Offshore money brings risks to Republic's economy, claims Central Bank
The dominance of offshore money in commercial property market creates new risks that they will import boom-bust cycles, sink house prices and weaken the banks, new research from the Republic's Central Bank shows.
The warning comes as two of the biggest property investors in Ireland since the crash, Green Reit and Starwood Capital, look to sell their vast holdings of mostly office blocks.
The Central Bank said foreign-financed funds are more vulnerable to negative shocks outside Ireland and may be more tempted to dump Irish assets in a hurry to pursue easier profits elsewhere or meet obligations at home.
"In general, the growing presence of non-bank investors to the Irish commercial real estate (CRE) market is welcome in terms of the diversification of funding sources," the report said.
"However, it has the capacity to have a negative impact on financial stability. Real estate investment funds (Reifs) with high leverage or high liquidity mismatch may try to sell off their assets in times of stress.
"Funds with high leverage may be required to sell assets if the cost of debt rises; for example, if global risk is repriced."
The report provided a breakdown of institutional ownership of CRE.
It found that Reifs and real estate investment trusts (Reits) mostly have financed their Irish acquisitions using equity or loans provided by shareholders or non-bank sources, with about half of the finance coming from overseas.