Cost of land rising faster than price of houses

The cost of residential development land outstripped house price inflation in 2004, according to the Irish Auctioneers & Valuers' Institute (IAVI) annual review and outlook.

Development sites in Dublin were commanding prices 13 per cent ahead of 2003 at a time when the price of an average three-bedroom semi-detached home in the city rose by 9.7 per cent.

IAVI chief executive Mr Alan Cooke said a survey of its 1,800 members indicates that builders remain confident about the outlook for the market, despite analysts' warnings last year that supply was likely to overtake demand. Higher residential densities also played a part.

House price inflation slowed, particularly in the new homes market, according to the survey, although Dublin still recorded "healthy" levels of 7.5 per cent or higher.

Elsewhere in the State, new home prices were strongest in Munster and weakest in Connacht.

In the second-hand market, prices held up better, in many cases growing at a faster rate than in 2003, the survey indicates.

The IAVI is forecasting an easing of house price inflation this year with a rise of 6.3 per cent in Dublin values, just ahead of Munster (6.2 per cent) and the rest of Leinster (5.6 per cent). Connacht homes should rise by 4.4 per cent on average, it says.

"As the rate of price growth slackens, location is becoming an even more crucial determinant of value for residential properties," said Mr Cooke.

Rents continued to slide in 2004, the IAVI says, falling by 4.4 per cent in Dublin and 2.1 per cent elsewhere in Leinster, after declines of 4 and 2 per cent respectively in 2003.

Estate agents expect rents in the capital to fall again this year but by a more moderate 1.4 per cent with little change elsewhere.

The institute said residential investors remained active in 2004, as continued net immigration is expected to bolster demand in the short-to-medium term.

"However, net rental yield appears to be at an unsustainably low level, if price growth continues to slow and thus reduce overall return, and something has to eventually give if this sector is to remain a viable investment option," it states.

In the commercial sector, pubs had a predictably poor year in the wake of the introduction of the smoking ban, although not as bad as some had expected, especially outside Dublin.

In the capital, prices fell by mid-single digits. Elsewhere, retail continued to be the best-performing sector and agents expect this to continue in 2005 with rents and capital values increasing by 5.7 to 7 per cent.

Industrial and office markets will again perform modestly better, according to the IAVI, with the Dublin office market recovering from a poor 2004.