrip Supply
The shortage of new housing will remain a problem, particularly in the first half of the year.
This has long been flagged as a critical issue for Ireland and the cessation of construction work as a result of COVID-19 restrictions has only exacerbated it.
Approximately 20,000 new homes were built in 2020. That’s 5,000 less than the goal set at the start of the year though, on the upside, is still an increase from the earlier gloomy estimation that only 16,500 new homes would make it to market as a result of the pandemic.
However, though the number of new homes built in 2021 should surpass these levels it won’t make up the shortfall.
Budget 2021 allocated €35 million in funding to approved housing bodes to deliver approximately 350 homes in 2021 at rates which are a minimum 25% below open market values. The Minister for Housing, Local Government and Heritage, Darragh O’Brien T.D., issued a ‘Call for Proposals’ for this scheme in mid-December.
Alongside this, Home Building Finance Ireland (HBFI) announced at the start of last summer that it would give bigger loans to smaller developers following an agreement with the European Investment Fund that it would be guaranteed half of the credit risk. The deal allows the state-backed lender to start financing developments as small as between five and 10 houses.
But while these initiatives along with the raised target of 9,500 rather than 8,900 new social homes for next year will increase the availability of new homes in Ireland, experts expect private housing construction to settle in between 23,000 and 25,000, which is a far cry from the Central Bank’s 2019 order of 34,000 new builds per annum.
Organisations such as the Society of Chartered Surveyors Ireland (SCSI) have been calling on the government to use this moment as an opportunity to apply some creative solutions to the housing crisis. Some of the SCSI’s suggestions include decreasing VAT on new home construction from 13.5% to 5% for at least two years and offering a Local Property Tax exemption for property purchasers “trading- down” to smaller pads, which could increase the availability of second-hand homes.
However, whether the government will adopt any of these ideas or come up with their own strategies remains to be seen. What is a given, however, is that the housing shortage is not a problem that’s going to be resolved in 2021 or even 2022.
2021 Irish Property Market Prediction #2: House Prices Will Fall …But There’ll Be No Crash
Whether we’d witness a property crash or not was the big worry for many during 2020. A 12-20% drop was predicted by the Economic and Social Research Institute (ERSI) and KBC Bank but that never materialised and, as noted already, prices held up well across the months of the pandemic. In fact, according to some sources, prices jumped by 7.4% in the year to December, the largest leap of the last three years.
2021 is expected to kick-off with a continuation of property prices holding steady thanks in part to prolonged government support for workers and businesses.
The Help to Buy scheme for first-time buyers has also been extended to the end of 2021. The enhanced scheme allows applicants to claim back up to 10% of the property’s value instead of the original 5%, €30,000 (instead of €20,000) or the total amount of income tax or DIRT they’ve paid in the past four years, whichever is lesser.
Additionally, as part of the affordable housing measures package for 2021, €110m has also been pushed across the table to deliver a new national Affordable Purchase Shared Equity Scheme for first-time buyers.
All of this will go some way to minimising any continuing impact of the COVID crisis on property prices. The talk of a vaccine being rolled out in 2021 will help boost consumer confidence too.
However, we’re not out of the water yet.
A delayed rise in job losses, particularly across the tourism and hospitality sectors, and the influence of a no-trade deal from Brexit is likely to have some kind of negative effect on Irish economic growth which obviously impacts the housing market.
And while a property price nosedive is not expected in 2021, Fitch Ratings, the global credit ratings and research agency are forecasting a mid-year dip of 5%.
In addition, if all goes well and government and health officials give Ireland the all-clear on the virus-front, many sellers who held off placing their homes on the market during the pandemic will do so now.
Though demand will remain stronger than supply, a slew of new homes-for-sale will still widen the pool of properties on the market and put the skids on a continuing rise of house prices.
2021 Irish Property Market Prediction #3: The Irish Economy Will Rebound – Though it won’t all be Plain Sailing
2020 was all set to be a steady year of economic growth in Ireland. Unemployment was down to a record 5% and consumer confidence was up as it looked like we were finally seeing the back of Brexit.
And then COVID hit.
Yet, while the European Commission stated in autumn that Ireland’s domestic economy had been sucker punched as a result of severe lockdown measures they noted that strong exports of pharma and medical device products by multinationals as well as computer services had cushioned the fall in real GDP.
Also, though unemployment spiked by 4%, many jobs and businesses had been shielded by the income support schemes that were quickly instituted by the state.
Overall, the Commission claims that though Ireland’s economy contracted by 2¼% in 2020, a growth of 3% is to be expected in 2021, which will bring the country back to 2019 levels.
The ERSI predicts a slightly larger 3.4% growth buoyed in part by an unleashing of the billions in savings that occurred in 2020 as a result of households having nowhere to spend their income and being more cautious anyway about flittering away cash during a year marked by daily uncertainty.
In the first seven months of 2020, households saved €9.8 billion. This is €5.5 billion more than in 2019 and €7.3 billion more than during the corresponding period in 2018.
While that’s an impressive amount of coinage, unfortunately the return to be made on this cash pile is currently negligible due to the fact that the European Central Bank cut interest rates during the pandemic.
In addition, while this influx of money into Ireland’s economy will greatly aid its recovery, there will still be problems to address.
- Ongoing Unemployment
For starters, while some industries remained relatively unharmed and even prospered during the pandemic, others such as the hospitality and tourism sectors were left decimated and it will take at least until the end of 2021 for recovery to kick in here.
