Opinion Piece: Eamonn Spratt - Chairman of REA
9th January 2017
What a difference a year makes, with property agents around the country all predicting rises for 2017 that would indicate a return to a functioning market.
But while a national average increase of 6.1pc seems healthy and consistent, and in no way indicating a bubble, we could be facing a vastly different situation in 12 months' time if the current supply does not change.
The Irish Independent Real Estate Alliance survey shows optimism in the market, with the return of first-time buyers to viewings, thanks to the easing of the Central Bank deposit restriction and the Government's Help to Buy scheme. However, they will compete with people trading down for a limited supply of mostly second-hand stock, unless the Government instigates Help to Build measures for developers.
New home building will not take place unless the barriers are lifted, which at the moment are preventing developers from entering the market. Developers will have to be encouraged to build in areas where it is not yet viable, but demand exists - and the State has to intervene to allow that to happen.
For the first time in eight years, our members are seeing builders looking for suitable development land. Our members have received feedback that developers are finding construction finance difficult to procure.
Nama chairman Frank Daly recently confirmed it may fund 20,000 residential units by the end of 2020, subject to commercial viability. About 78pc will be delivered in Dublin, and 15pc in commuter counties such as Kildare, Wicklow and Meath - and it will be profitable for builders to construct in these areas, with selling prices in excess of the building cost of €200,000. However, just 7pc of housing will be delivered outside the Greater Dublin area, where the issue now is financing to fund construction - especially in areas where the house price is substantially under that break-even level.
Our agents in Cork and Galway cities have noted a lack of new developments coming on-stream, which should be a warning for the rest of the country. House building in 2017 will not just be about the price that can be obtained - the path to breaking ground must be cleared for development to take place. Until the procurement process is speeded up and the provision of services to zoned lands enhanced, this vehicle won't get out of second gear. There are several factors at play.
In areas where it is profitable to build, we have zoned lands, and developers can't get the required services due to having to deal with multiple agencies.
Some local authorities are looking for payments upfront whereas previously, an insurance bond would suffice. Councils also need to introduce a phasing of upfront monies to include development fees and contributions. Concerted action can be taken in these areas to address a supply issue which is approaching critical in some places - for example, there are only 62 properties for sale in the Tallaght area at the moment.
The market has also seen an increase in people downsizing. However, we need a supply of people trading upwards, which is where the Central Bank's deposit restrictions and multiplier limits have hit the second-time buyer. The person who wishes to trade up and leave the smaller home which the downsizer now wants, is finding it difficult to secure the finance to do so.
Eamonn Spratt is chairman of the Real Estate Alliance