By John Spain

LAST weekend, the Sunday Independent had huge ads for foreign property. “My Kinda Investment, Chicago” said the headline on one skyscraper development in the Windy City which will be sold to Irish investors at a special two-day sales event in the swish Westbury Hotel in Dublin next weekend.

But there’s nothing unusual in that. Every weekend now we are flooded with offers of foreign property in all the papers. Last weekend I spotted one in The Irish Times for a development in Borneo!

So what’s going on? Ireland has become a nation of property speculators, that’s what.

These days, thanks to the Celtic Tiger, a great many people here accumulate spare cash on a regular basis and they don’t like to leave it sitting it in the bank.

Being unfamiliar with the complexities of the stock market, they turn to the tangible investment that everyone understands — bricks and mortar. And, given the way property prices have gone here in the past decade, who can blame them?

There are tens of thousands of people here — typically people in their 30s and 40s with steady jobs — who have turned themselves into landlords over the past five or 10 years. Those who got into the game five or six years ago have done very well indeed.

Rents have been strong, almost enough to cover the full cost of the mortgage. So after paying the initial 10% down to get the property, they sat back and watched the value of their investment soar. And all the time their tenants were paying the mortgage.

Of course, once you had one buy-to-let property for a few years and its value had soared, it was easy to borrow more money on the back of that and get another house. And it was easy to fill that with Poles or Latvians or just a young Irish couple who can’t get together the E25 or E30,000 in cash that you need to buy the smallest house.

Meeting people here who have managed to acquire four or five houses in this way is not unusual. And we are not talking here about the big boys, the top lawyers and medics and business people with serious money who join exclusive syndicates and get big tax breaks when they put their money in office blocks.

The people I am talking about are the ordinary guys, the plumbers, electricians, office workers, small business owners and so on who, having already bought their own house, were able to accumulate enough funds to buy more houses.

In the last year or two, however, there has been a shift in the market and in the attitude of this army of small time investors. House prices here have now reached such crazy levels that most people feel they are peaking.

At the same time, rents are flat because so many new homes have been built in the past two years there is a huge supply of houses and apartments for rent. Only the high level of immigration is keeping the pot simmering. But it’s not boiling anymore.

The yield on property in Dublin is now down to 3% or below, so you can do better even putting your money on deposit. And there are warnings every month or so from the state financial bodies that the market is overvalued and could even fall by 10% or more.

There’s a lot of argument among the experts here about whether we will have a crash of 20% or 30% in property prices or a so-called soft landing in which prices remain flat or fall just a little over the next few years.

One thing everyone agrees on, however, is that the average annual 10-15% growth in property prices in recent years is coming quickly to an end. In future, returns on property (rent and capital appreciation combined) will be just a few percent a year and could even be negative, if there is a downturn. So the easy money days in Irish property are definitely over.

One result of this is that the steady stream of Irish people looking abroad for property investments in the last few years has now turned into a flood. Hardly a week goes by now without a sales event in a posh Dublin hotel in which foreign properties are flogged to eager Irish investors.

These used to be new developments in France or Spain or Portugal. Then the market expanded further afield to Eastern Europe. Now it reaches to places like China, Canada and the U.S.

I’ve gone to a few of these hotel events and what goes on is incredible, a kind of feeding frenzy with investors crowding in to look at models of the development in Shanghai or Moldova or wherever, scanning the glossy brochures and listening to the sales pitch about guaranteed rents and how values will soar in the next few years.

Eager to find anywhere that will promise the same returns on property they have got used to in Ireland, guests sign deposit checks for thousands of euro. Many of them do so on the advice of those flogging the houses or apartments and they buy without even visiting where the development will be — some of them have only a vague idea where the country is!

Obvious questions never seem to occur to these investors. These developments are usually being sold by small Irish companies which work on an unspecified but large commission from the developer in Bulgaria or Turkey or wherever. Surely that must make the homes or apartments much more expensive than they need to be?

If they are such a sure bet how come they are not selling in their domestic market? If they are not holiday homes, can locals afford to rent them? And if they are holiday homes, how long is the season?

Is the typical two-year rental guarantee used to suck the investors in actually built into the selling price? Why do some of these developments appear to be marketed exclusively at the Irish? Is it because we are more gullible that buyers elsewhere?

The attraction of Eastern Europe had some logic to it, since these new countries in the European Union might be expected to grow rapidly to catch up with a place like Ireland. The reality is that growth is likely to be much slower over there and it may take years for property prices in Latvia or Slovakia to take off as they did here.

Even Germany and France are struggling to get growth going, although that has not stopped Irish investors buying dozens of apartments in places like Berlin. The motivation, of course, is the cheap prices.

You can get new apartments in Romania or Bulgaria for a small fraction of prices here and those countries are due to enter the EU next year, with Turkey due to follow soon after. Prices in spectacular Turkish locations are also very low.

But to make an assumption that prices there — or anywhere else in Eastern Europe — are going to shoot up based on the Irish experience is foolish. Yet thousands of people here, flush with money, are doing just that.

That may seem mad ... but what about the Irish buying apartments in Shanghai or Beijing? The attraction here is that China is the world’s fastest growing economy and the Olympics is heading there in two years. How could you go wrong? And there’s a rent guarantee of two years!

Once you look into it, however, you find that so many units have been built in Shanghai in the last five or 10 years (over a million in some estimates!) that there is now massive oversupply for the market there that can afford such rentals. Yet there are still ads in the Irish papers every weekend offering more and more apartments there. And the Irish continue to buy.

A look through the property sections of the Irish papers each week gives some indication of the crazy stuff that is going on. Apartments on the Black Sea coast or in “undiscovered” parts of Portugal or the “best parts” of the Caribbean, all with ocean views, golf courses, spas and so on attached are featured in full page ads.

An ad campaign like this runs into six figures and of course the cost is loaded on to the selling price of the development. So the punters pay to be sold the dream!

The biggest dream of all, of course, is Dubai. So many Irish are falling over themselves to buy apartments in the artificial city being created there on the edges of the desert that Aer Lingus now has direct flights.

Yes, it’s a different kind of holiday destination. But how many Irish people can live in the 40-degree (90-plus in Fahrenheit) heat that goes on for months?

And the pictures of the spectacular apartment blocks always airbrush out the ongoing construction all around. In fact the place will be a construction site for the next ten years.

On top of that, it’s all phony. Give me Marrakech anytime. As for buying in China ... what I want to know is where will these new Irish landlords get a plumber when the piping in their apartment in Shanghai springs a leak at night? And who will they call when the tenant skips a month’s rent?