THE TREND OF MODERATE HOUSE PRICE GROWTH CONTINUES IN Q3

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1 Q Results Property report myhome.ie report in partnership with THE TREND OF MODERATE HOUSE PRICE GROWTH CONTINUES IN Q3

2 PRIVATE CLIENTS DAVY MADE A DIFFERENCE THAT MATTERS TO ME. You don t accumulate money for its own sake. You want to use your resources to make a better life and create bigger opportunities in the future. That s why Davy takes a holistic approach working with you to create a Financial Life Plan and investment strategy that aims to make a difference to you and your family. With Davy, it s a relationship. Start yours today. Call or visit davy.ie/future The value of investments may fall as well as rise. J & E Davy, trading as Davy, is regulated by the Central Bank of Ireland.

3 Angela Keegan Managing Director MyHome.ie In this issue Our Q3 property report which is published, in association with Davy, shows that the trend of moderate house price growth, evident in the first half of 2015, is set to continue for the remainder of the year and indeed into The fact that we should see moderate price growth over this period is a positive development and will contribute to the long-term recovery of the property market in the country. Following a period of uncertainty, it will also provide some much needed stability and allow everyone from estate agents to first-time buyers and investors to plan for the future. The Central Bank s new lending rules prevented first-time buyers from taking out ever higher mortgages. This, together with stretched affordability and a 45% increase in the number of properties available for sale in the capital has led to a cooling in prices in Dublin. On the other hand, the shortage of starter homes, strong rental inflation and wage growth coupled with tax cuts in Budget 2016 will support house prices and ensure that a sustained decline in prices is unlikely. Commentary from Conall MacCoille Chief Economist Davy Research...4 Price Register analysis...9 Three bed semi-detached asking prices...10 Dublin Analysis...11 Regional Analysis...12 About the report...16 Davy Group...18 Unlikely as it might seem, due to a confluence of events and a mixture of government action and inaction, the property market now looks set for a period of respite. However, the fact that so few new homes are being built and that cash buyers still account for 50% of transactions shows that the recovery still has a long way to go. The government has been presented with an opportunity to address the lack of supply of new starter homes in certain areas, particularly in Dublin. They need to grasp it with both hands.

4 IRISH HOUSE PRICE INFLATION SET TO SLOW TO 5% Conall MacCoille, Chief Economist, Davy Research MyHome.ie asking prices, Dublin and national Table 1 Price ( ) % change quarter-on-quarter % change year-on-year National mix-adjusted (stock) 205, Dublin mix-adjusted (stock) 286, National mix-adjusted (new instructions) 216, Dublin mix-adjusted (new instructions) 312, Source: MyHome.ie The MyHome.ie asking price data for Q3 suggest that the slowdown in Irish house price inflation will continue into the final months of Asking prices on the entire stock of properties listed for sale on MyHome.ie rose by 1.6% in Q3, up 6.3% on the year. There was a 1.5% increase in Dublin, with asking prices up 8.8% on the year. However, the best leading indicator of actual transaction prices is the movement in asking prices on new instructions. Asking prices on new instructions rose by 1.8% nationally but fell marginally by 0.1% in Dublin. This is the first decline in Dublin asking prices since early 2012 pointing to a weak end to the year. The big picture is that stretched affordability, the Central Bank s mortgage lending rules and an improving stock of homes available for sale are cooling price rises, particularly in Dublin. However, as we suggested in previous reports, Irish house price inflation is slowing but sustained declines seem unlikely. Looking forward, wage growth coupled with tax cuts in Budget 2016 will help to support house price inflation. The on-going lack of housing supply and strong rental inflation will also support transaction prices. We still expect house price inflation to slow to 5% by December, with a similar gain likely in MyHome.ie asking prices, Dublin and national Figure National Asking Prices (New Instructions) National Asking Prices (Stock) Dublin Asking Prices (Stock) Dublin Asking Prices (New Instructions) Source: MyHome.ie MyHome.ie Property Report: Q

