OUTLOOK RESIDENTIAL PROPERTY - ISSUE 7. MAY 2014 - AIB
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OUTLOOK AIB’s Series Of Sectoral Research Reports. www.aib.ie/outlook ISSUE 7. MAY 2014. RESIDENTIAL PROPERTY In association with:
OUTLOOK
CONTENTS
Foreword The Need for Innovation
02 Ken Burke, Head of Business Banking, AIB.
20 decline in the number of people undertaking third-
A
level construction-related courses could undermine the
construction industry’s need to be more innovative,
Executive Summary according to Jerry Mehigan and Peter Flynn.
03 esearch carried out by Property Industry Ireland and
R
Sherry FitzGerald shows that while the outlook for the Improving Standards
residential property market is improving, there are many
challenges that need to be overcome. 21 ony Reddy discusses the Building Control (Amendment)
T
Act and its impact on standards in the construction
industry.
The Challenges Ahead
04 The results of the AIB/Property Industry Ireland Survey. Open for Business
23 IB is keen to support the development and construction
A
of new homes, says Mags Brennan, Head of Sectoral
Improving Consumer Sentiment Strategy, AIB.
07 emand for new housing is rising and first-time buyers
D
are driving it, according to a survey by Sherry FitzGerald Foundations for Growth
New Homes.
Stability Returns
24 T he Construction Industry Federation and its members are
now looking forward to a period of growth, according to
Hubert Fitzpatrick, Director of Housing, Planning and
10 otwithstanding the supply shortage, stability is now
N
returning to the Irish housing market, according to
Marian Finnegan of Sherry FitzGerald.
Development, CIF.
Developing Through the Downturn
The Outlook for Home Buyers 26
Despite the challenges of the marketplace, there are
many opportunities, according to Michael Pender of the
12
Jim O’Keeffe, Head of Mortgages, AIB, gives his view on
the outlook for the mortgage market.
Galway-based Kenny’s Commercial Holdings.
Socially Responsible
A Blueprint for Change
14 P roperty Industry Ireland makes the case for change in the
Irish construction sector.
28 T he importance of social housing in any national housing
strategy should not be overlooked, says Simon Brooke,
Head of Policy at Clúid Housing Association.
Planning for Change The Community Bank
16 L eading planning expert Tom Philips argues that the Irish
planning system needs significant changes before it can
become effective.
29 IB is playing an active role in building communities
A
around the country and supporting social housing needs,
writes Mags Brennan.
Fail to Plan, Plan to Fail Economic Viewpoint
18 T he Irish construction industry and all the relevant
stakeholders need a long-term development plan if
Ireland is to house its growing population and avoid the
31 number of leading economic indicators all point
A
towards a recovery and this should bode well for the
Irish housing market, writes OIiver Mangan, AIB’s Chief
mistakes of the past, says Mark FitzGerald. Economist.
OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014 1
OUTLOOK
FO R E W O R D
Supporting the Housing Market
W
elcome to the seventh in our series
of reports covering key sectors within
the Irish economy. The aim of these
reports is to analyse key components of
the Irish economic landscape and provide
opinion, guidance and advice from some of
the stakeholders within each sector. They also
provide some important insights into how
AIB is working to support these sectors. We
are pleased to partner with Property Industry
Ireland and Sherry FitzGerald New Homes on
the publication of the Residential Property
Sector Outlook Report.
An important part of these reports is the
research which for this sector has been
carried out independently by our partners.
The research results highlight a key issue
impacting the residential property sector
currently which is a lack of availability of new
homes in urban areas. This is attributed to
a fall in the development of new housing
in recent years. The research also points to
there being a lack of availability of viable Jan O’Sullivan TD, Minister of State, Department of Environment, Community and Local Government;
Bernard Byrne, Director of Personal Business & Corporate Banking, AIB and Ken Burke, Head of
development sites, development finance, Business Banking, AIB.
particularly equity finance and challenges in
the planning system. We recognise the importance of the property those looking to build homes or buy them.
sector to the creation of jobs, the supply of AIB is the market leader in mortgages and
The research highlights that there is a homes and the Irish economy. Indeed it is has a significant pipeline of fully approved
shortage of three or more bedroom houses, estimated that an additional 10,000 new jobs customers looking for suitable homes.
particularly in urban areas, and that the could be created in the sector in this year alone.
building of housing developments needs As we go to print the Government is just
to increase at pace to meet current and AIB recognises the importance of supporting launching its “Construction 2020” strategy.
future needs. Market estimates suggest that communities across the country and an integral We welcome the strategic approach the
between 16,000 and 20,000 houses will need part of this support is the provision of finance to Government is taking to the sector and look
to be built annually to meet current demand housing associations to help them in their efforts forward to working closely with Government
and population growth over the next five to provide much needed social housing. Very and key stakeholders to support the planned
years. The recent Housing Agency report little development of social housing has occurred initiatives and actions that will help the
(April 2014) on housing supply supports in recent years and current data would suggest recovery of the sector and the Irish economy.
the requirement for an average of 16,000 that there are more than 80,000 people on the
units/houses per annum across urban areas social housing waiting list. My thanks to our partners Property Industry
between 2014 and 2018. Ireland and Sherry FitzGerald New Homes
As one of the largest banks in Ireland, AIB for their support on this important initiative
Through the launch of our E350 million recognises that it has an important role to support the sector. My thanks also to
residential new homes fund this year, to play in supporting this vital sector, and everyone who participated and took the time
AIB is demonstrating its support for the its future growth potential. Through our to partake in the surveys. I hope you find this
development of homes where demand dedicated sectoral experts and relationship report useful.
requires it. Responding to demand AIB has managers across our branch network,
also mobilised three specialist new business business centres and corporate operations we Ken Burke
teams in Dublin, Cork and Galway. have the knowledge and expertise to support Head of AIB Business Banking
2 OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014
OUTLOOK
E X E C U T I V E S U M M A RY
BUILDING THE FUTURE
W
ith the Irish residential property sector now entering a period accommodation as rents continue to increase, particularly in urban
of growth and consumer sentiment improving, a number of centres.
factors are conspiring to inhibit the supply of much-needed new
housing stock, particularly in the key urban areas where demand is at There was a very large response rate to the Sherry FitzGerald survey
its highest according to two separate research studies carried out by but the participants and results are more Dublin centric as 78% of
Property Industry Ireland (PII) and Sherry FitzGerald, in association with respondents are looking in Dublin, 12% in Cork, 8% in Galway and 3%
AIB. in Limerick.
