Property market turmoil

IT MAY transpire that the turmoil in the property market caused by the spread of the Covid-19 virus will prove a blessing in disguise, on the one hand, for the new government as the playing pitch has been levelled with rents frozen and house values beginning to drop to more affordable levels. However, there is a downside too in that property owners and investors will suffer as a result, and a lot of developers and builders will have to review their future plans and income projections to reflect a new reality.

While the last government, with Simon Coveney first and then Eoghan Murphy as Ministers for Housing, had a rather dismal record in addressing the social housing shortfall in particular, just as the pace of building was beginning to pick up this year, house building sites were closed because of the Covid-19 public health emergency, so progress ground to a halt. This was very disheartening and frustrating for all, given that the housing market had begun to make a recovery in the first quarter of 2020 after all the uncertainty that Brexit had caused in the preceding year.

According to Conall Mac Coille, the chief economist of stockbrokers Davy, which produced the first quarterly report of the year with Myhome, ‘The immediate outlook is an illiquid market with depressed pricing among the very few transactions that do take place.’ The further extension of the Covid-19 restrictions to at least Tuesday, May 5th, will exacerbate the situation further.

Reflecting across-the-board trends, online viewings have become increasingly important for auctioneers and estate agents, buyers and vendors, and there will probably be some bargains to be had. The government and local authorities need to be quicker off the mark this time around in acquiring some of the many vacant rental properties that have become available – in Dublin in particular – for re-letting as social housing as the bottom has fallen out of the Airbnb market and recovery will be slow as people around the world won’t be rushing to airports to travel abroad until they are satisfied that it is safe to do so.

The expected drop in property prices will also provide a silver lining for young people who have been saving for deposits to buy their own homes once their jobs are still secure. So-called vulture and cuckoo funds who had distorted the Irish rental market with their monopolistic ambitions may be inclined to look elsewhere to make a bigger killing.

With the vast majority of the construction sector, which directly employs almost 150,000 people along with many sub-contractors, closed down for the past three weeks, and with at least another two to go, all housing and office sites, along with non-vital infrastructural works projects, remain closed. There is a knock-on effect for about 30,000 more jobs in the services that supply the industry, such as builders’ suppliers and hardware outlets, which are all closed too.

When the government begins to gradually lift the restrictions on people’s movements, hopefully after May 5th, it is likely that the construction sector will be among the first to be allowed back to work – subject to appropriate social distancing arrangements – and that their suppliers will be allowed re-open too. It has been frustrating also for those who wanted to do DIY jobs at home during the restrictions who were unable to obtain supplies of materials from hardware stores and garden centres.

Looking at the commercial property sector, one wonders what will become of this market in the future. Office space rental has become quite lucrative in recent years with a huge demand for it driving more and more construction.

However, the Covid-19 crisis has shown that so many people can work remotely and have meetings with colleagues through the many forms of video conferencing available. Will this prompt some companies to re-evaluate the cost-benefit of paying big rents for office space and to scale back their property requirements?

A lot will depend on how they perceive and measure the productivity of employees working remotely. Some people are more productive at home and probably spend longer hours working, especially where the stress of daily commutes is taken out of the equation.

Our environment is also benefitting from lower carbon emissions from the transport sector, which will please climate change activists in particular. There should, in theory, be less of an appetite for going back to the daily commutes to office blocks, but who is going to take the lead in making this happen and discouraging people from going back to the bad old habits?

Another issue for the next government to contemplate.