5 Momentum in housing transactions and mortgage lending falling back There were 21,876 residential property market transactions, worth 4.6bn, in the first half of Over the same period, there were 10,729 mortgage loans for house purchase, worth 1.9bn. Cash buyers are clearly still an important part of the market, accounting for 50% of transactions. Having recorded exceptionally strong growth in 2014 and early 2015, activity levels in the residential property market are now slowing down. The number of residential property market transactions grew by 52% in 2014 but was up by 31% in the year to Q and by only 0.7% in July. Similarly, mortgage approvals were up just 2.5% in July, a sharp slowdown from the 60% expansion in the year to Q Stock of properties listed for sale on MyHome.ie, Dublin and national Figure 2 National (right-hand-side) Ex-Dublin (right-hand-side) Dublin (left-hand-side) The stock of properties on the MyHome.ie website available for sale was 24,265 in September. This is actually down 12% on the year. In Dublin, however, there were 5,196 properties, up 45% from the 3,586 recorded last year. This loosening of the supply-demand balance in the capital has helped to slow house prices. Nonetheless, the average time for homes to move to sale agreed has halved since 2012 and had fallen to five months in Q3. Number Source: MyHome.ie Given stretched affordability, the slowdown has been concentrated in Dublin In July, the Residential Property Price Index (RPPI) index showed that house price inflation was 8.4% in Dublin but 9.4% outside the capital. Excluding the period when prices were falling rapidly, this is the first time since 2008 that Dublin house price inflation has been weaker than the rest of the country. Of course, the recovery in Dublin house prices began earlier so that affordability has become stretched. But there may be more room for recovery in other areas Property market activity levels, annual % changes Table 2 Mortgage approvals for house purchase Mortgage lending for house purchase Residential property transactions % -4.9% 25.3% % 49.6% 51.9% Q % 63.9% 65.9% Q % 29.2% 30.9% July % n/a 0.7% Source: Property Price Register; Banking and Payments Federation MyHome.ie Property Report: Q

6 IRISH HOUSE PRICE INFLATION SET TO SLOW TO 5% Property market transactions: cash versus mortgages Figure Cash Cash Mortgages Mortgages Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q Figure 3 House price to earnings ratio across Ireland Table 2 Median asking price ( ) Wages per head employed ( ) Midlands 95,000 33, Border 115,000 34, Mid-west 129,000 37, West 115,000 32, South-east 125,000 32, South-west 170,000 34, Mid-east 193,500 38, Dublin 280,000 45, State 195,000 36, House price to income ratio (x) Source: Davy calculations; CSO; MyHome.ie The table above compares affordability across Ireland. In Dublin, the median asking price on a 3-bed, semi-detached house was 280,000 now a 6.1x multiple of average income of 45,643. However, the house price to income multiple is 3-4x in the border, mid-west, west and southeast regions. Not surprisingly, the mid-east is the second most expensive region at 5.0x average income followed by the south-west at 4.9x. Constraints on mortgage lending are also holding back price inflation in the capital. Although first-time buyers purchasing homes below 225,000 are excluded from the new limits, this is far less likely in Dublin. Having said that, these first-time buyers are likely to have faced only a small reduction of 1-2 percentage points in their Loan-to-Value (LTV) ratio. MyHome.ie Property Report: Q

7 0 0 0 Anecdotal evidence and media reports suggest that banks have now largely utilised their 15% allocation of loans allowed to breach the new limits and are now rationing higher LTV loans in the remainder of This development could hold back price inflation in the second half of the year. However, more importantly first-time buyers in Dublin are not being allowed to respond to the lack of supply and stretched affordability by taking out ever higher mortgage loans. This is a positive development. Instead, government action to address the lack of supply of new homes in Dublin is sorely needed. Homebuilding still struggling to pick up There were 6,745 housing completions in the first seven months of 2015, up 15.8% from the same period in While homebuilding is clearly expanding at a rapid pace, it is doing so from a very low base. Housing completions will probably struggle to exceed 13,000 this year, up from 11,000 in 2014 but still well short of the 25,000 required to satisfy household formation. The big picture remains that construction activity has been slow to react to clear latent demand for housing. The medium-term outlook for housing supply will depend on concrete action by government to address constraints on homebuilding such as planning, land availability, inappropriate levies and charges on residential development. For example, the Organisation for Economic Co-operation and Development (OECD) recently recommended that the government should avoid subsidies for first-time buyers that merely stoke house price inflation and should instead focus on liberalising planning requirements such as building heights in Dublin. Buoyant rental growth makes it attractive to buy The Consumer Price Index data show that private rents rose by 10.5% in the year to August. Moreover, the Central Statistics Office (CSO) index suggests that private rents are now just 0.5% below their previous peak in February The alternative Private Residential Tenancies Board (PRTB) measure paints a similar picture, indicating that rents rose by 7.1% in the year to Q and by 9.3% in Dublin. With transaction prices broadly flat through the first half of 2015, but rents rising, rental yields have staged a small recovery. For many investors, rental yields will appear attractive relative to government bonds or current bank deposit rates close to zero. According to the PRTB, the average rent is now 878 nationally and 1,262 in Dublin. In this context, buying is becoming increasingly attractive to renting. The figures MyHome.ie Property Report: Q