A shortage of suitable building sites around the country has been With house prices in many areas outside of Dublin at six year lows,
identified as one of the biggest impediments by developers to the investors are also keen to buy according to the survey. In Limerick, for
supply of new housing according to the PII survey. Other issues example, 16% of the respondents indicated that they were investors
identified by the PII include the availability of equity and development while this rose to 19% in Galway, falling to 11% in Cork and 9% in
finance and the need for changes to the Irish planning system. Dublin. Some 35% of these investors also feel there is good value to be
had in the market at the moment.
PII, which represents a wide range of firms operating in the wider
construction and property industry in Ireland, also noted that developers
are anticipating an uplift in overall activity once the programmed
disposal of appropriate sites commences by the banks and NAMA and
as developer finance becomes available. They also point to the growing
appetite of international investors and the introduction of REITs as
possible drivers of investment.
Likewise, consumer sentiment is also changing but with demand
outstripping supply in many areas according to the Sherry FitzGerald
Sentiment Survey.
This pent-up demand is largely being driven by first-time buyers who
accounted for almost half of the respondents to the survey and there
are small differences between the four key urban areas that were
surveyed. In Galway, for example, 51% of all aspiring house-purchasers
are first-time buyers while in Dublin they accounted for 47% with
Limerick at 46%. The majority of first-time buyers, at 79%, are currently
living in rented accommodation.
The demand for rental accommodation, due to the lack of supply of
housing stock for sale, is also negatively impacting the social housing
sector because more and more people are unable to afford rental
Some of the other key findings of the Sherry FitzGerald research include the following:
l 45% of house-hunters are looking for two/three bed houses l Over half the market have a budget of up to E350,000.
while 22% are looking for four bed houses. Just 8% are looking l Respondents believe that house prices are increasing and this is
for houses with more than four bedrooms. Semi-detached particularly noticeable in Dublin where 84% feel house prices are
houses are the most sought-after. on the increase.
l Almost three quarters are looking to buy within the next six l 73% of all respondents believe that Irish people will always want
months. to own their own homes.
l The biggest issue that people have is the lack of suitable housing. l When it comes to choosing a bank, the general perception is that
In Dublin, for example, 80% of respondents feel that there are the banks are lending and the most important factor is interest
too many buyers chasing the same houses. rate.
OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014 3
OUTLOOK
A I B / P R O P E RT Y I N D U S T RY I R E L A N D S U RV E Y
The Challenges Ahead
While the Irish residential property market is showing signs of recovery
the sector faces a number of challenges and hurdles if the sector is to grow
meaningfully over the next few years, according to a survey carried out by
Property Industry Ireland.
A
shortage of suitable building sites around agencies with operations in the main urban
the country, the availability of both
Methodology areas, are the most optimistic with most of
Between March 1st and 31st 2014, 200
equity and development finance and the them forecasting growth rates far in excess
businesses operating in the Irish property
planning system are just some of the topics of what would be the norm in non-urban
sector were surveyed online by Property
that are preying on the minds of companies areas.
Industry Ireland (PII). These included
operating within the wider Irish construction
builders, contractors, developers, estate
sub sector according to research carried out Within the property professions, architects,
agents, architectural and engineering firms,
by Property Industry Ireland (PII). planners and engineers are also upbeat about
asset managers and companies operating
the future trajectory of their own practices,
in financial, legal and accountancy services.
PII currently represents a broad range of with many of them believing that the
They were asked about the nature of their
large and small stakeholders within the Irish changes they made to their businesses in the
business, their views of the issues shaping
construction industry including developers, early years of the recession have positioned
the Irish residential property sector, and the
estate agents, and professional service firms, them for growth over the coming years as
outlook for their business in the year ahead.
including legal, architectural, accounting, development and construction activity gathers
A total of 55 companies completed the
planning, engineering and financial services. momentum.
survey, giving a response rate of 27.5%.
In many cases, these were firms that were
directly impacted by the downturn, some Planning practices, which tend to be some of
more severely than others. businesses operating in both the development the smaller businesses, are the most optimistic
and contracting sectors expecting to see a about the future as they to be involved at the
When asked about the prospect of an small decline in turnover this year with a more early stages of the development process and
increase in turnover for 2014, most of the promising outlook forecasted for 2015 as are therefore early beneficiaries.
smaller contractors and developers expect development projects get underway.
to see a modest increase according to the Other professional service providers, including
survey. However, the mid-sized developers and On the other hand, the country’s estate lawyers, accountants, bankers, and asset
contractors do not expect to see any growth agencies are a lot more optimistic according and investment managers, meanwhile, see a
in turnover during 2014 with many of them to the survey, despite the shortage of similar pattern to the market as architects and
saying it will be 2015, following increased housing in key urban areas around planners. According to the survey they believe
levels of activity this year, before turnover the country. According to the survey’s that, as confidence and indeed investment
increases. respondents, their businesses have already returns to the market turnover and business
undergone substantial re-structuring over the activity will increase this year.
