At the height of the Celtic Tiger, Irish investors snapped up property at home and abroad. Now they are desperate to sell and Russian buyers are ready to pounce.
Located in Dublin’s main tourist drag, Temple Bar, it would have fetched up to €250,000 at the height of the «Celtic Tiger» boom. But a studio flat in one of the busiest and best-known parts of the city is now on the market for just €80,000 – a staggering fall in value that encapsulates the dramatic collapse of Ireland’s property market.
As the republic’s taxpayers try to make sense of the eye-watering costs of bailing out their country’s banks, with billions more being pumped into the ailing financial institutions last week, the «fire sale» of a luxury apartment on the left bank of the Liffey for such a low price indicates the decline in fortunes of an economy that invested too much too quickly in the building boom.
Temple Bar is best known to British tourists as the location of lively, late-night venues – many staging traditional Irish music sessions, busy and often over-priced restaurants, buskers, street artists and an alternative culture scene. During the boom years it reflected the two sides of modern Ireland: creative but sometimes brash; youthful but at times menacing with stag and hen parties from abroad mingling in the streets with beggars and heroin addicts.
The vacant €80,000 Temple Bar flat will go on sale at an auction later this month organised by property agency Allsop in what has become a buyers’ market. Other apartments in Dublin 1, the prime central location of the capital, are also up for grabs for between €100,000 to €180,000, all of them described in the auction’s promotion material as «investment» flats and properties.
Buying to invest was one of the main reasons why the Irish economy and the nation’s finances are now in such a parlous state. Last Thursday, Ireland’s new Fine Gael–Labour coalition government published the results of stress tests on the republic’s big banks. The results made grim reading for ministers and the taxpaying public. As a result of the Irish banks’ ongoing losses, the state will have to put in an extra €24bn to recapitalise them; its capacity to do so is due in the main to the largesse of the European Central Bank and the International Monetary Fund.
Overall, the final bill for saving these banks from collapse will be around €70bn. To put that into context, this means the expected final cost of re-financing the banks is more than double the entire tax take (including personal taxation, capital tax and VAT) across Ireland in 2010. The figure is also six times the amount the republic spent last year on its health service and eight times more than was allocated to primary, secondary and tertiary education.
Patrick Honohan, the chairman of Ireland’s central bank, was clearly not exaggerating last week when he described the total injection of state cash as «one of the costliest banking crises in history».
A key factor in creating that crisis was the excessive and aggressive lending by banks to developers during the boom. Property makes up about 60% of the toxic loans in Ireland’s debt-ridden banks.
Ordinary Irish citizens, too, played their part in the collective mania to make money fast by investing in bricks and mortar, and not only at home. It is estimated that as a result of years of economic expansion,, at least one in 10 Irish citizens now owns at least one property abroad.
Many of these investors remortgaged, sometimes more than once at home, to obtain holiday apartments, villas and even farmland in locations as far flung as Bulgaria and South America.
Earlier this year, one Irish investor walked into the Dublin-based foreign property company Extrasales Consulting hoping to sell an landholding investment he had bought during the Celtic Tiger years in Paraguay.
«He had 288 acres of Paraguayan land that he had originally bought for $900,000 [about £560,000],» recalled Extrasales’s director, Ger Nunan. «The land is now worth around $450,000 but he was still desperate to sell.»
Nunan’s company is located in one of Dublin’s grand Georgian houses on the south side of the city centre. Today it specialises almost exclusively in helping Irish investors offload their foreign assets. As they face negative equity, going into mortgage arrears and the possible repossession of their houses and businesses in Ireland, there has been a rush to sell off overseas land and homes.
A true picture of the Irish over-reach when it comes to property investments can be seen in holiday destinations along Bulgaria’s Black Sea coast or the Turkish Aegean, as well as in traditional tourist areas such as southern Spain. During the good times, Celtic Tiger man and woman colonised the Mediterranean, east and west, rapidly and enthusiastically.
«In the Sunny Beach resort in Bulgaria there are reckoned to be about 10,000 Irish-owned properties, while in places in Turkey like Mahmutlar the locals call it ‘Irish town’,» said Nunan’s colleague, Colin Horan. «Nowadays, we see owners with properties there coming in desperate to sell.»
Like the luxury Temple Bar flat going for a song, Irish foreign properties are going up for sale in holiday destinations from the Costa del Sol to the Florida coastline. And the buyers’ market for Irish-owned homes has found a new investor – the Russians.
«Cash is king in the downturn,» said Nunan. «The Irish owners need cash to pay off their debts at home and the Russians want to take cash out of their own country to buy abroad.» Since the downturn, Extrasales has been receiving up to 10 calls a day from Irish people desperate to sell to save their homes and businesses. In response, the company has tapped into the growing Russian middle class, which trusts neither their government or their own banks.
«We have set up 26 agents in six cities across Russia who are selling Irish foreign properties to Russian buyers,» Nunan said. «Our average Russian client is not taking out a 40% to 50% mortgage like Irish investors did in Spain. They buy outright, often with cash. They are buying for life – for them it’s a lifelong investment. It’s not what we all did during the Celtic Tiger years.»