| 6.7°C Dublin

Working out what's a fair price for a house

It now costs €197,080, excluding VAT and land costs, to build a new, three-bedroom semi-detached house

For home buyers who wonder what price to pay for a house there are various ways of calculating what might be considered a fair price.

The most obvious one is to check with agents about what prices similar houses in the same area have sold for recently. Another way of assessing value is to check if the house would generate a rental return, after taxes and other costs, of over 7pc a year -- just above the return from government bonds.

These methods will provide some reassurance that if you had to sell the property in the morning you are more likely to get most, if not all, of your money back.

Yet another way is to compare the price to be paid with the actual costs of construction.

According to a special survey conducted by the Irish Home Builders Association (IHBA), it now costs €197,080, excluding VAT and land costs, to build a new three-bedroom, semi-detached house in a housing estate anywhere in Ireland. When VAT of 13.5pc is added, the cost increases by €26,606 and comes to a total of €223,686.

If, however, your house is not a 110 sqm three-bedroom semi then the Society of Chartered Surveyors Ireland offers a website calculator, which offers an alternative indicator for the cost of re-building a number of house types in various parts of the country -- www.scsi.ie.

It shows that such three-bedroom semis in Dublin could cost more than €194,480 to rebuild after allowing for site clearance, etc.

This is well above the price at which houses are selling for on average around the country, which is estimated at about €157,600. In Dublin, the average house has been estimated to sell for around €187,000. But of course, in sought-after areas they are much higher because site costs in those areas are also much higher.

Nevertheless, most semis in estates around the country are selling for below construction costs.

Buyers are getting even better value when some site costs are taken into account. While recent guide prices for ghost estates suggest that sites with partly built houses are asking less than €3,000 per site in small towns in some areas of the country, nevertheless quantity surveyors Walsh Associates, who undertook the IHBA survey, suggest allowing an average of €25,000 for a site for a semi-detached house.

Responding to the study, Construction Industry Federation (CIF) director, Hubert Fitzpatrick said: "This study reveals that despite the downturn in the economy and the construction industry, house builders are still facing relatively high costs as they look to build in the current environment.

"According to the recent ESRI paper on the Irish housing market, demographic pressures will mean that homes will have to be found for a minimum of around 15,000 to 20,000 households each year over the coming decade. The ESRI requirement of 15,000-20,000 new dwellings annually will not be satisfied until some balance can be struck between the construction costs of a new dwelling and the current sale price.

"While the latest CSO figures show a slight increase in residential property prices, particularly in the Dublin region, there is still a considerable gap between the cost of building a house and the average cost of a house in the marketplace.

"Construction costs must come down, sale prices must go up or there must be a combination of these factors if there is to be construction activity for new homes."

He also argues that the Government and local authorities could play their parts in bringing down the costs of building and buying new homes. He suggests cutting levies charged on new developments, which can exceed 10pc of the actual construction costs for a house.

Thankfully, some builders are continuing to build houses on demand in some areas such as Saggart and Donabate in Dublin as well as near Cork city. But a number of these are being built on sites where they have already paid levies and invested in infrastructure.

The risk is that with the shortage of houses already being signalled in some Dublin suburbs, the lack of new building will exacerbate the upward trend in prices in sought-after areas.

Indo Property