New homes: who is building what in 2014?
The recent rise in house prices and rents in Dublin is being fuelled by a lack of supply, particularly of family homes. Some building projects are well underway again – but can they really satisfy demand in the capital, and what can we expect?
Stocking Wood, Rathfarnham
The Grove at Hanstead, Lucan
St Raphaela’s Apartments, Stillorgan
The new homes market has been dormant for some time, but with property price hikes reflecting pent-up demand in some areas, there are clear signs of activity in the capital. As the traditional spring selling season kicks off, what are the trends on the new homes front?
Firstly, brand new developments are rare, and most new launches tend to be additional phases of existing developments – College Square in Terenure and Hanstead in Lucan to name but two.
Secondly, some commentators argue that there simply are not enough new properties being built. The Construction Industry Federation (CIF), for example, is forecasting total construction this year to be of the order of about 10,000 units in the Republic, up from about 8,000 last year.
But according to Hubert Fitzpatrick, director of housing and planning services at the CIF: “In the region of 20,000-25,000 new units are required annually to cater for demographic growth and the population generally.”
He adds that the lack of development comes down to a shortage of development finance; the perceived difficulty in securing mortgage finance for homeowners; and the all-in construction costs, which can exceed the market value of a development.
“There is still a mismatch in terms of overall construction costs and sale prices,” he says.
Competition for land is another factor. Ivan Gaine, head of new homes at Sherry FitzGerald, says there is “really strong demand” for land among cash-rich builders and investors, particularly for smaller sites”.
For those without the cash, funding remains difficult. While banks may be willing to put up 60 per cent of development costs, this leaves a substantial shortfall.
As a result, many of the next generation of builders are being funded by private equity, as Helen Moore, director of new homes with Lisney, points out.
“They tend to buy small sites and funding is in the region of between €100,000 and €3 million per investor,” she says.
Nama is also providing funding for the completion of a number of developments.
Another issue at play is the strength of the rental market, with some developers opting to hold onto property rather than sell it on immediately.
For example, at the newly completed St Raphaela’s development in Stillorgan, two- and three-bedroom apartments are available to let from next month, from €1,375-€1,800 a month.
For developers who fear that the market value of the properties may still not meet the costs of development, such a move can be a long-term play.
One industry observer also notes that there may be an advantage in holding onto property, as the capital gains tax (CGT) exemption for seven years for property bought between December 7th, 2011 and December 31st, 2014, also applies to residential property.