In the last month I have been asked this question six or seven times by different people – clients as well as total strangers. “It’s looking cheap”, they say. “It must be a bargain now with prices so low. What do you think?”
Like everything beauty is in the eye of the beholder and Irish property has, unfortunately, been beholden by an awful lot of people in the past. But is there value now available to investors? I really don’t know. Despite my involvement in giving financial advice I’m quite happy to say that I’m not a property expert and hold no aspirations to be.
But before you head off to read the latest property commentary or mull over economic forecasts you might want to think about whether an illiquid investment that requires regular maintenance, patience to deal with sometimes troublesome tenants as well as the uncertainty about whether it is in the right geographic area or not is what you should put your money into.
This isn’t to say that property, and especially Irish property, won’t perform admirably over the long term and produce a decent return from this point onwards. It may very well produce serious monetary gain but as with everything in life there are other things to consider. And most of these considerations have nothing to do with property directly.
Before the Celtic Tiger property bubble burst many remortgaged their family homes to buy a second property on the basis that it would provide them with a capital nestegg in their retirement as well as an income stream by way of rent. Younger people were keen to get on the ladder (and still are) and avoid property becoming too expensive for their own future family home.
This being said, money for retirement and the requirement for family homes will be perennial problems that most people will encounter in their lifetime. These are financial planning issues that effect us all emotionally as well as financially. Greed for gain or avoidance of loss needs to be balanced with a perspective of common sense. Are people possibly chasing property now because they see value or because they want to see value? Do they again want future bragging rights in a local pub to say that they bought in when it was a low price and we should admire how much money they have made? Do they actually need property as part of their own investment portfolio or lifestyle and would such a property reduce or possibly destroy their overall personal liquidity? Do they actually have an already high level of property holdings?
Everybody is unique in their financial needs as well as their emotional yearnings. The only advice that I can give broadly in this area is before you jump on any property bandwagon you need to get a personal financial plan in place that looks at your current assets, liabilities, income and expenses. After that you then need to extrapolate it forward over the next 25 years assuming no changes will happen, which of course we know would be a fallacy because change is constant.
To counter it you need to then frame a number of “what if” scenarios such as major increases in interest rates, falls in property values and collapses in rents. While theoretical, examining these possibilities can bring a dose of realism to any potential buying of property.
All this might sound like a complicated approach and if you are not involved in the financial world the question is how would you go about doing this?
Fortunately there is a growing sector within the financial services industry which offers genuine financial planning advice and which can perform such personal financial analysis. This role is totally different from that which most lay people refer to as financial adviser, financial consultants or brokers. While many financial planners are also involved in these roles, they are essentially occupations which result in the sale of a financial product and for which they are mostly paid a commission. The prime focus in such cases is the product not the overall personal need.
Financial planning, on the other hand is the process of developing strategies to assist clients in managing their financial affairs to meet life goals, goals such as having enough money in retirement or a home for a family and all that comes with it. Because no immediate financial product sale is the targeted outcome financial planning, if done correctly, requires a fee to be paid for the advice.
Whether one uses a property as an asset for whatever reason or any other type of asset to accumulate wealth is a function of many things including personal attitude to money, financial risk, surplus savings and short term liquidity. As such property can be an enabler or it can be a millstone. It just depends on where you are starting from and where you are headed. So whether you should buy a property now, well it really depends on all your own personal issues and for that you need a financial plan.
And finally, one last question. Do you really want to buy property or are you still trying to keep up with the Jones’?