Among the largest developers, however, past number of years and this year will see
sentiment was a little more bearish with many some growth, albeit from a low base while The Challenges
As the construction industry is large and
diverse, the issues facing the individual
“As the construction industry is large and stakeholders are many but often opinion can
be split as each sub-sector has its own unique
diverse, the issues facing the individual agenda and challenges.
stakeholders are many but often opinion However some consensus about the macro
challenges facing the industry revolves
can be split as each sub-sector has its own around the lack of suitable development sites
unique agenda and challenges.” throughout the country and, in particular, key
urban areas where demand is at its highest.
4 OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014
This is obviously a major issue and will have
a significant impact on the flow of much
needed housing stock over the coming years.
It is also a topic that is touched upon by other
contributors to this Outlook Report.
Other perceived impediments for developers
and contractors is access to development and
equity finance, an issue that is particularly
unique to developers and contractors.
According to the PII Survey, 85% of the
developers who responded to the survey have
made an application for finance during the
last 12 months. While contractors have made
fewer applications for funding, the survey
shows that a large number of the applications
made to the banks by contractors are also still
pending.
The survey also shows that of the developers
who have approached banks over the past
few months, there is an even split between
applications which have been approved in
full or in part, and those which have been where financing has been put in place, they impact of future Government policy towards
declined. However, it should also be stressed are experiencing complexity and rigidity in the sector. Many believe that the Action Plan
that a large number of the applications made the planning system and this is holding back for Jobs and the Construction 2020 Strategy
to the banks by contractors are also still development. This excess rigidity in planning report have the potential to overcome
pending. is echoed by contractors, who also point to some of the administrative blockages to
the lack of reform in the Irish planning system development but wider improvement for the
Not surprisingly planning also loomed large as a serious impediment to the growth of the sector could be “marginal” or “minimal” if
in the responses of many respondents to sector. some of the industry recommendations are
the PII survey with developers in particular not properly implemented.
of the belief that the current planning The survey also noted that developers and
system is a factor shaping the outlook for contractors, by and large, are supportive Within the property professions, meanwhile,
the sector. Where sites are available, and but somewhat sceptical about the potential the greatest issues facing the sector are the
availability of existing property, and public
perceptions towards the sector. Many real
estate agents who responded to the survey,
point to a lack of confidence among sellers.
In some cases, they believe, sellers are
holding off in anticipation of a higher price
as the market continues to improve. For
their part, buyers would also appear to be
uncertain about the future direction of house
prices.
It is also clear that while the domestic
economy is growing and unemployment is
falling, consumer confidence towards the
residential market still lags this growth and
this is also borne out in the Sherry FitzGerald
Sentiment Survey that is analysed elsewhere in
this publication.
In the case of asset and investment managers
that are actively involved in the sector,
most are concerned about the ability of
OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014 5
OUTLOOK
A I B / P R O P E RT Y I N D U S T RY I R E L A N D S U RV E Y
developers and buyers to access financing, The supply-chain in the residential property see opportunities to engage in master
noting that where there is an able developer sector is long and complex, and as the market planning and project design, as a larger
and a willing buyer, there is often an turns, so the business model of property number of potential clients prepare planning
unwilling lender. Nonetheless, they look to and construction firms must also change. permission applications and commence pre-
the successful introduction of REITs into the A number of developers and contractors construction stages of development.
Irish market and the growing appetite of foresee strong opportunities for the residential
international investors to assist in driving sector in the year ahead especially once the Of course businesses are not totally oblivious to
new investment into the Irish residential programmed disposal of appropriate sites the challenges which still face the sector. Many
property market. commences by the banks and NAMA and recognise that while the market is beginning to
when developer finance particularly equity improve, there may be a significant delay before
Developers and contractors, on the whole, are finance becomes readily available. this translates into business activity. Having
supportive but sceptical about the potential gone through a protracted period of what one
impact of future Government policy towards A number of contractors cite specific areas in respondent calls “crisis revenue” there are very
the sector. Indeed some property professionals which they expect to see growth, particularly few cash reserves in businesses left. The speed
including planners and estate agents believe healthcare and the refurbishment of property. and flexibility of businesses working in property
that Government intervention may be too Contractors also point to international and construction is notable.
late. Other strong future considerations investment stimulating construction activity
are expected to be lack of skilled labour, in the near future, as they are less reliant on Many challenges facing the sector are beyond
increasing costs and financial markets. traditional development finance, and are keen the control of individual businesses working
to commence on sites as soon as possible. In within it. Few businesses are able to dictate
The Opportunities addition, a large number of property services the speed of a planning authority to grant
The property sector is extremely clear that firms are marketing themselves to overseas permission for construction to commence.
there are a number of business opportunities clients, and working as part of consortia to Likewise they have no control over the
that can be seized upon in the year ahead harness international work. availability of suitable sites coming on stream.
and it is notable how prepared the sector is to The challenge for these companies is to
adapt its business models to reflect the new Elsewhere within the construction and maintain their viability during a period of
market realities. property professions, planners and architects uncertainty. l
Some of the selected comments from the participants in the Recognition by Government of the inter-connectivity of
“
AIB/Property Industry Ireland survey include the following: construction and the jobs market is a positive one. The Action Plan
for Jobs should help reiterate the importance of development in
The main issue facing the sector is the release of development
“ kick-starting and maintaining economic growth.” (Developer)
sites so that construction can commence. It is well-known where
there is a need for new development, but the question is how to There are limited growth opportunities until the planning system
“
unlock them.” (Contractor) is freed-up and Government directs local authorities to be more
commercial in dealing with landowners to getting zoned land to
The banks are engaging with the sector now. If we can present
“ development stage.” (Developer)
a logical proposition to them, I feel we are being heard. Perhaps
it’s not enough, or too late, but they are key to the future of the The market is strengthening and as we see more new buyers, we
“
sector, but I think they now realise how important they are.” will also see the commencement of good refurbishment schemes.”
