Saturday 18 August 2018

Big investors dominating the market for new homes

An artist’s impression of Fernbank in Churchtown, South Dublin
An artist’s impression of Fernbank in Churchtown, South Dublin

Donal Buckley

Large-scale investor funds may effectively be outbidding home buyers for apartments in sought-after areas of Dublin. At last weekend's conference of the Institute of Professional Auctioneers and Valuers (IPAV), the topic was raised by IPAV chief executive Pat Davitt.

He said that it can be unfair on home buyers who may be getting ready to buy an apartment which is advertised for sale on the open market, only to have it taken off the market because a whole block has been sold to a large-scale investor.

He called on the Government "to ban [such] sales where the investors themselves are not adding to the supply".

While he has no objection to investors forward funding new supply, he feels that as taxation is also squeezing out smaller investors, there is an increasing likelihood that Irish residential rents will in future be dictated in foreign boardrooms.

Mr Davitt also said that there have been a number of instances where large-scale investors have paid prices which reflect a premium to what the apartments might fetch if they were sold individually.

Last month, Irish Life Investment Managers (ILIM) bought 262 apartments near Dundrum in south Dublin. The Irish Times reported that the deal, which may have been worth more than €100m, came as a surprise, as more than 1,000 people had previously responded to a marketing campaign by registering their interest in buying the apartments.

Marketed as Fernbank new homes, the one, two and three-bedroom units are being developed by Irish firm Park Developments on a site which had been part of the Notre Dame school in Churchtown.

The developer is reported to have bought the site 13 years ago for €30m and is expected to use the funds from the Fernbank sale to accelerate other developments that it plans for South Dublin.

The scheme comprises 56 one-bedroom units, 188 two-beds and 17 three-bed apartments. Park is expected to complete the first units by the end of this year.

A spokesperson for the agents, Lisney, indicated that the switch to build-to-rent reflected the changing market as the number of people buying rather than renting a home has fallen.

"A number of factors are making it more difficult to secure home ownership. Younger buyers are more constrained by insufficient savings and prevailing mortgage rules mean it is taking longer to get into position to get on the property ownership ladder."

Lisney also referred to how home ownership levels have fallen over the years from a peak of 79pc in 1991 to 68pc in 2016, while rental households have increased from 18pc to 28pc over the same timescale.

While no prices were advertised for the Fernbank scheme, some guidance is suggested by prices achieved in April for secondhand apartments at nearby Wyckham Point, Dundrum. There, a one-bedroom, third-floor apartment of 49.2 sq m (527 sq ft) sold for €335,000 and a two-bedroom 89 sq m (958 sq ft) unit sold for €476,000.

Savings for a first-time buyer can be considerable if they buy instead of rent. Daft.ie's most recent report shows it would cost a first-time buyer only €976 per month in mortgage repayments to buy a one-bedroom apartment in Dublin 14. That compares with a rent of €1,483 for the same unit - a 52pc cost difference.

ILIM, which invests in property on behalf of thousands of its Irish policyholders, is returning to the residential market after withdrawing from it when it sold its Mespil apartments complex near the Burlington Hotel more than 20 years ago.

Now with about €1bn to invest in this sector, ILIM may also be a candidate to purchase some of the build-to-rent projects currently being developed for the large-scale investor market.

Among the opportunities currently available are the four Dublin Living build-to-rent projects being developed by Marlet which is headed by Patrick Crean and backed by London-based investment firm M&G. Last week Marlet announced that its deal to sell 1,205 apartments across four sites for €450m to Round Hill Capital would not proceed after negotiations ended.

A spokesperson for Marlet said this week that work is continuing on each of the four sites. These include a Mount Argus development in Harold's Cross which "is on track to have occupation by the end of this year."

A second Harold's Cross site, St Clare's, is currently being developed. Work has also started on both a former CIE site in Cabra and at the Carriglea site off the Naas Road.

"All should be well on the way to completion by the end of 2019," the spokesperson added.

Marlet also has plans to undertake apartment developments for sale to individual buyers.

Last year Mr Crean told a meeting of residents in Dublin 14 that the 120 apartments planned for its Greenacres site on the Upper Kilmacud Road would be for sale to individual buyers.

Moves by the Government, however, to accelerate supply of rental accommodation following pressure from multinational employers may well result in more apartments complexes being sold for the rental market.

A few months ago the Minister for Housing, Eoghan Murphy, introduced new guidelines which allow developers to generate greater efficiencies and cost savings with build-to-rent apartments compared to those which developers could generate from build-to-sell units.

For instance, with build-to-sell developments, more than half the units must be devoted to two or three-bedroom units, whereas no such restriction applies to build-to-rent projects. Furthermore, a majority of the units in build-to-sell projects need to be larger than the minimum unit in a development. The minimum-sized studio unit is 37 sq m (398 sq ft).

Build-to-rent developers can also save space in common areas, such as entrance hallways and corridors and areas around elevators and stairwells because build-to-sell developments have a limit of 12 apartments per core, but no limit applies to build-to-rent cores.

In suburban developments fewer parking spaces are also required for build-to-rent.

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