Inflation has sparked a surge in investors snapping up properties as a "hedge" against the rising cost of living and the risk of a recession.

One leading estate agent reported that 42% of sales were to investors last month – three times the national average and over five times the 8% rate a year ago.

Dublin auctioneer Owen Reilly said: "A lot of these people are looking for a hedge against inflation. They’ve got money and are investing through their pension with cash funds they have and looking to get some income."

Buyers are also benefiting from a booming letting market, with rents rising by 12% a year. Property prices are still rising by more than 12% a year despite the European Central Bank raising interest rates from 0% to 2% since July. More interest rate hikes are expected soon in an effort to cool eurozone inflation.

Investors are mostly targeting Dublin 4 and 6, with many ex-pats also looking for a foothold in the city and families outside the capital looking for a base or for when children go to college.

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Mr Reilly added: "Some of it as well is children at college, buying instead of renting, the rental market is so dysfunctional. Primarily, it’s people who sold businesses recently or came into money or are sitting on cash that’s being eroded by inflation and they’ve decided to buy a property as a hedge against that."

He pointed out that spare cash in a bank account is losing value as inflation is at a near 40-year high of 8.2%.

Mr Reilly believes over the whole year about 30% of his sales will be to investors – up sharply from as low as 20% last year. He admitted the trend was not typical across the country but was being seen in some parts of Dublin especially.

He said: "We’re seeing people you’ve never heard of who sold businesses for €10million, €20million, €50million, and it makes sense to put some of that into real estate. It might only be a small proportion, but that is a big trend we’re seeing."

Despite rising interest rates and uncertainty over future property values, investors are looking at the strong rental income from letting property now, as well as property prices still rising.

Mr Reilly said some of the investors were also thinking ahead. "Initially they are going to get a return on the money and they might get more use out of it in the future to have a base in Dublin when the children go to college," he said.

Many of the investors are Irish families overseas looking for a foothold in Dublin and others living far from the capital who want a base in the city, he said. Almost half – 42% – of Owen Reilly’s sales were to cash buyers.

In a market report, the agency said: "October was another very active month with strong demand from motivated buyers. Surprisingly our average selling prices were 8.5% above average asking prices compared to +4.7% in September."

The investment trend has accelerated in the past two years and began as a reaction to Covid. But another leading estate agent has seen three times more investors leaving the market than buying. A spokesman for Sherry FitzGerald said: ‘13% of purchasers in Ireland were investors, whereas 36% of our vendors were disposing of their investment property."