More than €500m build-to-rent sales predicted for Dublin in 2018

There will be more than €500 million worth of transactions in the multi-family and build-to-rent residential market in 2018, according to a new review of the sector by agent Hooke & MacDonald.

This would be a steep rise on the €280 million transacted last year, which was up on €250 million in 2016 and €220 million in 2015.

The residential investment market accounted for 13.5 per cent of the overall Dublin investment market in 2017, according to the agency, sharply up from 6.5 per cent in 2016. It predicts this sector is likely to constitute close to 20 per cent of all investment sales in 2018.

Examples of recent sales in this fast-growing sector include the Leona and Charlotte buildings at Honeypark in Dún Laoghaire for €132 million in the third quarter of 2017, and Kennedy Wilson's Q4 2017 purchase of 124 apartments at North Bank in Dublin's Docklands for €45 million.

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Hooke & MacDonald points to “opportunities” in the residential investment market caused by the housing supply shortage and recent budget increases in stamp duty on commercial properties from 2 per cent to 6 per cent. However, stamp duty levels remain unchanged for multi-family residential sales at 1 per cent for the first €1 million and 2 per cent thereafter.

Strong interest

“There is strong interest from new entrants and existing investors who had previously been looking solely at commercial investments but who are now turning their attention to the residential investment market,” the review notes. “Investment yields have compressed further due to demand outstripping supply.”

The fundamentals of the residential investment market are strong, according to the review, which points to a “significant under-supply of apartments in Dublin at present” for both the sale and rental markets.

It suggests a shortfall of about 150,000 apartments in Dublin, and demand from tenants for 12,000 new apartments per annum to be delivered.

“There are considerable opportunities for landowners and stakeholders to tailor their developments to provide high quality, design-driven build-to-rent stock required by investors and tenants.

“Build-to-rent projects are different in many ways to the traditional build-to-sell developments, including design, fit-out, management, resident facilities and communal areas. Investors judge the attractiveness of each opportunity largely on these criteria as well as location.”

Planning regulations

“Proposed changes” to planning regulations for apartment construction will assist “to a degree” in achieving a level of viability on some developments, according to the review.

However, financial incentives and the removal or reduction of VAT for a limited period is required “if a sufficient volume of new apartment developments are to be undertaken to meet demand”, especially in certain suburban and city locations where rental demand exists.

Hooke & MacDonald suggests that the cost and availability of sites for apartment developments, coupled with planning delays, are “significantly constraining factors” in the supply of residential accommodation.

“Forward sales and forward funding before or during construction of build-to-rent projects will accelerate in 2018 as this assists development funding and activity.”