(Contractor) (Architect)
For the housing industry to recover across the country, the
“ My business will return to growth rather than being reliant on
“
difference between the selling price and the total cost of building “crisis revenue.” This will help us invest for the future.” (Architect)
the house is so great, costs have to be reduced or prices need to
rise. As development becomes a viable business proposition, so the Based outside of the Dublin area, I would be satisfied if we can
“
shortage of sites will become an issue.” (Developer) keep consolidating properly, increasing production at a controllable
level which we can finance.” (Developer)
We need to look at the supply of apprentices and professionals,
“
to make sure we have the capacity and skills to deliver for the Build costs, and capacity within the construction sector to deliver
“
public.” (Contractor) are major challenges.” (Developer)
Planning red-tape and delays in planning decisions are holding up
“ This year, we are retaining staff by focusing on maintaining
“
the supply of property onto the market.” (Real estate agent) turnover.” (Developer)
Opportunities will come when we see bank disposal of sites, and
“ Need to reform cost of compliance with legislation and planning
“
bank portfolio sales.” (Developer) from a contracting perspective.” (Contractor)
6 OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014
OUTLOOK
A I B / S H E R RY F I T Z G E R A L D N E W H O M E S S E N T I M E N T S U RV E Y
Improving CONSUMER
SentiMENT
The outlook for the Irish residential property market Another notable finding of the survey is
the presence of investors in the market.
is a lot more positive than it has been over the last In Limerick, for example, 16% of the
seven years and while sentiment among potential respondents indicated that they were investors
while this rose to 19% in Galway, falling to
buyers has also improved significantly, the market 11% in Cork and 9% in Dublin.
still faces a number of major challenges. The survey also noted that 79% of the
first-time buyers are currently living in rented
S
purred on by a pent-up demand for new accommodation while 16% of them were
housing stock, changing demographics Methodology living with a relative.
and a more benign economic The Sherry FitzGerald Property Sentiment
environment, the Irish residential property survey was sent out to the Sherry FitzGerald In terms of buyers’ expectations and the
market is entering a new period of growth Residential database of buyers around price brackets they fall into, almost 60%
following a number of difficult years for the the country. The database included indicated that they were prepared to pay up
industry. While it is unlikely, nor desirable, approximately 6,000 people in Dublin to E350,000 while a further 27% fell into
that the market will return to the heady and 2,000 in Cork, Galway and Limerick. the E350,000-E549,000 bracket. Looking at
days of 2006/2007, most property analysts This database consists of buyers who are the figures nationwide, it is evident that there
and experts agree that future growth in the currently actively in the residential property are more buyers seeking properties in excess
market will be tempered by demand. market in Ireland. The overall response rate of E350,000 in Dublin than elsewhere. Some
was 21% with approximately 78% or 1,122 52% of the sample in Dublin are looking in
Not surprisingly, 78% of all respondents coming from Dublin and the balance, 558, the E0-E350,000 price range while 31% are
indicated Dublin as their preferred location to coming from Cork, Galway and Limerick. looking at paying between E350,000 and
purchase a house while Cork (12%), Galway E549,000. This compares to Cork (19%),
(8%) and Limerick (3%) were the next most Galway (6%) and Limerick (3%). At the other
sought-after locations. While Dublin does requirement of 5,663 units by the end of end of the scale, some 4% of the respondents
account for the lion’s share of respondents to 2014, rising to 8,970 units a year up until indicated that they were prepared to pay in
the survey, this is also in line with the actual 2018. excess of E750,000 for a house.
demand in the capital. Indeed the Housing
Agency has forecast that a minimum of First-time buyers account for almost half The survey also shows that almost three
37,581 new units will be required in Dublin of the respondents to the survey and this quarters of the respondents are looking to buy
over the next five years with an immediate is reflected in each of the four different in the next six months. Looking back at the
geographic locations surveyed. In Galway, for Sherry FitzGerald Property Sentiment Survey
example, 51% of the respondents indicated which was carried out in February 2012 when
“79% of the that they were first-time buyers while in 40% said they were intending to purchase
Dublin, 47% of the respondents fell into the within the next six months, it becomes
first-time buyers same category, followed by Limerick (46%) clear that not only has the level of demand
and Cork (43%). increased, but so too has the urgency to buy.
are currently
living in rented Those trading up accounted for the next In terms of house type, the majority of would-
biggest cohort, a fact that is often overlooked be buyers are looking for two/three bed
accommodation while in much of the national debate about the houses. However, since the Property Sentiment
housing market. Around 23% of respondents survey of February 2012 the overall demand for
16% of them were in Dublin, for example wanted to trade up two bed apartments has increased from 9%
while this rises to 25% in Cork while it fell to 12%. This can be interpreted as a growing
living with a relative.” back to 16% in Limerick and 13% in Galway. realisation that the ability to find a two/three
OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014 7
OUTLOOK
A I B / S H E R RY F I T Z G E R A L D N E W H O M E S S E N T I M E N T S U RV E Y
bed house as a first home is not realistic while In terms of prices, overall almost 80% feel When asked if they believed the country’s
it is also reflective of the increasing investor and prices are increasing and a further 12% mortgage providers were lending, only
trade down buyer interest in the market. say they are staying the same. Looking at 29% said no. It is also interesting to note
Dublin, 84% feel that prices are increasing. that the figure is higher in Dublin than in
Previous research carried out by Sherry Again, if you compare this to Property the other locations with 43% of the Dublin
FitzGerald would indicate that the first-time Sentiment survey February 2012, when respondents feeling that the country’s banks
buyers, who are now older in age profile, overall only 1.5% thought prices were are actually lending.
were looking for two/three bed houses increasing, it shows a marked change in
as many of them had either skipped the sentiment overall. When it comes to choosing a residential
‘apartment stage’, as a first-time buyer, or mortgage provider, the issue of interest
had lived in rented accommodation and Not surprisingly, location is deemed to be the rates was the most important, followed by
now wanted to buy a ‘house’. Given the most important factor in selecting a property. customer service, the time it takes to gain
lack of supply and with prices for existing Listed next is safety/security followed by the approval and the loan-to-value ratio that
houses on the increase, there is evidence desire for a private garden. Accessibility, which determines how much they can borrow. The
that some buyers are considering all is similar to location, is clearly of relative existing customer relationship is the least
their options, including the possibility of importance also. Obviously, criteria change important variable which shows that people
apartment living. depending on status and accessibility of schools are indeed shopping around for a mortgage.
is not as important to those trading down.
