Friday 23 March 2018

Builders' Irish margins lower because of land prices - Abbey

Abbey's executive chairman Charles Gallagher
Abbey's executive chairman Charles Gallagher
Gavin McLoughlin

Gavin McLoughlin

Strong competition for land between developers is eating into margins here compared to Britain, according to the head of listed housebuilder Abbey.

Charles Gallagher told the Irish Independent that the market is "very competitive".

"There's a lot of private equity money out there, a lot of American money in the market.

"There is lots of competition and that's all the way down - even on a site for 20 houses," Mr Gallagher, Abbey's executive chairman, said.

He pointed to the €107.5m price achieved by RTÉ in selling just short of nine acres of its Donnybrook campus to Cairn Homes as "a very strong sale".

Mr Gallagher continued: "Obviously it depends from project to project, but certainly when we buy land, we buy on significantly tighter margins in Ireland. It is more competitive.

"We try to buy land with permission that we can build on straight away but there aren't that many of what we call 'oven-ready' sites for sale.

"When there are, there are still plenty of people chasing for them."

Mr Gallagher was speaking after Abbey published results for the year ended April 30.

The company's pre-tax profit rose from €61.5m to €63.5m year-on-year.

Abbey said: "The group has started the new year trading well from a platform that should allow more new homes to be delivered in both the UK and Ireland.

"UK margins continue to be good, however, subject to market conditions, we are anticipating some erosion towards more normal levels."

The company firmly backs the Irish Government's Help to Buy scheme, which may be axed on foot of an ongoing review.

"In Ireland, a strongly positive outlook may be impaired by further unwise intervention in the housing market," it said.

Abbey has bought land at Johnstown in Navan, Co. Meath, with scope for 46 houses. Mr Gallagher told the Irish Independent that work should begin on site "in a couple of months".

It has activities in Ireland, the UK and Czechia (formerly called the Czech Republic).

It completed 586 sales in the year, with turnover just under €200m. Mr Gallagher said Ireland would account for around 15pc of the company's overall output in the coming year and added that he would like to see the Irish proportion of its business rise.

"It was much higher 15 years ago. We still see our Irish business as being in the recovery phase and we're very committed to growing it."

The company is sitting on a land bank in Laois but house prices have not risen enough to make it economical to build, Mr Gallagher said.

"Prices have been recovering there but they're not there yet.

"They basically need to be in and around €200,000 for a three-bedroom semi-detached house to make it economical and we're still some way from that.

"When and if house prices rise to a level to allow us to build that out, we will build it."

He said building costs were creeping up because of the upturn in activity, adding: "Labour is quite tight. Wages were driven down in the downturn and people now have to be drawn back into the industry."

Irish Independent

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