Question of the month: I was considering an investment property at the start of this year. What’s the outlook for buy-to-let?
– GL, Carlow
The coronavirus outbreak is accelerating many changes in Ireland. Buy-to-let is definitely at the sharp end.
At the start of 2020, a 7-year run of rising rents had already come to an end, and house prices were under pressure. Roll forward three months, and the trend is even more extreme.
So what’s happened so far, and what is the longer term outlook for buy-to-let in Ireland? Most importantly, what does it mean for investors as they adjust their portfolio for the post-coronavirus world?
The short-term picture is emerging
As lockdown restrictions ease, the short-term picture is come becoming clearer.
Rents are coming under pressure, with some tenants unable to pay anything now, and perhaps unable to pay much in the near future. Supply of vacant rental property has increased, with Daft.ie reported a massive 40% rise in the number of rentals available in April 2020 compared to April 2019.
On the other hand, given the uncertainty in the medium-term, some people who were planning to buy may continue renting. That could provide some support to the rental market.
Longer term outlook uncertain
The longer term effects will take time to play out. But three changes are emerging.
Firstly, the Airbnb-driven explosion of the short-term letting market is under threat. For sure, Airbnb and its competitors will be back. But some landlords who have been faced with empty properties, and debt to service, will prefer the steadier return of a long-term tenant. That’s likely to increase the supply of rental properties. It will depress rents, especially in higher-value city-centre locations.
Secondly, the government has rediscovered its appetite for intervention. Wage subsidies are the most eye-catching example – but lesser-noticed has been councils and housing associations buying up property throughout the lockdown period to increase the supply of social housing. That will reduce demand.
Thirdly, investors and tenants are re-assessing building use. It’s playing out in numerous ways. Commercial property was already under pressure, with significant withdrawals in the early months of 2020, and property funds struggling to offload investments.
Now it’s unclear how much companies will workers in their offices – or if they’ll even want to be there. Many of the companies leading the ‘work from home forever’ are stalwarts of the Dublin office rental market: Twitter in Dublin 2, and Facebook, which is in the middle of a major rebuild of the old AIB HQ in Ballsbridge. It’s also possible some commercial space will be repurposed to residential housing.
On an individual level, if you work from home three days a week, you’re more willing to tolerate a long commute for the other two. That will create winners and losers in the property market.
What does it mean for investors?
While the fizz has been going out of Irish property for some time, coronavirus has introduced several new uncertainties.
It’s difficult to call the buy-to-let market. By its nature, changes take time to filter through – especially when so little property is being bought and sold. Sure, some will bag bargains. But for most investors, a host of new risks have arisen, both to rental income and property prices.
The old rules still apply
Any investor contemplating buy-to-let in Ireland should consider the overall shape of their investment portfolio.
For most people, their most valuable asset is a house on this island. Before you increase your exposure to that category of investment, consider if you should diversify other geographies, asset classes, and industries. We’d love to help.
Interested in Moneycube’s long-term views on buy-to-let in Ireland? Read on.