Welcome to property news Jan/Feb 2007
Size Misstatement costs 350,000
A businessman who discovered, after he paid IR£2.3 million for a commercial property in Dublin, that it was smaller than stated in the auctioneer’s brochure, has been awarded 350,000 compensation by the High Court.
The case arose when Mr. Walsh purchased the two story building in September 2000, for investment purposes, with the intention of letting it in commercial units. The property was found to be 20%, or 1,800 sq. ft, smaller than the 23,057 sq. ft advertised.
Mr Walsh sued the auctioneering firm, Jones Lang LaSalle Ltd. (JLL), alleging he suffered income loss because of the incorrect description of the size of the property at Upper Gardiner Street.
Mr. Justice John Quirke ruled in favour of Mr. Walsh, awarding him considerable damages in compensation, noting that he had paid considerably more for the property than it was worth when sold.
It was also found that, if the JLL sales brochure had contained accurate measurements of the floor area of the property, prospective purchasers would have submitted smaller bids.
The judge found that JLL owed a duty of care to ensure the measurements advertised were accurate. However, the brochure overstated the size of the floor area to a degree which was ‘seriously misleading’ to potential buyers. Claims against the firm of negligence and negligent misstatement were upheld, and Justice Quirke rejected claims by the firm that a small print ‘waiver’ in its brochure absolved it from legal responsibility in the case.
Reported in The Irish Times 25/01/2007
Uncertain Times?
It has been a roller coaster year in the Irish property market. Economic and Social Research Institute, (ESRI) figures released this month confirm the earlier predictions by Privateseller.ie that the rate of increase in property prices will slow to single digits. One analysis of national property values calculated the average price increase to January 2006 was 9.5%. This year, that figure stands at 11.5%, with the greatest increase happening in the first half of the year. Second half price increases represent 3% of growth, with December showing a marked slowdown, and in some areas, near stagnation. A similar pattern of slowed growth for 2007 will be marked by a corresponding increase in the number of people selling property privately.
Privateseller.ie founder Fiona McLoughlin recently announced on RTE Radio I, The Business, ‘the number of people selling property privately has increased dramatically in recent months with over a 1000% increase in turnover for Privateseller.ie on the same month last year as a result of more vendors opting to sell privately ’.
While the boom times are not ending, it seems the market has peaked for now, and the phenomenal growth of recent years has levelled off. The somewhat lax lending policies that helped fuel the rapid growth in property prices have changed. Surging interest rates mean buyers borrowing capacity is lessened. Long awaited stamp duty changes failed to materialise in the Budget, and prospective changes to stamp duty are now an electoral, rather than a budgetary issue. Buyers holding out hopes for cuts, held off, resulting in a more notable seasonal slowdown.
It also appears that the market is fragmenting. Some areas show a rise in prices with price growth across counties ranging from between 3% and 19%. Wicklow North, Dublin and Galway City are now the country’s most expensive locations. The least expensive properties are located in Donegal, Laois and Carlow. Confusingly, certain areas can show the highest mean average prices, i.e. Dublin and at the same time stagnation in the market.
The level of sales has fallen, and there is a corresponding slow down in the rapid rate of price increase, which had been a feature of the Dublin market.
It is a buyers market, and it is increasingly competitive. There is an unprecedented wave of money about to come on stream with the maturation of SSIAs. People are ever more conscious of the costs involved in selling, with vendors and buyers alike aware of the need to make every euro work for them.
Privateseller.ie however, is flagging up a more buoyant time to come, with the seasonal upturn in sales just around the corner. Locally, diverse factors will have a noticeable effect on property prices.
In Donegal, for example, prices are rising rapidly, and it looks set to continue. Social influences are having a marked effect on property prices. In regional towns, planning restrictions have increased competition for available properties. Improvements in infrastructure like the building of rail links, by passes etc. are also likely to lift the markets. Proximity to alternative methods of transport becomes ever more appealing as gridlock worsens. Investors will be paying close attention to proposed developments in the recently published National Development Plan, (NDP). Areas where there are affordable homes show massive growth. Entry to market of new lenders like Halifax may increase money available to borrowers.
In these uncertain times, the important question for sellers is how to make their property stand out in a crowded market. Certain properties and locations will always list higher than the average. In times where competition is tough, and there is a sophisticated and discerning audience, the two main benefits of presenting a property, to appeal to a broad spectrum of buyers, are clear.