8 IRISH HOUSE PRICE INFLATION SET TO SLOW TO 5% above imply annual rent payments of 10,536 and likely in Affordability has become stretched and 15,144 respectively. In contrast, the annual interest the Central Bank rules have stopped first-time buyers on a 180,000 mortgage with a 4% rate would equal responding by taking out ever higher mortgage loans. So 7,200. Moreover, the fixed rate on new mortgage the market will not be driven by leverage. lending had declined to 3.99% in Q and will fall further through the year. Instead, a key development for the housing market this year has been the re-emergence of wage growth. House prices will be driven by higher incomes in 2016 It now seems clear that the summer of 2014 was something of a high watermark for the Irish housing market, with 20%+ rates of inflation in Dublin and transactions rushed ahead of the expiry of capital gains tax. Although the Central Bank mortgage lending rules have led to expectations for indefinite double-digit house price inflation being reined in, they also appear to have resulted in a surge in mortgage approvals in early 2015 ahead of their implementation. The growth in activity and prices has cooled as some of the froth at the turn of the year has subsided. We expect the annual RPPI inflation rate to slow towards 5% by the end of 2015 and a similar gain is MyHome.ie Property Report: Q Private sector earnings grew by 2.4% in the year to Q Moreover, Budget 2016 looks set to implement a bn giveaway, split equally between spending increases and tax rises. These measures could boost disposable incomes by 1%. Irish house price inflation in 2016 now looks set to be driven by rising incomes.

9 PRICE REGISTER ANALYSIS Today s Property Price Register Index indicates that the growth in transactions levels has started to slow So far in 2015, there have been 30,675 residential property market transactions worth 6.7bn. For the first seven months of 2015, for which the data are now close to complete, there were 26,348 transactions worth 5.7bn. This represents 30% annual growth in transaction volumes, which is 35% in value terms. Transaction levels in early 2015 were flatteredby by large purchases by a real estate investment trust (REIT) and some large single transactions. Nonetheless, the underlying growth was still strong. However, it will probably be the second half of 2015 before the full impact of the Central Bank rules becomes clear. There are increasing signs that the growth in activity levels has slowed through In July, transaction levels were up just 0.7% on the previous year. Similarly, the number of mortgage approvals was only 2.5% higher in July than one year ago. It now seems clear that transaction levels at the turn of the year were inflated not only by a rush of purchases ahead of the expiry of capital gains tax exemptions but also by borrowers seeking mortgage approvals before the implementation of the new Central Bank rules. MyHome.ie Property Report: Q

10 3 BED SEMI-DETACHED ASKING PRICES DONEGAL 79,000 +5% l -62% LEITRIM 75,000 +4% l -67% MONAGHAN SLIGO 100,000 0% l -62% 100,000-9% l -65% CAVAN LOUTH 110,000 0% l -52% MAYO ROSCOMMON 96,250 +1% l -56% 67,000-4% l -70% 149,500 +1% l -55% LONGFORD 59,000-1% l -73% MEATH 175,000 +1% l -47% WESTMEATH 110,000 +3% l -59% GALWAY DUBLIN 280,000 0% l -40% 170,000 +1% l -43% KILDARE OFFALY 185,000 +3% l -47% 115,000-1% l -60% WICKLOW LAOIS 260,000-2% l -42% 95,000 0% l -62% CLARE 115,000 +2% l -57% CARLOW 119, % l -54% LIMERICK 135,000 +4% l -44% TIPPERARY KILKENNY 120,000 +4% l -48% 147,000 +3% l -50% WEXFORD 120,000 +1% l -60% WATERFORD KERRY 132,000-2% l -54% 130,000 +4% l -47% CORK 195,000 +5% l -42% COUNTY ANALYSIS Median asking price Q % change Q l % change from peak Source: MyHome.ie MyHome.ie Property Report: Q

