DUBLIN Five years after a huge property crash devastated the Irish economy, prices are finally stabilising, but a booming urban market where supply is scarce and competition fierce is raising concerns about a new bubble in the capital.
House prices quadrupled on a decade of easy credit during the boom years that earned Ireland the sobriquet Celtic Tiger, then fell by more than half from 2007, leading the country into an EU/IMF bailout, a costly bank rescue and leaving almost one in five homeowners behind on their mortgage payments.
While prices began to rise again annually in June, some urban pockets are driving the recovery, with properties in Dublin being sold for 8 percent more than a year ago and higher still in affluent areas where 30-somethings outbid one another.
Having built the wrong stock in the wrong places during the boom - huge apartment complexes and out of town housing estates - there is now a big lack of supply in the capital and need for a battered construction sector to take the heat out of prices that some estate agents say are rising by 1 percent a month.
"There's an element of craziness creeping back into it where people are getting frantic," said Scott, a 37-year-old father of two young children, after wading through the crowds to view a four-bedroom, semi-detached house in leafy south county Dublin.
"Friends of mine have bought and gotten into bidding wars. It feels like the olden days; it's kind of wrong."
It is families like Scott's, among the 305,000 households living in rented accommodation - twice more than five years ago - that are primarily behind the surge in demand, having waited patiently for prices to find a floor.
But the dearth of supply means the level of transactions has barely risen, and with cash buyers snapping up every second home, only one in every two mortgages approved are being drawn down, keeping Ireland's stricken banks from reaping the benefits.
Property consultants Savills Plc (SVS.L) say 20 percent of its buyers are from abroad - mainly Irish residents keen to move home - piling even more pressure on frustrated domestic buyers.
In Dublin, the number of properties for sale has more than halved to just 3,000, research from Ireland's biggest property website Daft.ie shows, giving rise to year-on-year price hikes of over 12 percent in sought-after spots.
"If you've got rapidly rising prices, up by 10, 15 percent year-on-year, something's wrong," said Daft chief economist Ronan Lyons, who sees further annual rises of between 5 and 10 percent as quite possible until more supply arrives.
"If you decide tomorrow to build, it's still going to be 18 to 24 months before we actually get the supply, so if things are already as bad as they are now, that's worrying."
New builds are rising in Dublin, but from a very low base. Only 72 extra units were begun in the first five months of the year, but even that was a 25 percent year-on-year jump.
House completions throughout Ireland also hit a record low of just under 8,500 last year, down from an unsustainable 93,000 in 2006 but just a third of the 23,000 built on average a year during the 1970s, when Ireland was a much poorer country.
In a country back in recession, conditions for a renewal in house building are poor - construction costs are rising and finance for developers scarce. Finance Minister Michael Noonan is keen to use his upcoming budget to stimulate the sector, but many of his colleagues want him to ease up on austerity instead.
The state-owned National Asset Management Agency (NAMA), the "bad bank" set up to rid banks of soured property loans, will also have only a limited role to play as much of its stock of residential properties in need of completion are the apartment blocks and "ghost estates" that litter the countryside.
Ireland's big builders have mixed views. The incoming chief executive of CRH (CRH.I), one of the world's largest building materials providers, told Reuters last week it was vital "not to overplay the Dublin hand", with demand small and sporadic.
The CEO of building and home improvement supplier Grafton GRF_u.I, however, said it was time to start building again now the "green seeds" of recovery were sprouting.
There are some signs of life among smaller players, too, according to estate agents who have begun to field inquiries into Greenfield sites for the first time since the crash.
"Developers have suddenly realised that there is a shortage of good quality houses in certain areas, so there has been a very strong focus on people looking for development land," said Michael Grehan, head of residential property at estate agents Sherry FitzGerald.
"How else do you get more supply out there? A lot depends on the type of stock that comes into the market from the banks."
Lenders long-overdue response to the country's crippling mortgage arrears crisis may hold the key to freeing up supply in the short term. Repossessions are set to increase from near non-existent levels after changes to the law, while some struggling homeowners may take up options to trade down.
How exactly this plays out and crucially whether it will unearth any prime Dublin supply is the big unknown.
Either way, Dublin needs targeted supply, and fast. A second property bubble in a decade, albeit confined to a few particular districts, would be unthinkable as Ireland emerges from its bailout.
"None of us want to go back to where it was; it's not sustainable," said Grehan.
(Editing by Will Waterman)