Overseas investment in property can aid recovery
OPINION:Property specialists in partnership with foreign direct investment firms are capable of playing a role in economic revival
THE RECENT announcement that 500 jobs are to be created by Eli Lilly is not simply a single piece of welcome good news in the midst of gloom. It followed the earlier decision by PayPal to create 1,000 posts and recent recruitment by MasterCard.
Moreover, major players such as Google, Bank of New York Mellon, Citigroup, and Facebook are seeking additional office space in Dublin.
With declining property values comes a new competitive strength in the search for foreign direct investment (FDI) – affordability. Added to the traditional attractions of our skilled workforce, and low and stable corporation tax rate, this gives those selling Ireland abroad something tangible to discuss.
And it’s working. Recently, the Government welcomed a visit from Xi Jinping, the man most likely to be next president of China, a country that could be a substantial investor.
In the past month Taoiseach Enda Kenny has made two visits to the United States to show that Ireland is open for business.
But amid signs that investment is coming there is an immediate problem. Those that would traditionally provide high-spec accommodation for international corporations are typically on their knees, engaging with the National Asset Management Agency and other lenders to work through their problems. Many are not able to finance and develop the type of accommodation needed if we are to take advantage of demand.
It is, I believe, an appropriate moment to talk about the need for FDI in the Irish property sector. Such direct investment in Irish manufacturing and the services sector has been one of our great success stories.
I spent much of my life working in the IDA and have seen its benefits at first hand.
Now, 50 per cent of the jobs in manufacturing are in FDI firms and we are on the way to the same or better in the services sector. Intel, Microsoft, Google and others have a core presence in Ireland and are crucially significant for us in these difficult times.
Part and parcel of the marketing package to highly attractive companies such as these is a ready availability of suitable accommodation.
There is a view that there is an overhang of completed buildings across all parts of the property sector. This is wrong, particularly in relation to buildings for firms entering the market in key urban centres throughout Ireland.
Appropriate buildings for new firms need to be developed to a standard and fit-out that requires financial investment.
This is urgent. Large new office buildings take three years to deliver – one year to design and two years to build. International service companies such as those IDA Ireland is now attracting move very quickly. Without the accommodation, we won’t get the FDI.
We should now recognise that Irish banks and institutions will not be in a position for some time to fund the required investment. Foreign funding into property by financial institutions capable of supplying debt as well as equity capital would be welcomed given it will likely take a long time for Irish banks to lend into the property sector again.
Generally, this is a time for a new beginning and a new attitude to the development and construction sector.
The sector reached an unsustainable level at the height of the boom when it accounted for 42,000 additional jobs in the two years to 2007, compared with 12,000 in the industrial sector.
But now there is no argument that the sector, having lost more than 160,000 jobs between 2007 and 2011, is too small for our economy. Irish construction can be sustainable at the average level of European Union countries, employing 75,000 more than it now does. Achieving that will not take place overnight.
What is required is overseas direct investment from companies that acquire Irish property assets and then grow them over time to an EU average level of construction activity.
What that also means is that these FDI companies should partner with (much chastened) Irish property people to deliver the required result. Overseas direct investment will inject confidence into Irish property, much needed capital into the sector and commence the process for Nama to offload some of its portfolio.
The Government jobs initiative is dependent on large-scale additional employment. Recovery in construction is capable of generating a considerable number of jobs – not everybody can be (or wants to be) a software engineer.
In the days of the boom development was seen as an end in itself. Now we know that development must be sustainable and is only a means to an end: the provision of sustainable employment for those who live and work in what is built.
The demand for quality building is apparent now and we urgently need the foreign investment and domestic expertise required to meet that demand.
Kieran McGowan is chairman of Property Industry Ireland and a former chief executive of IDA Ireland