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Wednesday, March 28, 2007

Woe Betide the Scaremongers and Doomsayers of the Irish Property Boom!

Praise the Lord and Pass the Ammunition!

When a leading spokesperson of the Irish property industry has to conjure up straw men, in a desperate defence of his sector, he is unwittingly revealing more vulnerabilities than apparently intended.

An article in last Sunday's edition of the Sunday Independent (25/03/07) by Ken MacDonald, Managing Director of estate agents Hooke & MacDonald, had echoes of Queen Gertrude in Shakespeare's Hamlet, reacting to to her alter ego's protestations of love to the king in the play within a play, with the line: "The lady doth protest too much, methinks."

As the Irish residential property market is begining to creak, it's not enough to have bank economists as cheerleaders but from the vantage of self-interested insiders, it appears that any questioning of the market's fundamentals, verges on high treason.

MacDonald wrote: Why do we allow scaremongers and doomsayers with unfounded pessimism and unbridled negativity dictate our thinking and blunt consumer confidence? The Irish economy is the envy of the world. Job creation is phenomenal with more than 7,000 new jobs being created each month - despite the gloomy attention given to periodic job losses in some sectors.

Unemployment stands at 4.1%, the lowest in Europe; there are 750,000 more people in the workplace than a decade ago. We have revitalised cities and towns, a conveyor belt of entrepreneurial business people operating successfully on a world stage, a rich cultural and artistic heritage, a vibrant talented young population, rising by almost 100,000 per year, confident in their own and their country's destiny. We should be celebrating our success on a daily basis. In any event, the Irish love affair with property will continue undaunted despite the knockers.

It would surely be something if we had found the philosopher's stone that would transmute our current good times, built on foreign direct investment, European Union transfers (we are still net beneficiaries from the EU budget) and a property boom, into a permanent prosperity.

Goodbody Stockbrokers - - Property-related taxes have been an especially important driver of tax revenues. While stamp duty is most visible in this regard, the biggest revenue gatherer is, in fact, VAT receipts from residential construction, which accounts for c.8% of total revenue. Goodbody estimates that property-related taxes have accounted for up to a third of the increase in the total tax take over the past two years. Property-related taxes now account for at least 17% of total revenues, up from 4% ten years ago. As the property market slows, the scope for further upside revenue surprises is limited.

The conveyor belt of entrepreneurial business people operating successfully on a world stage, is a delusion. It's one of those soundbites that provides the satisfaction of comfort food but has little shred of reality. We have our share of entrepreneurs but beyond, CRH, Ryanair and Digicel, how many other world-class companies, has the Celtic Tiger spawned?

On the world stage, we have certainly made a splash in one sector - commercial property investment - which amounted to €41 billion (equity and borrowings) in the period 2001-2006.

Irish Venture Capital investment in 2006 was €192m - equivalent to 0.024% of 2006 investment in overseas commercial property

The construction sector which has expanded from 126,100 people in 1998 to 281,000 today, is as big as the manufacturing sector, which has been underperforming, at a time when the global economy is in the fifth year of the longest sustained period of growth since the late 1960's. Some 17% of the private sector workforce are in the construction sector but we cannot engineer a permanent building boom.

Job creation is phenomenal with more than 7,000 new jobs..... This soundbite is trotted out by Taoiseach Bertie Ahern, Minister for Enterprise, Trade and Employment Micheál Martin and an army of parrots. It serves its purpose for those who haven't the breakdown.

The policy advisory agency Forfás, which reports to Micheál Martin's Department, said in January that employment growth in the Irish economy continued to increase in 2006, with construction, public administration, education and health accounting for 53,000 of the additional 83,000 jobs in the economy.

During 2006, employment levels supported by the development agencies (Enterprise Ireland, IDA Ireland, Shannon Development, and Údarás na Gaeltachta) increased by 5,927 to 305,062 – 2,913 permanent full-time jobs in foreign-owned companies, and 3,014 in Irish-owned companies.

Employment in Irish manufacturing rose by 2,900 in 2006, according to the CSO.

The balance of 24,000 jobs were in retail, distribution and services linked to domestic consumer demand that is built on the property boom.

Against a backdrop of a strong local and global economy, the 7% slice for jobs in the foreign-owned sector and Irish firms in manufacturing and internationally traded services, is hardly impressive.

Ken Mac Donald says that we should be celebrating our success on a daily basis...and...the Irish economy is the envy of the world. True indeed, and little factoids such as the 92% of Irish exports in 2006, which were made by foreign-owned firms, is just one of those little things that could be termed an inconvenient truth!

Comment - Irish Economy and Future of the Celtic Tiger: Putting a brass knocker on a barn door!

1 Comments:

  • The european property boom started in the uk in the mid 1990's. It cannot be sustained at current rates in the long term. Mr George former head of the Bank of England admitted recently to a parliamentry commitee that the boom was engineered and encouraged to stave off recession. No news to me. It is a policy which will have grave consequences for us all in the future when the debt is called in. The fact that the whole economy of a country is underpinned by houseprices(borrowing) is not good news.
    If the property market is so strong why are the developers and estate agents getting increasingly nervous every time somebody dares to state the obvious.
    This is because they know that the future does not look good and the signs are already there for those willing to see them.

    By Anonymous M. Hennigan UK, at March 31, 2007 11:24 PM  

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