Thursday 18 January 2018

O'Flynn: Private housebuilders will build homes to help beat crisis, not plcs

Developer says Cairn is likely to be only listed builder, writes Ronald Quinlan

Developer Michael O'Flynn has said it is highly unlikely that Ireland will see the emergence of another stock-market listed builder such as Cairn Homes to help address the country's deepening housing crisis. (Stock photo)
Developer Michael O'Flynn has said it is highly unlikely that Ireland will see the emergence of another stock-market listed builder such as Cairn Homes to help address the country's deepening housing crisis. (Stock photo)
Ronald Quinlan

Ronald Quinlan

Developer Michael O'Flynn has said it is highly unlikely that Ireland will see the emergence of another stock-market listed builder such as Cairn Homes to help address the country's deepening housing crisis.

While O'Flynn told the Sunday Independent he welcomed Cairn's arrival to the market, he said private housebuilders had always "been the bedrock of private housing supply" in Ireland, and that this would not change.

"Obviously the arrival of a PLC housebuilder in Ireland is welcome, but the prospect of more such builders arriving is remote," he said, adding that: "Any idea that contractors can team up with housebuilders to produce housing completely misunderstands the business of the private housebuilding developer".

O'Flynn, whose companies have built thousands of houses across Ireland over the past four decades, would not be drawn on comments made by Cairn Homes CEO Michael Stanley at Cairn's AGM last Wednesday. Referring to the housing crisis, Stanley said it was mainly down to the continued lack of large stock market-listed developers.

"We can look at problems and we can say it's land, we can say it's build costs. But the main problem in my view [is that] we don't have enough capitalised - equity-led, not debt-led - scaled housebuilders," he said.

Stanley's remarks came after Cairn raised €51.9m from a share sale, giving it the flexibility to continue with its acquisition of development land. The company has now raised a total of €722.5m since its initial public offering in 2015. Stanley told those at the AGM of the company's plans to raise another €50m by the end of 2018 through the sale of sites it considers to be 'non-core', which typically have planning for 20 to 30 homes. Even if those disposals are combined with the upgraded target of 375 to 400 home sales Cairn's management aim to deliver by the end of this year, it will be some time before the company puts a dent in its land bank, which has the capacity for 12,100 homes. While Cairn incurred an average cost of €53,000 per site, the price paid in the case of 6,126 sites located in Clonburris, Newcastle and Adamstown in west Dublin was far lower, coming in at an average of just €19,000 - a mere fraction of the amount equivalent sites in those areas are worth.

The deal saw Cairn secure a further 24 sites in Dublin and the surrounding commuter counties of Wicklow, Kildare and Meath, which it says will form the 'core' of its plans to deliver a total of 11,229 homes into the future. Cairn purchased the cut-price lands as part of its overall €378m purchase of Ulster Bank's €1.5bn par value 'Project Clear' portfolio.

But while Cairn Homes may have a land bank to meet a significant portion of the demand for housing in the capital and its environs, O'Flynn warned that house prices are heading for a "price bubble" due to the ongoing shortage of supply.

He said: "Unfortunately we've ended up in this position because nobody appreciated the skills of developers or the business of private housebuilding when Nama took over the industry. Building houses is a business. It's not a collection of assets."

O'Flynn welcomed the fact, however, that skilled developers whose loans had been transferred to Nama were now in a position to attract outside capital and contribute to the recovery in the housebuilding sector. "It's helpful for a recovering housebuilding industry but unfortunately we're coming from a 'minus' position due to that being totally and utterly misunderstood," he said.

Sunday Indo Business

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