In addition, unemployed skyrocketed to 28% during the worst of the COVID crisis and approximately 250,000 of those, according to the ERSI, will remain jobless.
- A Biden Administration in the US
The new Biden administration in the US is almost certain to usher in changes to corporate tax rules which could prove a challenge to Ireland.
Currently corporate taxation accounts for around a fifth of Ireland’s taxes, with many big internet companies like Google, Facebook and Amazon, all of whom benefit from the country’s low tax rates, being among the largest payers of the country’s corporate tax.
The fact that Biden has signalled that his government will be undertaking a more "globalised" approach to international corporate tax rules and support the OECD’s reform agenda in this area, could result in less receipts going into Ireland’s public purse.
- The Brexit Effect
Like a bad smell in a small car, Brexit and its issues continue to linger. Even if a trade deal is reached (which hasn’t happened at the time of writing) there will still be bumps to iron out which may negatively impact Ireland’s economic recovery.
The likeliest outcome at this late stage is the occurrence of a Brexit no-deal which will result in the roll out of a series of tariffs between the UK and Ireland, cutting deep into Irish pockets.
While this will inevitably push up prices for daily goods from Britain across the Republic, in a worst-case scenario experts suggest less well-off households could be hit with a 4% increase in the cost of living.
Overall, the Government, who designed the 2021 budget with a no-deal in mind, estimate that a 3% drop in economic growth is to be expected if a Brexit trade agreement is not reached.
- Fears of Another COVID Wave
The Christmas period has seen fresh lockdown measures applied to households across the Republic amid fears of a new variant of coronavirus identified in England.
The Tánaiste, Leo Varadkar has warned Irish people to expect these measures to stay in situ for at least two months though the restrictions will be reviewed throughout the new lockdown.
While people resign themselves to an even gloomier January than usual, many others worry that further virus waves will hit the country in 2021.
If this happens the knock-on effect to consumer confidence and their ability to spend, may have dire consequences for the projected economic recovery.
Certainly, an ongoing COVID crisis and accompanying restrictions throughout 2021 would widen the gap between those who are currently weathering the storm and those who are already struggling.
2021 Irish Property Market Prediction #4: Unique Changes in How We Live, Work …And Buy Houses
During the pandemic many people began to rethink their work/life balance as well as their living space. What followed was an unprecedented move away from the cities and towards cheaper, more attractive rural areas.
In Leitrim there was a waiting list of urbanites looking to lay some cash down on large homes with private gardens. While 40 minutes from Dublin, people queued outside the local estate agency in Carlow hoping to be one of the lucky buyers of 18 new builds that had come onto the market.
However, while property searches in tourist capitals such as Kerry and Wicklow doubled following the first lockdown, the impending roll-out of the virus vaccine may slow-down the urban exodus.
Several estate agencies are already reporting an increase in enquiries for apartments in urban locations as the promise of re-opening pubs, cultural centres, and other social amenities in 2021 – despite the new lockdown restrictions - draws them back to the city.
In addition, while many businesses adopted the work-from-home (WFH) model as a necessity for continued operation, that will not be viable for everyone once the virus is eventually under control and proximity to urban work environments will return as a prerequisite for home-hunters.
All that said, a recent survey from Taxback.com shows that nearly half (45%) of respondents said they expect to combine WFH with in-office tasks in 2021 while 29% believing they’ll be working full-time from home for the remainder of the year.
This may have the effect of continuing property sales in rural areas as buyers look for cheaper housing with a spare “office” room and a garden to enjoy should more lockdowns be pencilled in to the 2021 calendar.
Online Property Purchases
As well as clocking in from our sofas, it seems that many people bought properties without leaving their homes too.
Estate agents were quick to get creative at the pandemic kick-off with virtual viewings, open house live streams and 3D renderings of unfinished new builds. And, as it turned out, many hopeful homebuyers were happy to search and secure their new place this way.
New industry protocols issued by the Property Service Regulatory Authority meant potential buyers had to provide proof of funds in advance. And this also had the effect of separating serious house-hunters from casual snoopers, enabling genuine sales to move through more quickly.
According to an autumn REA/Irish Independent report, homes across the country were taking on average 3 weeks less to sell with one of the main reasons cited being the fact that buyers had all the info they needed literally at the click of a button.
This trend is likely to continue in 2021. And while digitally-enabled home walk-throughs won’t overtake the popularity of in-person viewings once they resume in 2021, online sales are expected to continue particularly with overseas buyers, eager to have their property purchased by the time they touchdown on Irish ground.
So following on from a year of startling events and changes, our predictions for a post-pandemic 2021 are:
- Residential property will remain in short supply and will continue throughout this year and into 2022. However, new initiatives such as the HBFI loans to smaller developers may go some way to making up the shortfall.
- House prices held up remarkably well across the months of the pandemic but they are expected to dip by around 5% mid-year.
- The Irish economy will rebound to 2019 levels by the end of 2021 but there will be bumps along the way courtesy of a Brexit no-deal, and other knocks to the public purse.
In addition, a fear – and the reality - of another coronavirus wave might still undermine the economic recovery.
- Work from home structures put in place during the pandemic will remain in place for many during 2021. This will continue to prompt, albeit at a slower rate, more people to swap city living for a rural lifestyle as house hunters opt for cheaper, larger properties in healthier environments.
- Equally, people will continue the trend of buying properties online and this will become a complement to in-person purchases throughout 2021 and beyond.
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