| 5.6°C Dublin

Crisis 'could see new house prices tumble by 20pc'

Close

A price drop may prompt new home buyers to cancel deals

A price drop may prompt new home buyers to cancel deals

A price drop may prompt new home buyers to cancel deals

The price of new-build homes in Ireland could fall by as much as 20pc if the upheaval caused by the spread of the coronavirus continues.

The value of development sites for house building could fall by up to 50pc.

That is according to a report from Davy Stockbrokers, which says financial markets have already priced in a decline of 15pc to 20pc in the value of new Irish homes.

If that price drop was to happen, it may prompt some would-be new home buyers to delay or cancel deals.

The report looked at the current share price of stock market-listed housebuilders Cairn Homes and Glenveagh Properties.

The two companies are mainly focused on building new homes in the Greater Dublin Area.

Their shares are now trading at prices of two-thirds and half of book value respectively - meaning the market is heavily discounting the value of the companies' property assets.

Shares in almost all Irish companies have been hammered this month as the unprecedented economic shock of the coronavirus has hit every sector and business.

In the short term, the practical business of selling houses is being disrupted - meaning fewer bids for homes that are on offer.

Builders and estate agents are trying to reduce the spread of the virus by moving to appointment-only viewings.

This means that sales continue but at a lower rate than at the start of the year, according to the report from analyst Colin Sheridan of Davy Stockbrokers.

In the case of Cairn and Glenveagh, both have healthy balance sheets to ride out the current shock, his report said.

The builders also have high levels of forward sales - units sold off the plans for delivery later this year.

Cairn has 55pc of its 2020 construction target forward-sold, while Glenveagh has just under 50pc of its target forward-sold for the year. It means that even if half of reserved sales cancel, Glenveagh would still have almost 40pc of its full-year target in the bag.

In Cairn's case, its deals with so-called cuckoo funds for rental blocks are an even bigger cushion.

"Both companies are in good health in relation to their balance sheets," Mr Sheridan said.

"Combining this with a very low level of fixed costs, we believe that both have the ability to withstand a protracted period of downtime if that situation unfolds," he added.

Irish Independent