11 DUBLIN ANALYSIS Dublin Area Analysis The CSO index indicated that Dublin transaction prices fell by 0.1% in May and by 0.4% in June but bounced back in July, rising by 0.7%. Dublin residential property prices have been broadly flat through the first half of 2015, 0.4% lower in July than in December DUBLIN NORTH 250, % DUBLIN OVERALL 270,000 +8% MyHome.ie asking prices point to a weak fourth quarter for Dublin house prices. There was a 0.1% fall in asking prices on new instructions to sell in the capital, the first since early The median asking price in Dublin south city was still up 20% in the year to Q3 2015, once again the strongest annual rise across the city. Dublin north prices were up 4.2% on the year after a 6.4% annual rise in Q2. Dublin north city saw asking prices up just 2.3% on the year, the smallest rise across the city. DUBLIN WEST 220, % DUBLIN NORTH CITY 163, % DUBLIN SOUTH CITY 240, % DUBLIN SOUTH 345, % DUBLIN REGION Median price Q % Annual Change Source: MyHome.ie MyHome.ie Property Report: Q

12 REGIONAL ANALYSIS The MyHome.ie property price data for Q3 still show the recovery in price inflation broadening out across the country. Median asking prices on new instructions to sell outside Dublin rose by 8.5% in the year to Q compared with a 1.3% decline in the capital. Over the past year, there has been a trend of strong price increases in the Dublin commuter belt. However, median prices in Wicklow were up just 2.2% in the year to Q3 2015, steady on the quarter at 285,000. Meath recorded a 16.2% rise on the year, the fastest increase across the country, with the median asking price at 215,000. Kildare asking prices were up 15.4% at 225,000. Connacht / Ulster In Connacht, prices in Galway rose by 9.1% on the year. Galway city saw an 11.4% rise to a median of 195,000. Roscommon prices were down 8.3% on the year. Mayo saw prices decline by 3.7% on the year, although this is the smallest annual fall recorded in many years. In Ulster, Donegal asking prices are now 135,000 up 8.0% on the year. Prices in Cavan rose by 6.7% on the year, the first positive reading so far, 160,000 at the median. Monaghan prices were flat on the year at 130,000. Leinster The picture across the rest of Leinster is mixed. Prices in Louth are now up 12.7%. However, Offaly saw a 0.8% decline on the year. Laois saw an 8.3% gain and Wexford a 5.0% rise. Kilkenny saw its first substantial rise in prices, up 3.2%, after flat growth in Q2. Westmeath prices remain flat at 125,000. Carlow prices were up 2.9% on the year, again the first annual rise recorded. The pace of contraction in Longford was 5.3%, down from -10.8% in the previous quarter. Munster Turning to Munster, median asking prices in Cork were up 2.6% in the year to Q3, exceeding 200,000 for the first time since The recovery was pronounced in Cork city with prices up 7.7% on the year, now 210,000. In Tipperary, prices were flat on the quarter at 150,000 unchanged from last year. Waterford prices were also flat on the year at 150,000. Median asking prices in Kerry were still down 3.4% on the year. In contrast, Limerick asking prices were up 6.7% on the year. MyHome.ie Property Report: Q

13 GALWAY CITY 195,000 0% LIMERICK CITY 128, % WATERFORD CITY 99, % CORK CITY 210,000 +5% REGION Median price Q % change Q Source: MyHome.ie MyHome.ie Property Report: Q

