New homes on outskirts of Dublin will be best buys of 1999

Like it or not, the cost of a new home will rise again in 1999. The rate of increase, however, will vary considerably in different sectors of the market and locations. Best off will be buyers seeking their first home on the outskirts of Dublin or in adjoining counties, where I predict price increases to be just about 5 per cent. Owner-occupiers are now reclaiming this market from investors. There will be up to 20 schemes to choose from, with attractive three-bedroom starter homes under £120,000. The best buys in my opinion will be found in Lucan, Leixlip and Blanchardstown. Popular coastal towns, such as Skerries, Rush and Bray, will be somewhat more expensive as values have been increasing more rapidly in these desirable locations.

While estate agents are expecting another bumper year ahead, we are daily challenged by the very many first-time buyers finding it too costly to enter the market at any level. I feel considerable empathy for countless couples having difficulty getting started on the ladder. On a positive note, the Government's response to the Bacon Report will unquestionably continue to have a worthwhile impact. The rate of increase in prices is definitely slowing down and the future outlook for young people buying will be further eased by another fall in interest rates, cutting down mortgage repayments.

Last year in this column, I promoted the idea of reducing Capital Gains Tax on the disposal of development land to 20 per cent for a defined short-term period. I was glad this was incorporated into Charlie McCreevy's Finance Bill last April. The shortage of serviced building land has continued to push up prices. This move will ensure that more land comes on the market in 1999.

Now, I feel a further measure must be provided to aid first-time buyers. The Government could forego the VAT they collect on new homes purchased by first-time buyers. In addition to many other taxes, many are unaware that the state charges a 12 per cent levy on all new homes built. This tax amounts to £15,000 on a home costing £120,000 and naturally pushes the selling price up accordingly. In order to encourage more affordable housing, VAT should be abolished on starter homes costing up to a ceiling of, say, £125,000. Developers would be encouraged to build more homes in this price category, for which the demand is so great.

Investors are still participating in the residential market because of the low interest rates offered for cash on deposit in banks and building societies. These buyers are opting mainly for apartments and townhouses in the prime suburbs south and north of the city. Rents have risen considerably, and there is a strong corporate market for short and long lets. In the rental market, it seems we are heading close to London levels.

Locations such as Blackrock and Clontarf may see spectacular rises in sale values, perhaps as much as 20 per cent, as demand far exceeds supply. Those aspiring to buy in Ballsbridge, Donnybrook or Ranelagh will be disappointed, as there are no new schemes in the pipeline for 1999.

Trading up to a detached luxury home will be extremely difficult this year, as spacious new four and five-bedroom houses in good locations have almost vanished. With land costs so high, builders are naturally opting for high density schemes when sites become available. Expect to see some well-heeled queues forming when upmarket schemes in Stepaside, Rathfarnham and Cabinteely are advertised in the spring.

Ross McParland is managing director of the Ross McParland estate agency.