On the supply side the research shows that The survey also highlights the fact that
overall 47% of the respondents feel the In terms of property sentiment, almost 80% many people feel that the banks are right
availability of houses is decreasing. The supply feel that there are not enough properties to be cautious and that the process is
side pressure is even more evident among in their price range and almost 60% say fair and efficient, while the amount of
first-time buyers with 55% of them believing there are not enough in their preferred detail required was reasonable. However,
that stock is actually decreasing. By location location. There is also broad agreement people still feel it should be easier to get a
it is clearly evident that the perception of that ‘there are no new properties coming mortgage!
availability of stock is tightest in Dublin with on’ and not enough ‘that suit our needs’,
51% saying stock is decreasing and a further and also ‘there are too many buyers chasing Finally in terms of overall sentiment, 73% in
31% believing that it is staying the same. the same property’. When you look at this this Property sentiment survey agreed that
Galway is quite similar followed by Cork, and by location, 80% of those in Dublin feel Irish people will always want to own their
in Limerick the highest proportion at 55% feel there are too many buyers chasing the same own home, compared to 62% in February
stock is remaining the same. property. 2012. l
8 OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014
OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014 9
OUTLOOK
R E S I D E N T I A L P R O P E RT Y M A R K E T
Stability Returns
Notwithstanding the shortage of housing stock in key
areas, a degree of stability has returned to the Irish
residential property market, writes Marian Finnegan,
Chief Economist, Sherry FitzGerald Group.
A
fter six turbulent years there rose by 5% in the first quarter of note the supply side influence
is now increasing evidence 2014; this follows annual growth in this strength of price growth.
of stability in the Irish of 9.2% in 2013. Notably Dublin Approximately 30,000 properties
housing market. Looking back house prices rose by 6.5% in the sold in Ireland in 2013, a figure
on 2013, there is no doubt that first quarter of the year, following that represents 1.6% of private
it was a game-changing year growth of 14.1% in the 12 housing stock. Such a level of
for the Irish property market. months to the end of December activity is low by either historical
The year began with a sense 2013.That said, when Dublin or international comparisons. As
of cautious optimism but that is excluded from the national such the recovery in the housing
gained considerable momentum figure, the quarterly growth figure market is not so much a story
as the year progressed. This trend was 3%. The regional centres of a rapid growth in demand,
continued to gather pace in the also experienced upward price rather it is one of a dysfunctional
opening months of 2014 and movement during the first three supply side response to a Marian Finnegan
is reflected in the results of the months of the year, with positive recovery in demand.
price barometer for the opening quarterly price growth apparent in
quarter. Wicklow, Kildare and Louth also. The topic of housing supply is a 53% fall in the 12 months to
the focus of considerable debate, January 2014, compared with a
The Sherry FitzGerald barometer When reviewing the with much discussion on the 4.4% reduction in the 12 months
reveals that the average value performance of the market in decreasing stock of property for previous. Significant decreases
of residential property in Ireland terms of price it is important to sale in the market. were also evident in Galway
The results of the Sherry and Cork of 32% and 33%,
FitzGerald bi-annual census of respectively. Limerick saw a more
County % of Second Hand County % of Second Hand
the stock of available property for modest fall in stock available for
Private Stock Private Stock
sale in the second hand market sale, 5%.
Advertised Advertised
reveals a further tightening of
for Sale Jan 2014 for Sale Jan 2014
the supply of property in most Moreover, by subdividing out the
Dublin City 0.5% Clare 2.3%
locations nationwide. cities from the county data in the
Dun Laoghaire-Rathdown 0.7% Cork County 2.4%
regional centres, it is noteworthy
South Dublin 0.7% Longford 2.6%
In January 2014, the total stock that the proportion of stock
Fingal 0.8% Westmeath 2.7%
of available property for sale available for sale in Cork city
Galway City 0.9% Limerick City 2.7%
in the second hand market has decreased by 35%, while
Kildare 1.2% Wexford 2.7%
nationwide stood at 37,883 the volume of stock available
Meath 1.4% Tipperary 2.9%
units. This represents a decrease for sale in Galway city has fallen
Cork City 1.5% Limerick County 2.8%
of 14,649 units, or 28%, since significantly by 50%.
Kilkenny 1.8% Sligo 3.1%
January 2013. The overall market
Donegal 1.8% Waterford 3.1%
figure represents a housing stock Some of the Dublin commuter
Wicklow 1.9% Galway County 3.1%
market availability of 2.1% of counties have also witnessed
Laois 2.1% Leitrim 3.8%
our overall private housing stock. notable reductions in the
Offaly 2.1% Kerry 4.1%
proportion of available property
Louth 2.2% Mayo 4.1%
Most notably, there were only for sale in the market. Wicklow
Monaghan 2.2% Roscommon 4.7%
3,025 units advertised for sale in fell by 40% in the year to
Carlow 2.2% Cavan 4.8%
the Dublin region. This represents January 2014, compared with an
10 OUTLOOK l RESIDENTIAL PROPERTY SECTOR 20148.5% increase the year previous; Vendor Analysis, Q1 2014 year to date; this compares with preliminary and are expected
while Kildare experienced a 10% in the same period in 2013. to increase significantly as the
48% drop, compared with year progresses. It is also worth
a 9.5% rise the year Other
MBU First time buyers remain a noting that the volume of
5%
previous. Meath also 5% relatively active cohort in transactions recorded to date
saw a further 23% the market accounting in the first quarter of 2014 has
Selling Investment
reduction in stock, Smaller House
29%
for 21% of the risen by 19.2% when compared
9%
after a 20.9% fall properties traded in with the same period in 2013.