14 County analysis - 2 bed apartments Eighteen of the 26 counties either recorded growth in the median asking price for a 2- bed apartment or saw prices remain unchanged in Q Not surprisingly, the Dublin commuter belt counties all registered gains with Kildare up 3.8%, Meath up 4.5% and Wicklow up 8.1%. In Munster, Cork prices rose by 4.0% and Limerick prices by 4.1%. Tipperary saw a 1.1% gain. However, prices in Kerry were flat. In Connacht, prices in Galway fell by 2.4% but were still up 4.0% on the year. In Ulster, Cavan saw a 14% rise, albeit to only 65,000. Monaghan saw a 10.4% rise to 63,500. Donegal prices were flat on the quarter at 45, BED APARTMENTS ASKING PRICES COUNTY Carlow Cavan Clare Cork Donegal Galway Kerry Kildare Kilkenny Laois Leitrim Limerick Longford Louth Mayo Meath Monaghan Offaly Roscommon Sligo Tipperary Waterford Westmeath Wexford Wicklow Dublin Q ,000 65,000 55, ,000 45, ,000 95, , ,475 56,500 49,900 63,500 48,250 80,000 85, ,000 63,500 58,000 35,000 62,500 47,500 50,000 69,475 75, , ,000 QUARTERLY CHANGE % 14.04% -5.98% 4.00% -2.44% 3.85% -5.00% -0.15% 4.10% -2.53% 6.67% 19.72% 4.55% 10.43% -3.33% 5.93% 1.06% % 0.69% 8.08% Table 3 ANNUAL CHANGE -2.86% 44.61% -3.51% 5.88% 4.00% 2.70% 8.00% 9.97% 13.00% -2.63% -2.31% -3.50% 14.29% 18.06% 35.29% % -3.33% % 11.61% % % 0.69% 14.26% 12.50% Source: MyHome.ie MyHome.ie Property Report: Q

15 County analysis - 4 bed semis Eighteen of the 26 counties either recorded growth in the median asking price for a 4- bed, semi-detached property or saw prices remain unchanged in Q The gains were broad-based across the country. In Leinster, Kildare (+3.8%), Longford (+7.6%), Meath (+10%) and Wexford (+5.6%) all saw significant rises on the quarter. The median price in Dublin fell by 1.6% was still up 2.6% year-on-year. In Munster, prices in Cork rose by 0.4% to a median asking price of 246,000. Kerry saw a 3.4% rise to 150,000. In Connacht, prices in Galway fell by 1.3% to 195, BED SEMI-DETACHED ASKING PRICES COUNTY Carlow Cavan Clare Cork Donegal Galway Kerry Kildare Kilkenny Laois Leitrim Limerick Longford Louth Mayo Meath Monaghan Offaly Roscommon Sligo Tipperary Waterford Westmeath Wexford Wicklow Dublin Q , , , , , , , , , ,500 99, ,000 85, , , , , , , , , , , , , ,000 QUARTERLY CHANGE 6.90% 2.58% 0.34% 0.41% 16.58% -1.25% 3.45% 3.85% -9.26% % -0.59% 7.59% 1.28% 4.17% % % 0.72% 5.64% -1.56% -1.60% Table 4 ANNUAL CHANGE 1.64% 2.58% 12.83% 11.82% 40.63% -1.27% % -2.00% -0.30% 3.70% 13.33% 23.82% 4.17% 27.54% 7.69% 7.14% % -1.75% 5.44% 13.29% 31.82% 3.69% 13.13% 2.56% Source: MyHome.ie MyHome.ie Property Report: Q

16 ABOUT THE REPORT Graham Neary, Equity Portfolio Manager, London Graham is an equity portfolio manager based in London where he manages funds for an international mutual organisation with over 14 billion in assets under management and one million members across Canada, the US and the UK. He has over six years of financial market experience, holds a degree in mathematics from Trinity College Dublin, and is a CFA Charterholder (Chartered Financial Analyst). MyHome.ie Property Report: The Method The trends presented in this report are based on actual asking prices of properties advertised on MyHome.ie with comparisons by quarter over the last eight years. This represents the majority of properties for sale in Ireland from leading estate agents nationwide. The series in this report have been produced using a combination of statistical techniques. Our data is collected from quarterly snapshots of active, available properties on MyHome.ie. Our main indices have been constructed with a widely-used regression technique which adjusts for change in the mixture of properties for sale in each quarter. Since the supply of property in each quarter has a different combination of types, sizes and locations, the real trends in property prices are easily obscured. Our method is designed to reflect price change independent of this variation in mix. For detailed statistics at a local level, we also provide a wide selection of median asking prices broken down by county or by urban location. For analysis of the Property Price Register prices were adjusted upwards to account for VAT where necessary, and only full market value prices were used. MyHome.ie Property Report: Q