First is selling your property quickly, the second is achieving the maximum sale price. More and more vendors are choosing not to lose thousands in commission when selling their property and to get a better price by being in full control of the sales process including deadlines for selling that match the vendors needs rather than an agents. It is as important for private sellers to present and Stage™ your properties as well and better than if you were selling through an agent. Remember the three most important rules of presenting your home for sale CLEAN, CLUTTER-FREE and DE-PERSONALISE!
New Scheme Benefits Landlords and Tenants
The relatively new Rental Accommodation Scheme (RAS) may be of interest to people in the ‘Buy to Let’ property market. The scheme is being run by local authorities for people in receipt of rent supplement, and who need long-term housing. The aim is to provide additional, good quality rented accommodation. Under the RAS the local authority will find suitable accommodation and pay rent to the landlord directly. The tenant will still contribute to the rent, but the contribution will be paid to the local authority, not the landlord. Over time, the contribution may be based on the local authority ‘Differential Rent Scheme’. The benefits of the scheme are that they give long term housing security to tenants as well as access to a range of housing supports. It will also lead to improvements to standards and quality of private rented accommodation, and for Landlords, it means that there is a guaranteed predictable rental income. If the individual in receipt of supplementary rent allowance finds employment, they may remain in the scheme, but must contribute more towards the rent. The scheme does not apply to asylum seekers, non-nationals who do not have leave to remain in the state permanently or people receiving rent supplement under certain schemes, such as the ‘Back To Work’ scheme. Local authorities will make agreements with private landlords to provide accommodation on a medium to long term basis. Landlords must be registered with the Private Residential Tenancies Board (PRTB) and tax compliant. The scheme was extended to all local authorities in 2005, and it’s expected that everyone who is entitled to it will be accommodated under the RAS by September 2008. The rights of the tenant under The Residential Tenancies Act 2004 which protects the rights of those renting in the private sector after a period of six months will not be affected under this law. More information about the Rental Accommodation Scheme, RAS, is available from all Local Authorities.
Investing In Art
Are we in danger of falling for the hype and being caught in the fallout when this particular property bubble bursts? James Hanley, secretary of the Royal Hibernian Academy , RHA Recently observed ‘all the bankers are talking about art, and all the artists are talking about money’. There is ever increasing hype surrounding the major art sales. It seems the new trend for selling art at auction makes it a commodity, to be invested in for significant return. It is every bit as popular as investing in property. Given high property prices and the relatively low prices of art compared to potential return, buying art represents an accessible route to an investment market. But, is the committed collector, buying from the heart, going to fare any better with their purchase than the new moneyed investor with a focus on return for investment? Are the newcomers to the art market in danger of being stung?
Irish auction rooms are reporting a massive spike in art prices. A Louis Le Brocquy painting recently sold for 280,000; nine times its value of 30,000 five years ago. At more realistic prices for average collectors, Sean O’Sullivan realised 5,000 Euros in 2001, and 120,000 in 2006. Donald Teaskey’s work sold with James Adam Auctioneers, Dublin in 2001 for 5,000 Euros and five years later sold for 30,000. There is a lot of money about and as the appeal of this market widens, we are likely to see more nouveau collectors at sales.
This in the short term is good news for what is already a particularly buoyant market, but long term, the outlook may not be so positive.
Unlike property, where at times it seems like everyone is an expert, the relatively closed art world, with its associated exclusivity, leaves some investors vulnerable to hype. Lack of knowledge and experience could be harmful to the buyer who hasn’t the discernment to buy wisely for investment. Those investors new to the art world, who think they are ‘getting in on the ground floor’ buying the work of an emerging artist, should be particularly wary.
There are some artists whose prices at auction may not be in any way commensurate with the quality of their work. Unscrupulous investors, dealers and agents have been known to inflate a reputation by cranking up the perceived desirability of work. Entire collections of works have been bought up by investors, who later return them to an eager market place once reputation has spread and demand works by that artist has increased. The figures realised at subsequent auctions are correspondingly higher. According to a leading art auctioneer, ‘its happening, people are putting paintings into auctions and buying them back themselves to inflate the price… it’s highly unfair, it’s manipulating the market by creating a false sense of artists’ worth. The price has nothing whatsoever to do with the artist and its being done by people who see art as a commodity and its most unfortunate. Its part of the art market and its difficult for anyone to regulate it.’
The purchaser is not the only one to loose out in such a scenario. What of the role of the gallery who traditionally has supported, encouraged, and fostered artists before this boom? If a painter becomes hot property overnight, whether through merit or hype, that empties the galleries of work.
