Saturday 3 December 2016

Real deal: The business of property

Philip Farrell

Published 22/05/2016 | 02:30

Despite falling prices after two years of double-digit growth, there were 64,000 residential sales completed in Dubai (population 2.8 million) last year, compared to 45,000 in Ireland (population 4.5 million)
Despite falling prices after two years of double-digit growth, there were 64,000 residential sales completed in Dubai (population 2.8 million) last year, compared to 45,000 in Ireland (population 4.5 million)

100-day housing strategy is a real opportunity

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Last week saw the launch of the 100-Day Action Plan for Housing under the leadership of new Minister for Housing Simon Coveney, with one priority - "providing affordable, quality and accessible housing for our people". The aim is to bring all stakeholders together and provide some joined-up thinking. So far, so good.

If this is achieved, there are potential benefits beyond providing housing, ie, to rebuild the heart of country towns and villages obliterated during the building frenzy. In many cases, the commercial hub of a town was relocated to new retail parks to the detriment of the social fabric of the community. Most towns now have large numbers of vacant commercial properties which would be ideal for use as residential dwellings. Areas outside Dublin are now starting to see increased employment and, while many twenty-somethings want to head to the cities, many would also like to stay in their locale. This is an opportunity to repopulate our town centres and thus rejuvenate the locality. So, what is being promised and is it achievable?

Firstly, 25,000 new housing units are proposed per year by 2020. Secondly, 18,000 social housing units are proposed by the end of 2018 and a further 17,000 by 2020. Given the lengthy planning process and high costs of construction, whether local authorities have an appetite to deliver on this remains to be seen. It is intended, however, to provide more autonomy and discretionary powers to local authorities in an effort to speed up the delivery of these new homes. To assist tenants in the more expensive parts of the country, an increase in rent supplement payments of up to 15pc and top-up discretionary payments, where appropriate, are proposed. Other proposals include enhanced tax relief for landlords who provide longer leases and accept rent supplement, support to Voluntary Housing Associations and the creation of a special purpose vehicle to provide long-term funding for the sector.

The housing crisis has at last sparked a reaction and, if the 100-day plan is to be believed, it will be based on joined-up thinking. We'll be able to follow progress as the minister promises to publish monthly updates. Let's hope he has his house in order.

Who is getting married?

It's the end of an era for McElhinneys of Athboy in Co Meath, one of the best-known department stores in the country, which went on the market last week. For the uninitiated (or those under 40), McElhinneys was the country version of Clerys and as a Kildare boy, whenever I heard my parents discussing a trip there, I knew a wedding was in the offing.

McElhinneys closed in 2014 after 78 years, following the appointment of a receiver in 2013. The sale of the property, which extends to c1,812 sqm (19,500 sq ft), is being handled jointly by Sherry FitzGerald Sherry in Dunshaughlin and DTZ. In light of the nature of the retail rag trade, and with the shift to online shopping, as well as dedicated shopping outlets like Kildare Village, it's unlikely that McElhinneys will function as a store again. Still, there has been, according to Padraig Sherry of SF Sherry in Dunshaughlin, "significant interest in its first few days of marketing."

Dubai or not Dubai

Dubai, which was a late arrival to the party as a property market for the Irish in the boom, became attractive to investors because of its lower transaction costs, 0pc income tax and capital gains tax (CGT). However, it's been a rollercoaster few years for anyone who did invest there as Dubai's property market is one of the world's most volatile.

Conscious of their dependency on oil and reducing stocks, significant amounts of money were invested in the late 1990s to make Dubai the tourism and commercial centre of the Middle East. Following the global crash, between 2008 and 2011, property values dropped by 53pc and over-development was a real concern. However, the market bounced back, and there was double digit growth in 2013 and 2014.

The trend was reversed in 2015 with a fall of 10-15pc and a further decrease of at least 10pc anticipated this year. However, whether this actually happens is determined by two things: oil prices, which had been under real pressure due to over production, and the strength of the dollar. In recent weeks, the oversupply has been contained with prices of $50 a barrel breached for the first time in nine months. The strength of the dollar continues to be an issue and this could be further affected by the US election in November.

The future looks a little more optimistic as the World Expo 2020 is planned to take place in Dubai and it will require extensive construction to accommodate the infrastructure needed.

According to Sidharth Mehta, partner and head of building, construction and real estate at KPMG Lower Gulf, 2016 could be challenging in the short term. "With effective regulations in place and the infrastructure investment that is committed as part of Expo 2020, we should see an upturn in the real estate industry in 2017," he says. "When preparations for Expo 2020 picks up, we expect to see a significant amount of job creation and an increase in demand for residential real estate."

The population of Dubai is 2.8 million with 64,000 residential sales completed in 2015 as opposed to 45,000 for Ireland with its population of 4.5 million. They have adopted a more proactive way of addressing the challenge, in some cases, by building their way out of trouble. Indications are that in property terms, the worst is over and better times lie ahead. A note of caution, though, due to its location, political climate and dependency on oil, the ride for the property investor will continue to be more like a Safari Jeep over rough terrain than that of a Rolls Royce.

Sunday Independent

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