17 RAW DATA Q1 & Q Data table (raw data) Table 5 Indices National Dublin New 2nd Hand Q Q Q Q Q Q Q Q Q Q Q Q % Change National Dublin New 2nd Hand Q % 6.18% 4.08% 4.55% Q % 4.33% 2.53% 3.42% Q % 9.34% 5.19% 7.04% Q % -0.28% 0.56% 1.42% Q % -0.25% 0.92% -0.46% Q % -1.36% -0.88% -0.12% Q % -1.29% -1.49% -1.42% Q % -4.37% -2.66% -3.00% Q % -7.44% -7.83% -6.02% Q % -4.11% -3.74% -3.45% Q % -3.91% -4.35% -3.24% Q % -3.39% -3.44% -3.16% Standard Price National Dublin New 2nd Hand Q , , , ,442 Q , , , ,922 Q , , , ,034 Q , , , ,990 Q , , , ,055 Q , , , ,468 Q , , , ,598 Q , , , ,139 Q , , , ,857 Q , , , ,019 Q , , , ,767 Q , , , ,429 Data table (raw data) Table 6 Indices National Dublin New 2nd Hand Q Q Q Q Q Q Q Q Q Q Q Q % Change National Dublin New 2nd Hand Q % -3.82% -3.79% -4.12% Q % -2.76% -0.91% -2.47% Q % -7.54% -2.96% -7.29% Q % -1.64% -3.22% -2.83% Q % -0.04% -3.10% -1.60% Q % 0.55% -2.58% -0.82% Q % 1.28% -2.41% -0.65% Q % 4.45% -2.25% 1.60% Q % 2.19% 0.10% 0.66% Q % 2.52% 2.66% 2.21% Q % 2.31% 1.65% 1.80% Q % 1.47% 1.56% 1.56% Standard Price National Dublin New 2nd Hand Q , , , ,127 Q , , , ,474 Q , , , ,173 Q , , , ,806 Q , , , ,568 Q , , , ,071 Q , , , ,830 Q , , , ,878 Q , , , ,543 Q , , , ,931 Q , , , ,581 Q , , , ,800 MyHome.ie Property Report: Q

18 ABOUT DAVY GROUP Established in 1926, the Davy Group is Ireland s leading provider of wealth management, asset management, capital markets, and financial advisory services. Davy is headquartered in Dublin, with offices in London, Belfast, Cork and Galway. Employing over 570 people, Davy offers a broad range of services to private clients, small businesses, corporations and institutional investors, and organise our activities around four interrelated business areas Wealth and Asset Management, Capital Markets, Corporate Finance and Research. Davy s Wealth and Asset Management business manages over 14.5bn on behalf of Irish and International clients*. Davy has acquired three businesses in the Wealth and Asset Management area and has a stated plan to continue to grow both organically and through acquisitions. Davy is Ireland s leading wealth manager providing a financial planning led private client service backed up by global investment portfolios driven by a proprietary investment process. Davy is responsible for over 70% of funds raised on the Irish Stock Exchange between 2010 and 2014 and has been consistently recognised by the world s top names in financial services for the quality of their research and service. * Data correct as of May 2015 ** Source: Irish Stock Exchange *** Source: London Stock Exchange As the leading broker in the Irish market, Davy accounted for over 43% of all dealings in Irish equities on the Irish Stock Exchange in 2014**. Davy is a primary dealer in Irish Government Bonds and acts as manager on the majority of Irish corporate bond issues. Davy advise 62% of companies on the Irish Stock Exchange, including 8 of Ireland s top 10 listed companies**. They are Ireland s leading ESM and AIM adviser, representing approximately 69% of companies quoted on the ESM market**, and 18 companies quoted on the AIM market of the London Stock Exchange***. Davy Davy + Scope of business (Side) asset management capital markets corporate finance private clients research MyHome.ie Property Report: Colour Q3 variations

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20 This is your world. This is where you hope to live, wish to work, dream of escaping to. This is thousands of homes at one address. MyHome.ie Property Report: Q Thousands of one address