Key Predictions for the Irish Property Market in 2021
[UPDATED MARCH 2021]
The pandemic of 2020 caught the world—and the Irish property market—completely off guard. In contrast to the steady market growth previously forecasted in our 2020 Irish property market predictions, the COVID-19 health crisis and subsequent lockdowns caused economic and social activities to come to a grinding halt.
How did this affect the local housing industry in 2020 and what are some of the predictions for the Irish property market in 2021?
In this article, we’ll take you through the following:
- A Quick Review of the Irish Property Market in 2020
- 4 Key Predictions for the Irish Property Market in 2021:
- #1: Demand Will Continue to Outstrip Supply
- #2: House Prices Will Fall, But There Won’t Be a Crash
- #3: The Irish Economy Will Rebound But It Won’t Be Plain Sailing
- #4: Unique Changes in How We Live, Work, and Buy Houses
A Quick Review of the Irish Property Market in 2020
- 2020 House Prices:
- Despite the initial forecast of a rise in 2020 house prices of 2.4% nationally and 1.6% in Dublin, COVID-19 restrictions and the nationwide lockdown led to a 66% drop in Dublin’s April property purchases compared to the same month of the previous year.
- Both KBC and the Economic and Social Research Institute (ESRI) warned of a 12% property price nosedive.
- Unexpectedly, house prices remained relatively steady with a 3% dip during the first lockdown followed by a 2% growth in Q3.
- By the end of 2020, house prices 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.
- Increase in First-Time Buyers:
Estate agents reported that a large number of 2020’s property purchasers were first-time buyers, due in part to increased mortgage approvals. The Banking & Payments Federation of Ireland (BPFI) reported that in November 2020 alone, 5,198 mortgages—the highest number on record—were approved.
- Returning Irish Expats:
A combination of Brexit, Trump in America, and the possibility of not being able to see family for the foreseeable future prompted many Irish nationals to return to the homeland, giving the housing market an unexpected boost.
- Spike in Rural Property Sales:
Months under lockdown left some urban dwellers aching for greener pastures or at the very least, clean air and a private garden. Working from home also factored into the move towards bigger houses in less expensive rural areas, causing a spike in property sales of affordable Irish countryside homes.
So what is the outlook for Ireland’s property market in 2021?
4 Key Predictions for the Irish Property Market in 2021
#1: Demand Will Continue to Outstrip Supply
- 2020 New Builds Failed to Meet the 2020 Goal
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. The ceasing 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 higher than the previous estimation that only 16,500 new homes would make it to market in 2020 as a result of the pandemic.
- Government Funding & Initiatives
Budget 2021 allocated €35 million in funding to approved housing bodies 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 the scheme in mid-December.
Alongside this, Home Building Finance Ireland (HBFI) announced at the start of last summer that it would grant 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 will increase the availability of new homes in Ireland, experts predict that private housing construction will only deliver between 23,000 and 25,000 new homes, 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.
Whether the government will adopt any of these ideas or come up with their own strategies remains to be seen. What is certain, however, is that the housing shortage is a problem that won’t be resolved in the near future.
#2: House Prices Will Fall, But There Won’t Be a Crash
The possibility of a property crash was a big worry for many during 2020.
However, the 12-20% drop predicted by the Economic and Social Research Institute (ERSI) and KBC Bank never materialised and, as noted, prices held up well across the months of the pandemic. In fact, according to some sources, prices soared by 7.4% in the year to December, the largest leap in the last three years.
2021 is expected to kick off with property prices continuing to hold steady, thanks in part to prolonged government support for workers and businesses & a lack of supply.
- Housing Schemes for First-Time Buyers
The Help to Buy Scheme for first-time buyers has been extended to the end of 2021. The enhanced scheme allows applicants to claim 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, there is a €110m allocation for a new national Affordable Purchase Shared Equity Scheme for first-time buyers.
All of this will help minimise any continuing impact of the COVID crisis on property prices. The possibility of a vaccine roll-out in 2021 will help boost consumer confidence too, but we’re not out of the water yet.
A delayed rise in job losses, particularly across the tourism and hospitality sectors, and the effect of a no-trade deal from Brexit is likely to have some kind of negative impact on Irish economic growth and by extension, the housing market.
- 5% Mid-Year Dip Forecasted by Fitch Ratings
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%.
If all goes well and government and health officials give Ireland the all-clear on the virus front, many sellers who held off selling their homes during the pandemic will do so then.
