What Effect Are Cuckoo Funds Having of Ireland’s Housing Market?

July 9, 2021
Makayla Santino

Since 2018, cuckoo funds have bought greater than €6.2 billion worth of homes in Ireland according to JLL. Cuckoo funds are more officially titled Private Rented Sector (PRS) funds, which are supported by institutional investors such as pension funds. Cuckoo funds occur when these investors buy up a whole section of apartments, immediately from the developer, before they even reach the open market. 

The cuckoo analogy stems from the fact that these actions from institutional investors rob first time homebuyers of the opportunity to buy a unit within the large blocks of apartments for themselves. Instead of the units becoming open to individuals to buy, the big investors turn them into rental properties. 

Prior to 2017, these PRS investors only accounted for a particularly meager and insignificant portion of the market. Stakes quickly changed as a surge of cash entered European markets and returns on traditional assets diminished. These two factors in combination with Ireland’s tremendous demand for housing and high rents have led to cuckoo funds taking a larger role in the country’s housing market. 

Dublin is the region where these funds are having the most impact. A good portion of these arrangements are for apartment plans that investors finance up front. Without the funding from these investors, a lot of experts would agree that the apartments would not be built. 

Recently, Ireland’s government has tried to take some action in reducing the influence of cuckoo funds through the implementation of a stamp duty when buying properties in bulk. One of the exceptions to this policy would be apartments and houses acquired to be rented for social housing. 

Investments in rental properties have become a powerful component of the commercial property market. They now comprise a greater value of large-scale deals than shopping centers, factories, or offices. 

Just in 2021 so far, over €1.5 billion have been spent on residential property throughout Ireland. Of this total, housing being bought in bulk makes up over half. The biggest deals of the first section of this year have been from cuckoo funds. This includes a €200 million buy of apartments in Royal Canal Park, Ashtown, Dublin by Union, a German investment company. 

The head of research at JLL Ireland has stated that the international demand for property deals in Ireland highlights the issue of no short-term fix to the lack of housing supply that prompts increasing price growth and interest. 

With the state of Ireland’s housing market, these cuckoo funds are becoming more controversial. There is already a declining rate of homeowners. If major investors continue to buy up blocks of apartments to rent, the problem will continue to be exacerbated. The next few months will be important to determine if the government’s intervention will limit the numbers of cuckoo fund transactions.

 

References:

O’Donovan, Donal. “Cuckoo Funds Spent More Than €6bn Buying Up Irish Properties Since 2018.” Independent,ie, 7 July 2021, https://www.independent.ie/business/personal-finance/property-mortgages/cuckoo-funds-spent-more-than-6bnbuying-up-irish-properties-since-2018-40623333.html. 

“Vulture Funds, Cuckoo Funds, and Co-Living.” auctionera, https://www.auctioneera.ie/vulture-funds-cuckoo-funds-co-living.

Leave a comment