Cuckoo funds continued to gobble up swathes of the residential property market last year, despite the pandemic, and now own a combined 15,500 homes here.
A small number of funds spent a combined €1.75bn in Ireland in 2020 buying residential units, according to analysis by real estate group CBRE. That was down on the record spend by funds in 2019, but according to CBRE represents a highly robust outturn given the challenging market conditions experienced – including the fact that the predominantly overseas buyers were not able to travel here for much of the year.
Institutional investors are now the main players in the residential property market in much of Dublin for new-build apartments.
The sector is dominated by a handful of huge players who now regularly buy hundreds of apartments and houses at a time in schemes that are no longer offered to individual buyers.
While cuckoo funds have displaced owner-occupiers, they increasingly also order entire schemes off the plans which industry experts say would not be viable for developers building for traditional buyers. These so-called forward-commit transactions accounted for 54pc of spend in residential investment in 2020 and will add to overall housing supply into the future.
The same investors are also increasingly interested in buying properties to lease to local authorities or Approved Housing Bodies, CBRE said.
Cuckoo funds have also begun to buy schemes including starter-home developments in the commuter belt, but the latest figures show central Dublin remains the core market.
Dublin accounted for 97pc of deals done in 2020 with the southside taking up almost a third of the spend, followed by Dublin 1, 3 and 7.
The analysis highlights the scale on which funds operate. Of the 36 deals done last year, six were greater than €100m.
Investors spent more buying residential units here last year than they did on offices and industrial units combined – a first. As recently as 2017 the market for such schemes here was tiny.
A number of factors have driven the emergence of cuckoo funds. Tax breaks in the past decade have made investing here profitable, with properties bought using the qualifying investor alternative investment funds tax structure exempt from any Irish taxation on income and gains.
Planning changes in 2016 and 2018 that mean build to rent (BTR) schemes have a different requirement than schemes for owner-occupiers in terms of apartment mix, car parking and size, making them more profitable.
The Europe-wide phenomenon on low investment yields is also driving more money into new markets, where prime yields for multi-family investment held firm at 3.75pc through 2020, according to CBRE.
Highlighting the trend, German-based DWS was behind the two largest transactions of late, buying 368 units in the Halliday House and Cheevers Court (Culanor) schemes in Dún Laoghaire for €195m. It also spent on the Prestige Portfolio of 317 units spread across schemes at Strand View and Brookwood Court in Dublin 5; Verville in Clontarf, Dublin 3, and Cedar Place in Swords, North Dublin.
Stock market listed Ires Reit remains the biggest player in the market, followed by the likes of Kennedy Wilson, Urbeo, LRC Group and Comer Group which each have between 1,050 and 2,500 units.