Demand will remain stronger than supply, but a slew of new homes for sale will add to the pool of properties on the market and halt the continuing rise of house prices.
#3: The Irish Economy Will Rebound But It Won’t 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.
While the European Commission stated in autumn that Ireland’s domestic economy had suffered as a result of severe lockdown measures, they also noted that strong exports of pharma and medical device products by multinationals as well as computer services had cushioned the fall in real GDP.
Though unemployment spiked by 4%, many jobs and businesses were shielded by the income support schemes that were quickly instituted by the state.
- 3% GDP Growth Predicted for 2021
Overall, the Commission claims that despite Ireland’s economy contracting by 2.25% in 2020, a growth of 3% is to be expected in 2021, which should bring the country back to 2019 levels.
The ERSI predicts a slightly higher growth of 3.4%, buoyed in part by the accumulated billions in savings from curtailed spendings in 2020.
In the first seven months of 2020, households saved €9.8 billion — €5.5 billion more than in 2019 and €7.3 billion more than the corresponding period in 2018.
Unfortunately, the returns on this impressive cash pile are currently negligible due to the reduced interest rates imposed by the European Central Bank during the pandemic.
While Ireland’s economy transitions into recovery mode, there are still ongoing challenges to address, such as the following:
- Ongoing Unemployment
The hospitality and tourism sectors were devastated and will take time to recover. Unemployment figures skyrocketed to 28% during the peak 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 challenging for Ireland.
Currently, corporate taxation accounts for around a fifth of Ireland’s taxes, with many big internet companies such as Google, Facebook, and Amazon—who benefit from the country’s low tax rates—being among the largest contributors of the country’s corporate tax.
Biden’s inclination towards a more "globalised" approach to international corporate tax rules and support of the OECD’s reform agenda could result in lower tax revenues for Ireland.
- The Brexit Effect
Like a bad odour 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 no-deal Brexit which will result in the roll-out of a series of tariffs between the UK and Ireland, cutting deep into Irish pockets.
As this will inevitably push up prices for daily goods from Britain across the Republic, experts suggest a worst-case scenario where less well-off households could be hit with a 4% increase in the cost of living.
The Government projects a 3% drop in economic growth 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 period.
While people resign themselves to an even gloomier January than usual, many are bracing for further waves that might hit the country in 2021.
A prolonged COVID crisis and resulting restrictions throughout 2021 would widen the gap between those who are currently weathering the storm and those struggling to make ends meet.
#4: Unique Changes in How We Live, Work, and Buy Houses
The pandemic gave many of us cause to rethink our work/life balance as well as our living spaces. This triggered an unprecedented move away from the cities 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. Meanwhile, 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.
- The WFH Impact on Urban vs Rural Housing
Several estate agencies are reporting an increase in enquiries for apartments in urban locations as pubs, cultural centres, and other social amenities are poised to reopen in 2021, drawing people back to the city.
Working from home will cease to be a permanent arrangement once most of the population is vaccinated and the threat of the pandemic is diffused. What is more likely is a combination of remote and office-based working as reported in a recent survey by Taxback.com.
The study reports nearly half (45%) of respondents expecting to combine WFH with in-office tasks in 2021 and 29% expecting to work full-time from home for the remainder of the year.
This may result in continuing property sales in rural areas as buyers look for cheaper housing with a dedicated office and a garden for breathing space in the event of further lockdowns.
- Online Property Purchases
As well as clocking in from our sofas, it seems that many people have been buying properties without leaving their homes too.
Estate agents were quick to get creative 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 virtually.
New industry protocols issued by the Property Service Regulatory Authority meant potential buyers had to provide proof of funds in advance. This had the added benefit of weeding out casual snoopers from the serious house-hunters, 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. One of the main reasons cited was that buyers had all the info they needed at the click of a button.
This trend is likely to continue through 2021. 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 ready to move into by the time they touch down on Irish ground.
Following on from a year of unexpected twists and turns, our predictions for a post-pandemic 2021 are:
- Residential property will remain in short supply throughout 2021 and into 2022. However, new initiatives such as the HBFI loans to smaller developers may help make up the shortfall.
- House prices held up remarkably well across the months of the pandemic but 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 no-deal Brexit and other burdens on the public purse. In addition, the fear—and real possibility—of another coronavirus wave might undermine the nation’s economic recovery.
- Work from home arrangements put in place during the pandemic will remain for many in 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.
- The trend of buying properties online will continue and will complement in-person purchases throughout 2021 and beyond.