Rent-only apartment schemes on the up but ownership declines

After years of few new apartment developments in Dublin, 2018 was characterised by the rise in their popularity, with planning applications lodged for thousands of new units – a trend that is continuing into 2019.

According to Kate Ryan, head of research for BNP Paribas Real Estate Ireland, investors ploughed almost €1 billion into Dublin's private rented sector (PRS) last year, buying out existing apartment stock for letting purposes and, more importantly, forward-funding new apartment development across Dublin.

In 2019 there are about 1,200 new apartments due to hit the rental market across seven major schemes, a figure that will likely be boosted by other new developments being snapped up by institutional investors during the year ahead.

With about 3,000 new Dublin apartments due for completion in 2019, it seems inevitable that the majority of these will end up as private-rented sector investments

A prime example of this is Glenveagh’s Herbert Hill, a development of 90 apartments near Dundrum shopping centre. Apartments in the development have been marketed for individual sale, however earlier this month the housebuilder reportedly revealed that its preferred disposal strategy for the development was by way of a single-lot sale to an institutional purchaser.

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With about 3,000 new Dublin apartments due for completion in 2019, it seems inevitable that the majority of these will end up as PRS investments, especially where the developments are large-scale and situated in close proximity to mass transport links.

At Grand Canal Dock in Dublin, 324 new homes are coming to the rental market this spring. Capital Dock Residence, a development of 204 apartments by Kennedy Wilson, launched in January. Standing at 22-storeys tall, it is the tallest residential building in Ireland, and rents for two-bed units in the development start at €3,300 per month.

Nearby, Six Hanover Quay, a 120-unit sold by Cairn Homes to Carysfort Capital, is also due to launch this spring, featuring one-bed, two-bed and three-bed apartments.

Outside of Dublin 2, the Comer Group launched Number One Ballsbridge, the most expensive rental scheme in the State to date, with rents starting at €3,850 per month for the smallest two-bed variant. The development features the best residents' facilities available in the market, including an 18m indoor swimming pool.

Towards the end of this year, the Cosgrave Property Group expects to complete construction of 430 rental units across two Dublin schemes. In Santry, north Dublin, they are constructing 216 apartments that have been sold to investors Round Hill Capital and QuadReal Property Group.

At Cualanor in Dún Laoghaire, south Dublin, Cosgraves’ Fairways development of 214 apartments is their second development due for completion this year in a location where the developer has already delivered 516 build-to-rent (BTR) units. It is likely that rents will be at a similar level to those sought for existing units of around €1,675 per month for one beds, two beds from €1,900 and three beds from €2,375.

In Dublin 14, Park Development's Fernbank scheme is now launching. Owned by Irish Life Investment Managers (ILIM), the first phase comprises 89 apartments, with one-bed, two-bed and three-bed variants on offer, prices starting from €2,350 per month for two beds.

Late last year, ILIM was refused planning permission to provide extensive communal facilities on the site, including a gym and residents’ lounges, in lieu of a permitted creche. It appears those facilities are likely to be provided in the development’s second phase.

The primary issue with new apartments is that a development is more financially viable as build-to-rent than it might be in the build-to-sell environment

The concept of investors snapping up large-scale apartment developments is not a new phenomenon. In reality, investors and landlords have largely driven Ireland’s apartment market for decades. This was especially true during the years when Section 23 tax reliefs drove the rapid delivery of new apartments in Dublin, although the investors were private individuals as opposed to institutional entities.

Landlords with one or more rental properties continue to exit the market according to agents, for various reasons including punitive income-tax rates and heavily increased regulation. Large-scale institutional investors are replacing them and while they have come under fire for buying up apartments that might otherwise have been available to owner-occupiers to purchase, this is an over-simplified criticism.

Developers’ greatly increased appetite for apartment development has almost singlehandedly been achieved thanks to the continued success of the BTR model since the first major forward-sale by Cosgraves of apartments in Dún Laoghaire in 2016. The primary issue with new apartments is that a development is more financially viable as BTR than it might be in the build-to-sell environment.

With 10 per cent of new developments allocated to social housing, the move to build-to-rent is a win for both the private and social housing markets

For example, one BTR development in Santry, north Dublin, that is currently working its way through the planning system has an estimated cost of around €340,000 per two-bed unit before the developer earns any profit. In the surrounding area, there are more than 20 two-bed units on the market for prices averaging around €250,000, but some start at €200,000.

The proposed development would never proceed as a build-to-sell project as there is evidently very little chance of the developer earning a profit on their development costs, not to mention the additional costs involved in selling the property once construction is finished. Therefore, if these units are built it is solely thanks to BTR, which is attracting institutional capital in search of long-term income flows from rents.

With 10 per cent of new developments allocated to social housing, it’s a win for both the private and social housing markets.

Many large build-to-rent schemes are being delivered in just one phase

There has been a major uptick in the pace at which developers are seeking planning permission for BTR units in the past four months. In all, following that relatively short period, there are more than 4,000 new BTR apartments working their way through An Bord Pleanála’s fast-track planning system, either in the form of an application or pre-application consultation.

The biggest BTR developments currently in pre-planning consultation are Gerry Gannon’s plans for 1,324 units in Clongriffin, Glenveagh Living’s 560-unit development at 1-4 East Wall Road, IRES’ proposal for 428 apartments at Rockbrook, Sandyford, and Platinum Land’s ambitions for 535 units at the former Cheevers factory on Coolock Drive.

The financial viability of a high proportion of these 4,000 units would be questionable in the build-to-sell environment, not to mention the fact that their delivery would have to be phased over a prolonged period, unlike build-to-rent, where many large schemes are being delivered in just one phase.

Currently there are about 850 properties advertised for rent in all of Co Dublin, some of which are short-term rentals or duplicates, but excluding properties that have been listed for over a month. There is no denying that the 1,200-plus units that will be added to Dublin’s rental stock this year alone by new BTR developments can only be a good thing in the context of the current housing crisis.

Ireland’s housing needs to continue to evolve. Home ownership levels are declining, having peaked at around 80 per cent in 1991, national home ownership levels stood at just under 70 per cent in the 2016 census, while in Dublin only around 60 per cent of people owned their own homes at the time.

With an increasingly mobile workforce, including a large contingent of international workers arriving to take up jobs at multinational companies, home ownership levels are expected to continue to drop and the demand for high quality, well-located rentals will continue to rise.

While there may be a steady supply of rentals coming to the market, and a growing pipeline of future supply, one question remains; for individuals intent on owning, what new apartments, if any, will actually be available for purchase this year?

Speaking to a leading developer, who is developing both build-to-sell and BTR schemes, the only apartment developments likely to come to the market are those of around 70 units or less in highly desirable areas that appeal to those trading down who can sell a house, buy a new apartment, and have cash left over.

One such development that fits this category is The Reflector, in Grand Canal Dock, where 40 apartments will go on sale this spring with asking prices starting in the mid-€500,000’s for one-bed units and the mid-€700,000’s for two-beds.