Irish Rental Demand and Debt Requirments

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The recent demand for rental accommodation in Ireland has grown in urban areas exponentially. The demand is fundamentally found in recent urban movement, population growth, and the increasing desire for accommodation to reflect the various stages of housing needs. Pension Funds and investment firms globally have long identified that well located PRS accommodation is a secure and predictable investment asset class. There is a desire to invest in these asset classes to ease the struggle of uncertainty and combat shifts in the market.

The trends that have been happening in Ireland have begun to facilitate the scale production of apartments in main Irish cities. In fact, Ireland has one of the lowest levels of built apartment stock in the EU. Institutional investors are seeking the ability to acquire newly built apartments in Ireland, and this helped create the Build to Rent sector. There has been a lot of public commentary having to do with Build to Rent trends, and it is important to consider that historically 20 percent of the Irish mortgage market was comprised of nonprofessional investors acquiring newly built residential units for purposes of rental. These investors used to be the primary supplier of new PRS accommodations to the market, but they have largely disappeared. This created a supply-side void that the professional institutional investor has started to fill.

An interesting note on BTR accommodation is that it is primarily delivered as new apartment developments, and the level of debt and equity required to construct them is often underestimated. The BTR debt market has deepened by a large amount, and is now well served by many Irish banks and lenders. All lenders will look at the track record of the customer, the realism of rental, the yield assumptions, and ultimately the likelihood of securing an exit on completion via forward sale to an institutional investor. There has been an attraction of both developers and purchasers in this phased apartment delivery.

This may reduce the peak working capital needed for the developer, and thus the required equity commitment. For the purchaser, it provides the optimal circumstances within which to stabilize the building and investment sector. It is likely that renters will differentiate their strategies based on location, and some of the peripheral locations may be challenged in attracting development capital. The rental market is going to continue to be strong heading into spring of the new year, and investors need to be aware of where to put there money.

Written by John Spurrier, Mortgage Analyst for Online Application