in the previous the three month
12 months. period; this compares A total of 1,855 properties
Larger House
9%
with 25% in the transacted in the Dublin region in
Other notable same period last year. Q1 2014, accounting for 32% of
reductions in the total transactions in the period. In
volume of stock An analysis of the comparison, 1,572 transactions
Bank Repossession
available for sale 11% profile of vendors were recorded in the same period
Executor Sale
took place in Kerry, 17% who sold their property in 2013, representing an 18%
Longford and Offaly; Relocating through Sherry FitzGerald increase on transaction levels
82%, 49% and 42%, 14% in the opening quarter of year on year.
respectively. 2014 revealed that 29% of
vendors were selling investment Looking to the future, it seems
Notably, just 0.6% of the Source: Sherry FitzGerald Research properties; this remained stable likely that without a notable
Dublin private housing market is year on year. Executor sales increase in the supply of properties
currently available for sale. This is factor driving price performance accounted for 17% of the market, to the market, price inflation in
incredibly low by either historical in the local property markets. while 14% of vendors were selling both Dublin and indeed all of
or comparable levels. Both Cork for relocation purposes. Ireland will exceed levels achieved
and Galway also suffered from a An analysis of transactions in 2013. That said, it is early days
shortage of property for sale, with nationwide that closed during Upon examination of and supply traditionally increases
only 1.5% of Cork city private the opening quarter of 2014 transaction activity in the in the post-Easter market. A
properties advertised for sale and reveals that 74% of the second market, there was a notable notable increase in supply, in any
only 0.9% of Galway city’s private hand homes sold through Sherry reduction in the quantity of location, has the potential to
housing stock advertised for sale FitzGerald were purchased by transactions closed in the moderate current price trends in
in January 2014. owner occupiers; this compares to opening three months of 2014 the months ahead. Outside the
83% in the same period in 2013. when compared with the final regional centres, current forecasts
This reduction in the quantity quarter of 2013, with 5,787 would suggest that 2014 will be
of property available for sale is Notably, investors bought 19% of deals transacting in the quarter. a year of stability after six years of
undoubtedly the single greatest the properties transacted in the That said, these figures are price deflation. l
VOLUME OF TRANSACTIONS – NATIONAL
9914
10000
9168
9000
7899
8000
7000
6372
6205
5928
6000 5650 5787
5565
5351
5141
4877 4855
5000
4202 4237
4030
4000
3427
3000
“First time buyers 2000
remain a relatively 1000
active cohort in 0
0
0
0
0
1
1
1
1
2
2
2
2
3
3
3
3
4
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
the market.”
1
2
3
4
1
2
3
4
1
2
3
4
1
2
3
4
1
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Q
Source: Property Price Register
OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014 11OUTLOOK
M O RTG A G E S
ThE OUTLOOK
FOR HOME BUYERS
As a key player in the Irish residential mortgage market, AIB has developed
deep insights into the market as well as a number of customer-focussed
solutions writes Jim O’Keeffe, Head of Mortgages, AIB.
T
he Irish residential property The decline in housing output The combination of supply issues
market has continued to appears to have levelled off with and stronger employment growth
improve over the last 12 total completions last year of in Dublin in particular has resulted
months against the backdrop of 8,300 units versus 8,488 units in a marked increase in property
stabilising economic conditions recorded in 2012. This represents prices particularly in the greater
and improving consumer a fall of just over 2% compared Dublin area with a strong demand
sentiment. to declines of 28% and 19% for three-four bedroom family
in 2011 and 2012 respectively. homes in established locations
This, in turn, has led to a modest Meanwhile survey data such and this is borne out in the
recovery in the mortgage market as the construction PMI are findings of the Sherry FitzGerald
and 2013 concluded with also supporting a pick up in research for this publication.
over E3.1 billion in mortgage residential construction.
approvals in and E2.5 billion in Residential property prices, as Jim O’Keeffe
market drawdowns. While this Although house building is measured by the CSO, ended
is some way off the peak years showing signs of recovery 2013 with prices up 6.4% Economic backdrop
when we saw mortgage lending the reality is that the current compared to a year earlier. improving: Recent data
in the region of E40 billion, the levels of output are well below However the real underlying story on the Irish housing market
general consensus now is that the household formation is that the two-speed property suggest that the market may be
a normalised mortgage market requirements. AIB estimates market which has emerged in stabilising. House prices, rents,
where there is access to new potential housing demand at the country with Dublin prices up transactions and construction
housing supply would be closer 20,000 units per annum which 18% from their trough whereas activity are either stabilising or
to E7-E8 billion a year. However, means that a significant increase the rest of the country (excluding improving. At the same time,
we are still a long way off the in housing output over the Dublin) are up just 3.6%. there are increasing signs that
type of housing supply required coming years will be required to the downturn in the domestic
to support this level of mortgage bridge the current demand versus From AIB’s perspective, we have economy may have bottomed
lending. supply gap. maintained our position as out, with improving labour
market leader with over 40% market data, including strong
share in sanction activity over job growth, providing a more
2013. A significant pipeline supportive backdrop for the
of sanctions in principle has housing market going forward.
