CORPORATE INVESTORS SPENT over €1.1 billion on nearly 3,000 residential properties in Ireland last year, smashing previous records and raising concerns about the effect the so-called ‘cuckoo funds’ are having on the housing market.

The major funds hoovered up five times more housing units in 2018 than the previous year. The huge spike accounted for almost 30% of last year’s total property investment.

The striking figures, which are revealed in a new report from Savills, have raised concerns that the corporations are squeezing first time buyers out of the housing market and making rents unaffordable.

Shortage

As with previous years the vast majority of the property was purchased in Dublin however increased development activity has led to an even greater concentration on the capital, where 81% of homes bought by the institutional investors were located.

Savills estimate that the number of homes built last year was three-fifths of what was required. This shortage meant the market continued to tighten and property prices continued to rise.

House prices have risen faster than earnings growth in recent years and with mortgage lending becoming more strictly controlled since 2015 it can become increasingly difficult for people to buy homes.

This has led to a swelling of the rental sector, with nearly 27% of households in the capital now renting.

Dr John McCartney, Director of Research at Savills said these factors are driving very strong investor appetite for residential property in Dublin:

“Rising house prices and tight mortgage lending have driven a big shift from owner-occupation to private renting.

The number of households renting in Dublin rose by 10.8% last year, and nearly 27% of all households are now in the private rented sector. This has led to strong rents and negligible vacancy – factors which are obviously attractive to investors.

In frustrating news for renters, McCartney said the residential market is likely to remain under-supplied until at least 2022 and the report forecasts that rents will rise by more than 17% in that time.

David and Goliath

Fianna Fáil Spokesperson on Housing, Darragh O’Brien said the Government have allowed the large corporations to squeeze first time buyers out of the housing market. 

“Potential first time buyers are not even getting a look in for many properties. The Central Bank rules make it very difficult for young couples and individuals, and when they have to go up against these investors, it is really a David and Goliath situation,” he said.

These potential buyers then have to remain or go back into the rental sector thus pushing rents up again. It is a vicious cycle and it has to stop.

The comments were echoed by Sinn Féin housing spokesperson Eoin Ó Broin who said that the report’s findings are “deeply worrying”.

“The most concerning aspect of the Savills report is the projection that rents will continue to rise by 17% over the next three years. Given that rents rose by 7% state-wide and 8% in Dublin last year this is really worrying,” he said.

Large numbers of renters simply can not afford the already exorbitant rents, pushing many into financial hardship and in the most extreme cases into homelessness.

The report also notes that an increased number of residential investment deals now take place before the homes are even built. 

The majority of investors are entering forward-purchase arrangements with developers to buy rental blocks once they are completed.

Fergus O’Farrell, Director of Investments at Savills, said the increased activity of the corporate investors has been beneficial in helping to accelerate the supply of accommodation and is helping to create a more professionally managed rental stock.