New refurbishment rules may stymie renewal of old bedsits
A recent urban renewal trend which had been under way without any financial support from the Government may be about to be quashed by new regulations introduced by Housing Minister Eoghan Murphy last Tuesday.
Already a number of property deals which would have led to refurbishment of old Dublin city properties have been halted as a consequence of the move.
The problem arises from the minister's changes to the regulations which allow landlords to charge market rents on properties which have been refurbished.
Some landlords had been using the vagueness of the term refurbishment to get around the 4pc cap on rent increases. They had been justifying their exemption from the cap even though their so-called refurbishments might have involved no more than painting the premises and changing some of the fittings or appliances.
While Mr Murphy's new criteria for refurbishment may be welcomed by campaigners for tenants' rights, some landlords feel the new criteria are impossible to achieve for centuries-old period properties which need to be upgraded from bed sits to self-contained apartments.
Coleman Connor of estate agents O'Connor Shannon says that he knows of 17 property deals that have collapsed as a result of the minister's changes.
"The properties have ranged in price between €800,000 and €1.5m. Such properties would have required an average of €300,000 to make them suitable for modern living and if that investment is combined with the prices, the total loss of business could amount to as much as €80m," he estimates.
The collapse of these deals has also hit some vendors who have been under pressure from banks to repay family debts hard. Another vendor was a disabled person with no income and yet another was a lone parent seeking to sort out her financial affairs, according to Mr Connor.
Many of these houses have been maintained in relatively poor order over the years and suffered further serious deterioration during the recession years when many heavily indebted owners found themselves unable to properly maintain them.
A significant number of these houses contained bedsits and in 2013 these were deemed by law not to be habitable and some of them would also have planning, conservation and other restrictions on their refurbishment.
However, in the last three years a number of investors have been refurbishing these houses using new construction techniques which meet both the terms of the building regulations as well as the demands of tenants for upmarket apartments.
Some of these investors assembled the upgraded properties in portfolios for sale to European funds and investors.
Last autumn saw the largest of these portfolios comprising 30 redeveloped Edwardian houses in Dublin 4, 6 and 8 sell for more than its €60m guide price to a Dutch property investment company Orange Capital Partners.
Branded by agents CBRE as The Belgrave Collection, it included 146 studio apartments, 85 one-bed apartments, 29 two-bed apartments and five three-bedroom homes.
The portfolio was assembled and refurbished by a team led by Irish firm Lugus Capital and backed by Broadhaven Capital Partners, a unit of US private equity fund Bain Capital.
With others also engaged in such refurbishments, many of these old houses in Dublin city centre, Rathmines and Phibsborough have got new leases of life.
If this trend were sustained many more that would have been deemed uninhabitable would come back into use and there could well be a roll out of an urban renewal programme without any need for tax incentives such as the Living City Initiative which has proved a failure.
Mr Connor says the refurbishment undertaken by these investors also has dealt with the health and safety issues including fire safety regulations as well as improving energy ratings.
"They have also resulted in quite a positive transformation to our streetscapes which, for many years previously retained a neglected and sometimes near derelict appearance," he told Mr Murphy whose Dublin south city constituency has many of these properties.
Under the minister's new regulations an exemption from the 4pc cap is only allowed for refurbishments which consist of a permanent extension that increases the floor area by 25pc and improves the building's energy performance, or permanently alters the internal layout, adapts it for disability use and or increases the number of rooms.
The minister has said that he is aware there is "a particular concern around carrying out structural alterations to pre-1963 properties and has received representations on this issue. In response to this, the additional criterion of a seven BER rating improvement in and of itself qualifying for the exemption was introduced."
A spokesman said that if the planned refurbishment works are substantial and 'much needed', it is likely that the dwelling was not capable of being rented during the two years before the completion of the works and would there be exempted from the 4pc cap.
Mr Connor says it is extremely difficult to improve the energy rating in these older buildings.
Indeed for protected structures, the city council's conservation department will not permit insulated plasterboard to be applied to outer walls; will not permit high ceilings to be lowered and will demand sash windows which are not double glazed windows.
Pat Davitt, chief executive of the Institute of Property Auctioneers and Valuers, says that extending the floor area by 25pc is a no-go in many properties particularly apartments and is an unrealistic proposal for most landlords.