The auction house benefits instantly. The long-term fallout of returning from an overheated auction room, with a sustained period of works realising artificially high prices, to selling in a gallery, can have ruinous effects on an artist’s career. Subsequent prices for work must be set at least at the level achieved at auction. The phenomenal increase in some prices means that they are then out of reach from more established, but not rich, investors. This may result in a fall off in sales, negatively impacting on the income of both the Gallery and the artist.
Notwithstanding the potential downsides, the booming Irish Art Market is outperforming alternative investment options, such as property, savings etc. Most buyers are very knowledgeable. In addition, whilst the finer points of some works may escape the rapt attention of canny investors, the additional benefits will not have passed them by! Original artwork is traditionally an important signifier of social status. Real and tangible benefits may accrue to the wise investor also.
There are most attractive tax breaks for lending important pieces to public institutions for a number of years. During the period of the loan, the cost of insuring the piece is paid by the institution whilst the value of the piece increases. This may be a particularly happy arrangement if the rich kid on the block has invested in something he cannot bear to look at! Also, under this arrangement, the collector can sell the work later without having to pay capital gains tax on the profit Of course, there is the associated image enhancement of being seen as a public benefactor!
Current thinking is that many artists may be fully priced now. It’s likely see a similar trend to that in property, with a slowing of the rate of increase in prices realised, particularly at auction. Can we really expect that some works commanding top dollar will be worth five or more times today’s value in five years?
If you are serious about art as a long-term investment in the future, get good advice. Any expert will tell you to learn about art, engage with the gallery owners, listen to considered opinion from those who have been in the business long before the boom times came, and who have a long association with artists. Visit galleries. There's no harm in realising there is an investment potential value in a piece, indeed its recommended that you have works valued by a reputable gallery or auctioneer, and your household contents insurance amended to reflect this.
The Irish Art market has been described as a provincial bubble. With notable exceptions, the work of Irish artists has a value in the Irish market that bears no relation to its value internationally, no matter how well known the artist is. Perhaps the collector who ‘knows what he likes’ and buys according to that rule will be spared the financial fallout if the bubble does burst. After all, it has been said ‘you can’t hang shares on the wall’.
THE MONEY DOCTOR’S TOP FIFTEEN TIPS- With John Lowe
THE TOP 15 WAYS TO SAVE MONEY IN 2007
…with advice that will save you €s
With a slowdown in the economy, and in certain quarters, a gloom and doom prophecy for the times ahead, here are 15 ideas for saving money or being smarter with it. These tips are not in any particular order :
CHECK YOUR MORTGAGE INTEREST RATE – sometimes we go to great lengths at the initial stages of obtaining a mortgage trying to ensure the most competitive interest rate at the time. Once taken out, there is a tendency to overlook the maintenance of that mortgage. You could very easily find out that your lender’s current advertised interest rate bears no resemblance to your own. This is also a time to check whether if currently on a variable rate, you should go fixed and also if your lender is uncompetitive, should you switch to another lender.
AVOID COMPANY CARS – in about 80% of cases, it does not pay to maintain a company car. Benefit in kind on company cars makes it less attractive than simply taking mileage expenses. These expenses also include depreciation, wear and tear etc and work out at c. € 0.6348 per mile. Of course, you could opt for a classic car – over 25 years old – and the tax payable will be based on the value of the car at the time of purchase !
AVAIL OF YOUR ANNUAL CAPITAL GAINS TAX EXEMPTIONS - the first € 1270 of chargeable gains to an individual arising from the disposal of a capital asset ( e.g. shares) is exempt. This is allowable for each tax year but is not transferable between spouses. For Capital Acquisition Taxes, remember the thresholds from parent to sibling is currently, € 478,155 for each sibling.
CHECK YOUR LIFE AND HEALTH COVER – you could be over insured. Do a review on all your insurances. Are you getting the best value ? What happens if you or your spouse die or become permanently incapacitated ?
CHECK YOUR GENERAL INSURANCES – your home buildings and contents – is your cover competitive ? If you have commercial or residential investment property insurance, is that competitive ? Do you require any special risk insurance that you “risked” being without to date – you may not be so “lucky” next year ! Public liability, professional indemnity, PC hacker – virus insurance etc.
