The amount of NAMA land under repossession which cannot be built upon Ireland was set a target of building 25,000 new residential units per year to elevate their housing stock shortage and meet the requirements of their growing population. In 2014 and 2015, 8,400 and 11,000 residential units were completed far short of the target. Due to the gap growing year on year rental prices and sales prices got more expensive, thus creating two major issues. Firstly, the rental market only gets bigger due to unaffordability of mortgages Secondly, increased repossessions as people struggle to keep up with repayments (up 200% in 2015 1000 compared to 333 in 2014).
Ireland during it’s the Celtic Tiger Era built an unprecedented 73,073 houses and 19,946 apartments. Alan Kelly, the environmental TD, called this a “false economy” as developers shouldn’t be expecting massive profits under the current circumstances. A new type of developer is needed, one interested in investing in the long term, social, affordable rental homes and sales homes. Irish construction is projected to be at €15 billion by the end of 2016, up from €12.55 billion last year. The construction economy is still only at 40% of the 2007 peak levels and well below the sustainable average 10-12% of the GDP. The Bruce Shaw report believes Ireland needs to be closer to the €20-24 billion, with construction costs increasing by 7% in 2016.
Irish developers and builders have found the old finance models of 100% loans from banks no longer apply. The banks will now only provide up to 60%, meaning developers have to find additional funding from third parties (mezzanine or equity partners) as well. The Construction Industry Federation (CIF) recently held a conference for over 200 developers, builders and contractors, to highlight the best ways to gain financial approval under the banking system “Construction Financing Options”. CIF believes there needs to be a strong change in the approach taken by the construction industry, when getting projects off the ground. Tom Parlon, CIF General Director, quoted, “Whether we like it or not, the old system of construction finance is dead. Most projects will need to make use of these new models if they are to move forward. The industry has been looking for alternative funding options. We now need to start utilising these more complicated financial structures.”
NAMA presently has 2,806 Hectares of land in receivership, which cannot be built on due to lack of transport, sewage and schools, along with 184,000 ghosts estates which either having planning permission or construction work has stopped. 60% of land in receivership is located in Dublin, Kildare, Meath and Wicklow, providing enough land for 80,000 new homes. Under the residential density guidelines a minimum of 30 to 50 houses per hectare, once construction can start anywhere from 84,000 to 140,000 new homes can be built. This land is vital to meeting the housing shortage as Ireland boasts one of the youngest populations in Europe with 53% aged from 24-64, and only 12% 65+ years of age. Irish developers and builders are no longer catering just for the Irish population, as Ireland attracts waves of EU and rest of world citizen’s year on year (9,000 EU citizens and 25,000 rest of the world in 2015).
I was very fortunate to work in the Dubai property market and watch a country take on the property bust head-on and build their way out of it, investors and developers continued to invest and build as it later cemented its status as the elite property market. If you count the delayed projects from 2015 there is a potential to add a further 46,000 new residential units to their already massive stock. Dubai due it’s ever-increasing expat culture has launched new ways to reduce the rental market and promote ownership. Schemes such as allowing payment of a new home over a 5 to 10 year period, By paying 50% upfront and then instalments each year, this reduces the financial stress and debt that comes from a mortgage. Cash buyers in Ireland represented 48% of the sales transactions in Q4 2015, so the opportunity and scope for developers to introduce such schemes are definitely apparent. Mortgages in Ireland during its peak was 114,600 applications and a total value of 32 billion Euros, 2015 levels were 26,756 and 4.7 billion Euros. Presently under the new mortgage regulations, new applicants are looking at an average of 50,000 Euros for their deposit, whilst paying a monthly rental fee. The Rental Market in Ireland 5 years ago had 16,000 properties available, last year 5,200 and now 3,600 causing rental prices to increase by 9% in 2015, 10.7% in 2014 and 6.7% in 2013. Outside of Dublin, areas such as Cork (15.4%), Galway (13.3%), Limerick (12.4%) and Waterford (10.3%) saw the biggest increases. In terms of sales price, the national average has now reached €210,000 up from €198,000 in Quarter 1 2015. Dublin house prices are up €91,000 (41%), since its low point mid-2012, followed by Cork up 14.9%, Galway 14% and Limerick and Waterford (both 18%).
The latest 2016 Construction Information Services (CIS) report predicts that €1 billion is already in planning permission in Dublin alone, followed by rest of Leinster €600 million, Munster €500 million, Connaught €120 million and Ulster €100 million. On top of this, Munster leads the way with residential units awaiting planning permission with 650 million, followed by Leinster 450 million. Only just over 2,000 residential units are currently in the building stage, 1800 in Dublin, 990 Leinster, 400 Munster, and Ulster and Connaught 200 combined (up 72% compared to last year) Residential units granted planning permission will add a further 3,900 to the market worth a combined €480 million. Ireland, unlike Dubai, also has to contend with the new Paris agreement on increasing its energy efficiency on new residential and commercial builds, the Green Building Council has given Ireland one year to submit its “natural renovation strategy” as well as meet the new standards outlined by the 12 European Councils under the “build upon” initiative, saving up to €195 million in energy costs, by 2020.
Dubai adopted a very proactive construction approach from the early onset, placing their trust in the belief the property market would bounce back and they would be at the forefront when it did. This happened and now they are the standard-setter to the result of the world, Ireland did the opposite as construction dropped and developers and builders stopped building as construction costs rose and profits dropped. Despite previous interest from foreign developers, building costs and regulations have seen very few take up projects. The government needs to address and find a solution to attract foreign developers with stronger funding to assist in the housing shortage we are experiencing. Irish developers and builders could benefit from a different mindset and the experiences faced and overcome from other countries to bring about the required changes. Whilst not all Irish developers and builders have been shown to be very risk-averse, some developers have continued to battle the red tape and find finance to start new projects. Others have continued to remain quiet and use more active developers to test market conditions. The need to move away from the conservative approach and improve the financial, governmental and construction relations is imperative to set up mirrored and centrally agreed on targets and plans. Progressive thinking can be a key driver for Ireland, one similar to Dubai as it‘s normality for new Dubai residential developments to be 80% sold within a few months of the launch. The Dubai Government is very strict to developer’s delivering their originally submitted building plans, potentially facing fines for not delivering on them. NAMA recently discussed a construction commitment clause in all their sales contracts to make sure developers had the intent to build upon purchase and reduce the housing issue faced.
Source: Matthew Scott 4pm.ie