“The combination of supply issues and carried over into 2014, where
stronger employment growth in Dublin the customer is fully approved, House prices and rental yields
having the affordability for the trending upwards: The CSO
in particular has resulted in a marked mortgage but is awaiting a House Price Index for February
suitable property. We estimate 2014 continues to show a further
increase in property prices particularly that this pipeline of activity overall increase in property prices
roughly equates to our lending nationally by 8.1%. In Dublin,
in the greater Dublin area.” for two quarters. residential properties dipped
12 OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014slightly by 0.6% in February it appears that many of these customer mortgage seminars We operate throughout our full
however were 13.3% higher than seem to be international and throughout the country, we AIB and EBS network of offices,
a year ago. In contrast, there was institutional buyers or ex-pats are evidencing a growing with fully-trained mortgage
a 0.9% increase in residential who see value in the current confidence among those coordinators in all outlets, in
properties outside Dublin (4.2% market. It has been a challenge interested in buying a home and addition to our direct banking and
higher than February 2013). for our mortgage customers as this is further supported by the broker channels. Both the bank’s
very often a seller will opt for increased number of mortgage credit criteria and pricing are highly
Although prices have clearly the cash buyer over a mortgage lenders re-entering the market. competitive across all customer
stabilised, there is no doubt that buyer and this has again Supply of suitable stock will and product segments. l
a two-tier recovery is evident, impacted our ability to actually remain a stumbling block in the
with Dublin and other larger drawdown mortgages for the short term and a continuation
Lending criteria, terms and
urban centres leading the way. customers we have approved. of current price trends in Dublin
conditions apply. Allied Irish
Nationally, the price fall from the may lead to affordability issues
Banks, p.l.c. is an authorised
peak is now 47%, with Dublin Buyer/Seller profile: Buyers in some cases. First Time buyers
agent and servicer of AIB
at 50%. continue to be dominated by will continue to be the largest
Mortgage Bank in relation
those purchasing a primary purchasing segment but we
to origination and servicing
The evidence of stock shortages home, mainly first-time buyers expect increased activity in
of mortgage loans and
(in terms of houses in particular) but also by people on the move, both the Mover and Investor
mortgages. AIB Mortgage Bank
in Dublin and some other urban whether they are trading up or markets.
is regulated by the Central
regions has resulted in an down. Investors, meanwhile, are
Bank of Ireland. Allied Irish
expansion of the rental market starting to make their presence AIB in the Mortgage Market
Banks, p.l.c. is regulated by the
and upward price pressure also felt again but this is coming from AIB continues to be very active
Central Bank of Ireland.
(17% off their lows). a very low base. A significant in the mortgage market and has
number of vendors are either had an average market share
Allied Irish Banks, p.l.c. and AIB
Cash Buyers: We have a executor sales or investors. of circa 40% in drawdowns
Mortgage Bank subscribe to
significant amount of evidence over the past two years. EBS,
the Voluntary Code of Conduct
of the number of cash buyers 2014 Outlook which is owned by AIB, is also
on pre-contractual information
currently in the residential AIB is optimistic that the fully re-engaged while Haven
for home loans. A copy of the
property market with a range of market will continue to stabilise has re-established itself in the
Code is available on request.
30% to 40%. In recent months, and grow. As we undertake intermediary market.
OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014 13OUTLOOK
PII VIEWPOINT
A Blueprint FOR Change
The results of the AIB/PII Survey of companies operating
in the Irish residential property industry reinforces the
widely-held beliefs that the planning system in Ireland is
in need of an overhaul, writes Dr. Peter Stafford, Director
of Property Industry Ireland.
Dr. Peter Stafford
M
any of the a very small number of qualified Development Board which evaluate the complete taxation
recommendations to planners are endeavouring to would be made up of planners, of the delivery of property, to
Government made by PII undertake a large legislative economists and experienced provide coherence across local
in our reports “Planning a Better reform programme including a international construction and authorities and transparency
Future” (2012) and “Towards review of the National Spatial property professionals who will for developers, purchasers and
a National Property Strategy” Strategy and the National provide a national supervisory consumers.
(2013) have acquired a new Development Plan. role to local authorities in an
urgency, given the shortage of attempt to streamline and PII recommends the
residential houses in many key In addition, it is the belief harmonise planning processes standardisation of planning
urban areas, and the importance of PII that there is a lack of and costs. It would also work fees and charges, as well as
of creating a functioning leadership in decision-making with investors and developers timetabling and administration
property sector that contributes and accountability in planning. to support the commencement through a centralised National
to Ireland’s economic recovery. Currently decision-making, of viable, sustainable projects Zoning Authority, working
especially in relation to the that are in the national interest in tandem with a National
On May 14th, the Government provision of infrastructure, as well as working to overcome Infrastructural Authority to
published its “Construction is fragmented between the obstacles in a process that has centrally co-ordinate the
2020” stimulus package. While local authorities and national clear timeframes, leadership and planning and sequencing of
the report contains important departments and agencies. This transparency. the delivery of infrastructure.
changes and recommendations, lack of accountability, transparency In addition the creation of
PII feels it misses some important and enforceable, statute-based PII also believes that the a national Development
opportunities to improve the deadlines for decisions by introduction of the Local Property Commissioner, to work
supply of new property onto the planning authorities and An Bord Tax, as an income stream for local with providers of strategic
market. Pleanála adds uncertainty and government, provides ample infrastructure, should be
ultimately increases the cost of opportunities to review the created to facilitate exemplar
A key recommendation, put property delivery. development contributions and development and work to
forward by PII, is for a renewed other charges which developers overcome obstacles to viable
focus on the country’s inefficient PII would like to see strategic have to pay. In addition, there is development.