THINK SMART WITH YOUR SURPLUS CASH – do not leave surplus money in your current account. At least transfer it into your bank’s deposit account and when you need funds to meet the cheques you have written, transfer over a couple of days before the cheques come in. If that deposit account is sizeable, negotiate with your bank – their rates are much less than the Northern Rock (4.15%), RaboBank (3.7%) or Anglo Irish Bank(4%) and therefore they would have the discretion to increase that deposit rate in order to hold on to your business.
CHECK YOUR BANK CHARGES ON A REGULAR BASIS – there are too many cases of overcharging from all the banks to accept that your bank is not one of them ! Sometimes, these charges can be waived on the discretion of the manager – if you don’t ask, there’ll be no waiving. Try and avoid exceeding your overdraft permission if you have an overdraft. The surcharges are punitive.
ENSURE OF ANY EXEMPTIONS ON INCOME TAX LIABILITY – you may be unwittingly exempt from paying income tax (e.g. an Irish resident artist producing originals that has cultural and artistic merit, income from woodlands etc) while you should also ensure, if self employed, and your partner is working in the business, that the full entitlement of income tax exemptions is taken up by the partner. In other words, pay her/him her/his dues tax free !
PRIVATE COLLEGE FEES – tax relief at the standard rate is available for approved courses undertaken by a taxpayer or dependents in approved private colleges. The courses must be full time undergraduate courses of at least two years duration. Also postgraduate courses of between 1 and 4 years duration in public colleges and approved private colleges now attract similar tax relief.
THINK PENSIONS – if you are self employed, 5% equity holding director or even in an occupational pension scheme ( where pension holders can make further payments through an Additional Voluntary Contribution) you should review your pension requirements. For every euro, you will save tax at your marginal rate depending on the type of pension. Just remember if you were retiring now, ask yourself could you live off the € 200 per week from the State pension ? Talk to an adviser now regulated by the Central Bank – Authorised Advisors or your preferred pension adviser.
ARFs (Approved Retirement Funds) & AMRFs – recent changes in the pension laws now allow YOU to decide what you want to do with your retirement fund when you have reached the age of retirement. Up to a couple of years ago, the only choice you had was to take out an annuity (a kind of deposit account where you received a monthly interest cheque until you died ) with a Life Insurance Company. When you died, the capital stayed with that Life Insurance Company and your estate lost out. That has all changed now and that fund can now eventually get to your estate if you wish. The annuity system is still available and has its merits too. Contact your Authorised Advisor or your preferred pension adviser for further details.
SWITCH YOUR MORTGAGE TO AN INTEREST ONLY FACILITY – for many people, it makes sense to think about switching your mortgage to a lender that offers an interest only facility. It primarily cuts your monthly outlay dramatically, and there are many ways of addressing the capital repayment over the term of the loan - you could even pay off the capital at the end of the term by selling the property. This method gives greater flexibility and lets YOU decide when you want to pay back the capital. If you are switching, it may also be a time to think about consolidating all your short term loans into one long term and cheaper loan. For those residential investment property owners, it makes sense to maintain your loan on an interest only basis as the interest is fully offsettable against the rental income.
PLAN A YEARLY HOUSEHOLD BUDGET – add all your yearly household liabilities together and divide by twelve. That figure is the amount you need to put away each month to meet the budget and is the monthly expenditure you need just to run the home. Any capital or “luxury” spending must be found outside of this budget. You could also adopt a monthly budget if preferred.
OPERATE A CHARGE CARD AS OPPOSED TO A CREDIT CARD – you are probably aware that credit card balances are normally charged between 17% and 24% depending on the credit card company. By switching to a charge card ( e.g. Visa goldcard) your monthly balances are debited to your bank current account and even if you decide to leave it on your overdraft – if you have permission of course – the interest rate is between 10% and 12%… a considerable saving. If you can pay off the balance every month, so much the better.
THINK ABOUT OTHER FORMS OF INVESTMENT – for instance, French leasebacks, Spanish off-plan property buying or forestry investment ? is the least afforestated country in the EU with forest cover of 9% as compared with the EU average of 31%. The Irish climate is the most ideal in the Northern Hemisphere for tree growing due to our mild wet climate and trees grow three times faster here than elsewhere in Europe . Timber products are also the second largest import into the EU after oil.
The EU and the Irish government promote forestry through grants and premia payments. They are keen to reduce agricultural output of which there is a surplus in the EU and substitute it with timber producing forests for which there is a growing internal EU shortage. The government through the Department of the Marine and Natural Resources offer specifically capital grants and tax free income grants under certain conditions as an encouragement to investors buying appropriate and approved lands for the planting of trees.
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