Property price falls end Irish party

reland has already seen its religious orders selling off land. Now it is the members of some of the country’s exclusive golf clubs who are voting to cash in their greens and fairways to make way for new housing.

Some clubs have pulled off attractive deals with developers, but others may be too late to the party amid signs the Irish property boom has come to an end. Gerard McDonnell of Pembroke McDonnell estate agents believes the reality is rather worse. “Prices are down 10 per cent and that’s if you get it,” he says.

The debate now is whether the country can engineer a soft landing – as most local commentators believe – or be plunged into an economic recession which some outside analysts think will be hard to avoid.

The general economic backdrop is certainly worsening for Ireland, one of the best performing European economies of recent years. Gross domestic product contracted by 1.4 per cent in the second quarter, giving a year-on-year growth rate of 5.4 per cent, compared with 8.1 per cent in the year to June 2006, according to the Central Statistics Office.

Any slowdown in the US economy would have a big impact in Ireland, which relies on the US for 18.5 per cent of its exports, even more than the UK at 17.4 per cent.

Construction activity has been a big part of the growth rate in recent years, and the industry accounts for quarter of those in work.

Figures out last week from the Permanent TSB bank and the Economic and Social Research Institute suggested house prices had fallen 3.3 per cent since the start of the year.

House builders are starting to react, with the pace of completions slowing. The Construction Industry Federation says that while in the medium term the economy requires 65,000 houses, negative sentiment means as few as 25,000 homes will actually be built in the first half of next year. “It is imperative therefore that confidence be restored sooner rather than later so that a serious shortfall in housing completion numbers does not arise,” says Hank Fogarty, president of the federation, which wants cuts in stamp duty in the December budget.

Any listed company with an exposure to the property market has seen shares fall. McInerney, the house builder, is down. Fears about a housing slowdown, and the effect that will have on mortgage business, has resulted in volatility in Irish bank shares.

The central bank last week cut its forecast for economic growth for next year from 4 per cent to 3.25 per cent, in part due to the slowdown in construction.

But Tom O’Connell, assistant director-general at the bank, broadly welcomed the changes and said house price growth was now at more sustainable levels, and also pointed out the strong 12 per cent growth in rents.

“Rents had fallen for several years. With the fall in house prices, and the rise in interest rates, first-time buyers are probably holding back a little bit, and going into rental accommodation. But it does confirm there is a reasonably strong underlying demand reflected in the rental market,” he says.

Melanie Averall, analyst with Moody’s, the credit rating agency, in London, says: “With the important housing market showing signs of cooling one can also anticipate household spending taking a knock.”

In other markets such as the UK, during times of booming house prices consumers have used equity release – using rising house prices to increase the size of their mortgages – to finance credit-driven spending. Now house prices are falling, one might expect consumer spending to fall in line.

But Vincent Hogan and Pat O’Sullivan in a report for the ESRI published last week, say that “if households have not used household wealth for personal consumption purposes to date then personal consumption would remain unaffected by a fall in house prices. This would imply that the recessionary effects of a decline in house prices would not be as severe as might otherwise be expected”.

One direct impact of slower house sales however is that the government will collect less tax. Figures last week from the department of finance show that tax revenues fell in the first nine months by €490m ($692m, £339m), the bulk of which is explained by the fall in stamp duty on houses.

Brian Cowen, the finance minister, is predicting a small budget deficit of up to €1bn for the year, against a forecast surplus of €500m