Viability in Provincial Ireland

Competition for Dublin’s remaining prime development sites has been at fever pitch for the past three years, so it is perhaps unsurprising to see Savills advertise a strategic 5.91 acre site in the heart of Dublin’s docklands as “one of the last remaining development sites” in the area. They are not wrong. While the land is available in lots, the combined price tag of €110,000,000 means that it will be inaccessible to the majority of homebuilders in and around the capital. But it raises an interesting question, when these big development opportunities finally hit the market, do they effectively free up some of the smaller scale residential sites for home builders? For example, in The Irish Times earlier this week, an in-fill site for two houses came up behind The Merrion Hotel in Dublin 2 (through Robert Colleran Property Consultants). Outside of the capital, we are also seeing an increase in zoned lands and partially completed developments come to the market. This would certainly seem to indicate that – despite continually rising construction costs (up 3% in Q1 2018 according to the SCSI) – house building is approaching levels of viability in parts of the country.  If this is true, then it is only true in pockets of provincial Ireland where house price growth is significant.

The latest figures released by the Central Statistics Office highlight that house price growth outside of Dublin remains higher than in the capital – but only marginally. Prices increased 12% in Dublin over the past year and slightly in excess of  13% throughout the rest of the country. Is this enough to make existing schemes viable?  Probably not. Even within an hour of Dublin, three-bed semi-detached houses in towns around South Kildare, Laois and Carlow are still selling for approx. €50,000 below build cost and any development of this nature is only being undertaken by well-funded developers with a strategic interest in returning to these sites. In most market towns, the only viable development is for family homes priced from €400,000 to €500,000 upwards and where there is some degree of pent-up demand. This is not good news for first-time buyers and for those buyers and private investors with average budgets.

It seems almost contradictory that any new developments in larger urban centres, selling off-plan, are sold out within days or weeks of launch (and some, within hours of launch). If we were dealing with another asset class, we might deduce that the price point is simply too low for such premium demand, however, the Central Bank lending rules (3.5 times income) really seem to be biting this quarter and estate agents are, only now, feeling the impact of these rules for the first time. It is a cliché to say that there is no silver bullet, but…

Ian Lawlor
086 3625482

Director / Business Development
Lotus Investment Group