planning system. As it currently clarity, so that the local a wide variation in policy, practice
exists, this is severely restricting authorities are accountable and procedure between local In addition, PII believes that any
the ability of the industry to grow for the implementation of planning authorities in terms of gains that occur from rezoning
and deliver the required level of development plans while An Bord costs, planning processes and and the provision/enhancement
housing that Ireland will require Pleanála, and other agencies, levies. Uncertainty in terms of of infrastructure, are captured
over the next 20 years. are held responsible for making timetabling, sequencing and the back from site owners by a
decisions within the periods that basis for costs ultimately adds to combination of CGT “windfall”
PII believes that there is currently are set out in statute. the cost of delivery and erodes tax of 80%, Development Levies
an over-supply of qualified any savings that have been made and Part V requirements. This is
planners in local planning PII has recommended the setting to the cost of construction. It not a well thought-out system
authorities while at national level, up of a National Planning and is now an opportune time to as the 80% tax acts as a serious
14 OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014inhibitor to bringing viable sites In addition as student population PII also believes that there are a staged payment process. This
forward for development. increases, an even greater opportunities to review the would assist in the cash-flow of
demand will be placed on the administrative provisions around projects, improving their financial
One of the reasons for the private rental market which in them. While new mortgage viability and speeding the process
increase in house prices and turn will push up rents. Currently, products are becoming available, of delivery. The conveyancing
rents, particularly in urban areas, planning processes and project this is of little consequence if process for supply of bridging
is the lack of provision of social, financing requirements make there are no new properties for finance should be reviewed as
affordable accommodation it difficult to provide student purchasers. PII believes that there the current process is inefficient,
as well as purpose-built term-time accommodation. PII are opportunities to create a especially for those who are
student and active retirement believes that it would be a quick new form of deposit guarantee seeking to downsize, thus further
accommodation. Ireland needs win for all the stakeholders to scheme through which the tightening the stock of available
a supply of affordable housing address the shortage of student purchaser pays the developer on property. l
not just for those who are less accommodation and in doing so,
well-off, elderly or incapacitated it would go some way towards
but for its growing student moderating rents.
population as well.
A key recommendation, put forward
However, teamwork is needed
Government has recognised between universities, city by PII, is for a renewed focus on the
in Construction 2020 that the councils and planning authorities
current Part V requirements to improve the planning country’s inefficient planning system.
are not delivering this requirements and therefore the
accommodation in the way financial viability of student
As it currently exists, this is severely
in which it was intended. accommodation and rental
restricting the ability of the industry to
However PII believes that there accommodation for post-
is potential for private pension graduates and visiting academics grow and deliver the required level of
funds to invest in social and and their families.
affordable housing, including housing that Ireland will require over
accommodation for elderly and As financial viability returns to
actively retired people. many development projects,
the next 20 years.
OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014 15OUTLOOK
I N T E RV I E W
Planning for Change
If the Irish construction and property market is to grow and
develop a sustainable long-term future with substantial
employment potential, the whole Irish planning system
needs a major overhaul according to Tom Phillips, one of
the country’s top planning consultants.
T
his year marks the 50th restrictions on staff redeployment decisions within the periods set
anniversary of the Local posed by the Employment out in statute,” he says.
Government (Planning Control Framework needs to be
& Development) Act which addressed. It doesn’t have to be Another key issue, according to
was enacted in October 1964. about looking for new planners; Phillips, is the need for planners
Although amended on several it’s about redeploying the existing to understand and take greater
occasions, the Act has remained ones, particularly into the cognisance of the commercial
largely intact since it entered Department of the Environment. viability of development and local
the statute books 50 years ago. As it stands, the Department area plans and how they can be
While it might have been fit for planners are doing excellent work reconciled with the commercial
purpose in 1960s Ireland, there but they are totally and utterly needs of the industry.
is a general consensus within overworked. Meanwhile you
the wider construction industry TOM PHILLIPS have a planning department in “There is no point in having
that it’s now time to revisit it local authorities around the this country – Templemore Town a plan that isn’t viable. And
with a view to implementing a country, compared to those Council Planning Department – there are several examples, I
major overhaul of how planning available to the Department of which processed just six planning would argue, of plans which
is managed and executed Environment, Community and applications last year and just are prepared by planners in
throughout Ireland, according Local Government. four the previous year. I recently local authorities who, with the
to Tom Phillips, the well-known worked it out that Ireland has greatest respect to them, either
chartered town planner and “For a start , the Department of a planning authority for every believe that it’s not their duty or
urban designer who heads up Environment is seriously under- 52,000 people. That’s crazy don’t understand the viability
the Dublin-based town planning resourced while certain local and simply wrong. I welcome of certain developments. A
consultancy Tom Phillips + authorities are over-resourced. the fact that the Government development might look fantastic
Associates and is a director of For example, there are just is committed to reducing that on paper, but financially it may
Property Industry Ireland. three planners working in the number to 31 in 2014 under not stack up because there is
Department of Environment its local government reform no incentive for developers
While the existing planning and yet there are 88 planning initiatives,” he adds. to do it and there is nothing
regime is inherently a good authorities around the country, in it for them. So why would
system, there are many aspects few of which have less planners “With respect, there is a real lack they bother? The mind-set of a
of it that could be improved with than the Department. That’s just of leadership in decision making planner is not the mind-set of
nothing that can’t be overcome wrong,” he says. as well as a lack of accountability a developer. I would argue that
if the various stakeholders in the current planning regime. there has to be a much more
embrace change on a number “The Planning Act will be 50 years Decision making is fragmented holistic approach to planning
of key fronts. There are many old this year and I think there and often split between local that takes into account the needs
things wrong with the planning is a golden opportunity to use authorities, Government of a community, the needs of
system in Ireland, he says, but this anniversary to get our house departments and agencies. the developer, the requirements
nothing that can’t be overcome in order on the planning front. We need to see some strategic of financial institutions and the
if the various stakeholders In terms of providing adequate clarity and accountability when requirements of the planners. So
embrace change on a number resources to implement the it comes to the implementation I’m not looking for developers
of key fronts. One of the most planning recommendations of of development plans and that to dictate what they want in
pressing issues, however is the Mahon Tribunal – including the various planning agencies, plans. But saying that if you
the level of resources that is the establishment of the office including An Bord Pleanála, are zone land, set out financial
currently deployed within the of the Planning Regulator – the held accountable for making contribution development levies
16 OUTLOOK l RESIDENTIAL PROPERTY SECTOR 2014You can also read
