The clear-out of defaulting developers is about to begin in earnest
NO ONE REALLY expects the bulldozers to be sent in to demolish the ghost estates which mar many of our provincial towns and villages since the collapse of the new homes market.
Most of the developers involved are either bankrupt or struggling to keep their heads above water. Few are in a position to finish partially completed estates because their banks won’t, or can’t, provide funding. The dilemma for the banks is whether to pump more funds into a scheme where homes will have to be sold at substantial losses.
The banks also have to look at the bigger picture. Every county in Ireland has a huge number of empty homes overhanging the market and, with a great many young buyers unconvinced that the new homes market has bottomed out, agents are making slow progress in clearing unsold stock. Estimates of the supply of new homes vary from 150,000 to 350,000 and, while a definitive figure is not likely to be available until later this summer, the odds are that the number is closer to the higher figure than the lower one.
The construction industry is playing down the number of empty or unfinished houses. It knows how hard it is to value ghost estates and half-finished houses in a distressed market where prices have been in freefall. The task can be even harder if the estate roads and gardens have not been completed and public lighting is not yet working. Undoubtedly, most of the bigger estates will end up with Nama which will have the job of trying to make money on them. Should Nama decide to sell some of these at serious discounts – bearing in mind that prices are already down 50 per cent – it will run the risk of offending any number of people.
For one, it could force rival developers to sell completed homes at a serious loss. It could also push those who bought homes in the same estate into significant negative equity. Any drastic action by Nama could undermine the new homes market for years.
The problems also have implications for local authorities. The likelihood is that they will have to take some of these ghost estates into charge and take responsibility for the public areas, as well as services.
It is hard to believe that city and county councils don’t know how many ghost estates or partially built houses and apartments are in their areas. This is surprising as the same local authorities have for years been relying on financial contributions from developers for much of their revenue.
A team of planning and housing experts is looking at the problem. By the end of the summer we should have a clear picture of the extent of the oversupply and the viability or otherwise of many of the ghost/unfinished estates. Some estates will be demolished but, with an estimated 100,000 families on local authority waiting lists, there is scope to bring the majority of these estates into full-time use even if it means that most of the homes will be occupied by “social” tenants. Not ideal, but families desperate for a home will be happy to move in. It worked in the 1950s, 1960s and 1970s so why can’t it work again?
Despite all the hullabaloo about Nama, it has only managed to haul in the 10 biggest developers so far. It has proved a cumbersome process. With hundreds of developers in default the exercise could take years to get down to those with more modest loans.
Not surprisingly, some of the banks have opted for a faster route and are getting approval for the appointment of liquidators to put unsold apartments and houses on the market in the coming weeks. In some cases the plan is to sell entire blocks of apartments in one lot, in other instances the newly built homes will be sold individually at reduced prices. The banks don’t mind the tag “fire sale” if it brings in much needed funds.
Property commentator Bill Nowlan has spotted the change and says the situation is getting worse for many developers. He reminded the conference of the Irish Planning Institute that there was a hiatus in the banking world during 2009 while the banks fought for survival. But the gloves were now coming off. “The clear-out process is starting in earnest and the receivers and liquidators are getting fresh instructions daily – and you ain’t seen nothing yet.” He said that far from being an isolated incident, the recent fire sale of apartments in Mullingar indicates what receivers do.