The changing profile of buyers will lead to a slow-down in house price growth – according to property consultants, Savills Ireland.

The latest CSO Property Price Index shows that, in the year to October, residential property prices at a national level, increased by 16.3%.  This compares with an increase of 15.0% in September and an increase of 6.1% recorded in the twelve months to October 2013.  However, Dr. John McCartney, Director of Research at Savills Ireland, cautioned against reading too much into today’s data as the lag time in compiling the index means that it’s referencing deals that happened when trading is naturally slower in August. 

Looking forward, he pointed out that a scaling-back of investor demand should lead to a dampening in the rate of house price growth going forward:

“Over the past two years, strong demand from cash-rich investors – who have been willing to pay more due to capital gains tax (CGT) incentives – has fuelled sharp house price growth. However, falling yields have caused investor demand to halve over the last 12 months, and this trend will accelerate in the new year with the withdrawal of CGT incentives for investors. This should contribute to slower and more sustainable price growth in 2015 as the market once again becomes dominated by mortgage-constrained owner-occupiers”.

Social Housing Strategy

McCartney also reiterated that the supply of new homes remains imperative for achieving long-term sustainability in the property market:

“Boosting supply is ultimately the key factor for sustainable price growth in the long-run. In this regard, it is positive to note Minister Alan Kelly’s social housing plan.

However, McCartney says that the pipeline of new home construction is still far below what is required and this can only be rectified by private sector development:

“We need to be building 25,000 new homes across Ireland each year but, at the moment, large-scale private housing construction is not commercially viable in many locations.  Unless steps are taken to mitigate construction costs – e.g. by cutting local authority development levies or reducing VAT on new homes – the only way private sector development can take place is if prices rise considerably further.  But further sharp price increases are not necessarily what we want at this point.”