Double take on large garden sites

Building on garden plots is coming back into vogue, as owners look to realise some of the value tied up in their homes. So what are the costs involved?

 

It could be a home for so-called boomerang children who need to vacate your house, but don’t want to move too far away. It could be a way of generating much-needed funds for your pension. Or maybe you want the cash to pay down your own mortgage.

Whatever the reason, building on garden sites is starting to come back into vogue, with homeowners – at least in the capital – once again looking to realise some of the value that might be tied up in their own homes.

“A lot of people are selling off their rear gardens,” says estate agent Felicity Fox. “If they’re sitting on an asset and it’s not going to destroy the main house, then it’s absolutely right; if it’s not going to make the main house a white elephant.”

One factor in the current rise in interest is parents looking to build a home for children who might wish to stay in the area but may otherwise be priced out of the rising market. Architect Denis Byrne expects the number of people building for this reason to increase. “That will become more popular,” he says.

In other cases, people who have had enough of poorly insulated houses might seek to build a new house in their garden for themselves, and sell the old house to pay for the cost of construction, says architect Eoghan Garland. Another case, he says, can be people inheriting a house with a site, which the former occupant didn’t want to develop while they were still living there.

 

Is it viable?

So what are the options if you have a large garden which, to use that much-loved estate agent phrase, has “development potential”? There are no hard and fast rules on what size plot is large enough to build on, but Byrne warns that the private open space – of both houses – needs to be of a certain minimum. The construction can’t eat away all of the garden space. If the extra space is found in the length of your garden, but you have no rear access, this may also preclude development, with Byrne noting that planning authorities don’t typically like so-called back-land developments.

“What they don’t like is if it has a very long back garden – you can’t normally build at the end of a garden if you have to go by the first house for access.”

 

Planning issues

“The main thing planners look for is a ‘fit’ with existing houses in the area,” says Byrne, noting that in general planners favour infill developments.

“Planners encourage infill housing as we are a low rise city and densification is of benefit to the city in general. They will usually take a positive view to a site within the guidelines discussed,” says Garland.

If a neighbour has already done something similar beside their house, this will improve your chances further. “Precedence is always very helpful for getting planning permission in the first place,” says Garland. Even if you intend selling the site, getting planning permission first can be a fruitful exercise, as a site without planning is typically less expensive given the risk that the developer may not get planning, or that there will be a delay.

If you already have planning permission on a site and want to change it – even if it’s just a tiny change such as moving the position of a window – remember that this could create a six-month delay, while a new application also opens up the possibility of objections from your neighbours.

 

The cost

You can expect a new build to cost in the order of €100 per square foot/€1,000 per square metre, so a 2,500sq ft house would cost about €250,000 or so to build to a fairly high spec, says Dublin builder Paddy Purcell. This is not the only cost; Purcell factors in another €50,000 for services, architects and engineers. Byrne notes that “costs are rising and you’d maybe even pay €1,500 a square metre for a standard straightforward house”.

If you sell the house on the open market, you can expect to pay a further 13.5 per cent VAT on the sale price. So you will need a further €81,000 based on a sale price of €600,000.

If you keep the house for your son or daughter, this VAT won’t be payable, although inheritance tax issues might arise. In addition to costs, bear in mind that construction work so close to your own house can be intense. “If I was doing it myself, I’d want to be away for a chunk of the work if I could, for about three months or so,” says Garland. The process may also throw up additional challenges.

“There are a few structural unknowns when you’re building directly next to an existing property. You could end up with minor cracking for example,” notes Garland, adding that boundary issues you hadn’t previously considered could come up during the planning process.

Sell off the land

Another option is to realise a gain on the land by selling it off. David Cantwell, a director with Hooke and MacDonald, is seeing “strong demand for infill sites”. Given the rise in land prices, the agent says a garden site can make anything from €100,000-€500,000, depending on its size, planning permission and location. A site with enough space to build two houses could range from €300,000 to €1 million.

But be warned that hefty asking prices are putting off builders. Purcell recently went to view a site in Raheny, north Dublin, with planning permission for a 2,000sq ft house. However the owner was looking for between €250,000 and €300,000.

“We couldn’t buy the site at that money,” he says, noting that the cost of building remains elevated.

Unless house values go up further, Purcell doesn’t think it will make sense to build on these plots given the high price of land.

“If you want to build two corner houses you’d need €1 million to fund it,” he says. “It’s very hard to borrow money from the banks on a speculative deal. The profit in it isn’t enough.” One way of reducing costs would be to cut VAT on the sale of new houses, which currently stands at 13.5 per cent.

While there have been intimations it could be cut to 9 per cent to boost the supply of stock, Purcell doesn’t think this will have an impact on the overall cost, as it would simply push the cost of sites up.

Another consideration if you wish to sell off the land is to remember that you will lose control over the development, which might be a concern if you intend staying in your existing home.

“They [developers] could manage to get planning for something you weren’t expecting, such as a dormer window or a bit of overshadowing,” says Garland.

 

Selling the property

Given the dearth of new houses, it’s unlikely that you will find it a challenge to sell such a house – depending on the asking price, of course. The downside for purchasers of such properties is that they often come with a tight garden space.

“Internal space is seen as more important so they tend to grab as much [as possible],” says Garland.