Development land sites likely to see increase in values
After four-and-a-half years when development land sites were out of favour, demand for small infill sites in the Dublin area began to emerge in the second half of 2012 and looks set to continue.
Small sites of one to two acres with the benefit of planning permission achieved good values of up to €1m per acre in the prime city locations.
Generally, development agents have been surprised with the number of potential purchasers with no bank funding. The sale for €800,000 – or €300,000 over its guide price – of a Milltown site with planning permission for five houses can be considered as evidence of the strong demand for ready-to-go housing sites in prime locations.
However, there is renewed confidence in the Dublin market, and especially the prime areas, which will allow for low-to-medium density housing schemes. Areas such Castleknock, Swords, Malahide, Carrickmines, Knocklyon and Rathfarnham are ideal locations for medium density developments.
The main concern with developers is the time it takes to get planning permission. It can still take up to two years due to the poor planning system in place.
Developers also need to be cautious about city-centre sites as it is unlikely the planning authorities will allow houses to be built in central areas or on transport nodes, but apartment development is not financially feasible in the current market.
The outlook for 2013 is more promising, with renewed appetite from developers for the acquisition of land in Dublin city – although this will be limited to small sites of less than 10 acres as there is still a lack of confidence and belief in selling a large volume of houses.
The market has not seen demand for larger sites of 10-20 acres even if they have planning permission. There is also no appetite for development land outside greater Dublin .
The property price register has given confidence in that the volume of units being sold and the prices that are being achieved is stronger than previously thought.
This makes it a lot easier to inform both developers and lending institutions what prices are achievable. However, we are still waiting for a functioning lending market and until this returns there will be limited demand for new homes.
New home developments have begun in Carrickmines, Maynooth and Dun Laoghaire – which will be good indicators of how much demand there really is – but there is clear evidence from the sale of second-hand homes that demand exists.
Given the shortage of new houses in Dublin, I believe these schemes will all be successful and there may even be some price inflation as different phases start. This will give renewed confidence to developers to pay a premium for sites with planning permission.
In contrast, the risk of not achieving planning permission and the length of time in achieving planning permission means such sites may sell at a discount of 30pc-40pc.
The biggest difficulty going forward is the cost of infrastructure and servicing development sites. In the boom years, the lack of infrastructure could easily be resolved. Now any site that requires significant infrastructure expenditure is unlikely to be developed within five years.
To address the risks, some landowners are adopting licence agreements which will give a greater return to the landowner based on an agreed site fine and an agreed uplift based on sale price growth for the houses when built.
This licensing approach offers landowners and institutions a way forward for their landbanks and some prospect of recovering prices paid based on 2009 values.
I have no doubt that in 2013, well-located sites with good planning permission will achieve increased values.
Garvan Walsh is a director of agents Kelly Walsh