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What are we to believe?

Everyday we are bombarded with endless statistics regarding the state of the property market and it seems that all this information is pointing in one direction – down! Being involved in the property industry myself, this is disappointing, as it does not reflect the whole truth about the marketplace. The real situation is far more complicated than can be discerned from the generality of ‘doom and gloom’ headlines.

But what is the reality? In fact it depends on your situation. That sounds like I am ducking a direct question, but the truth is that this is the key point. The property market is not a single homogenous entity that can be described by ‘catchy’ headlines in the national media. Sure the property market has suffered since it reached its peak in 2007 and prices have dropped, but not all properties have been equally affected. The hardest hit sector of the market has been the top end. One-off rural family homes that previously commanded in excess of €500,000 do not look like good value at that price level anymore as an equivalent house can be built for less. As site values and building costs have also come under pressure, there is now better value to be had for the self builder.

Activity in properties in the range €250,000 to €500,000 has also slowed down as this part of the market was largely dependent on people trading up and investors. Investors are scarce on the ground at the moment as the banks have tightened their borrowing requirements and finance is simply not readily available. The trading up buyer needs a first time buyer or a downsizing home owner to buy his/her existing home before being in a position to move and first time buyers are very reticent at the moment. Whilst the main banks are approving loans for first time buyers, the buyers are very reluctant to commit to what they see as an uncertain situation.

However, this brings me back to my point. Each individual buyer must look at his/her own unique situation. Do you need a home? If yes, can you buy a property for close to what it would cost to rent a similar property? This is important, as there are lots of cheap rental properties on the market, but the question to be asked is “Is paying rent on a property in a poor location really a saving?” Wouldn’t it be better to get onto the property ladder at a reasonable cost and begin to plan your future with certainty? One caveat here, if you are not making a long term commitment to the property, you may in fact be better off renting in the short term. I am loath to promote your home as an investment, but insofar as it is, it is definitely a long term investment and should always be viewed as such. Remember it will never be possible to time the bottom of the market. After all, we can only be sure that the bottom has been reached when prices begin to rise again.

Admittedly, it may take courage to buy when the news is gloomy, but remember to look more critically at your own situation. What is happening in your neighbourhood to the prices of the houses that you are interested in and can you buy a suitable property at a reasonable price when compared to the cost of renting an equivalent property?

on Thursday, July 2, 2009 in Mortgages

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