New homes market slows down
With the supply of new builds rising and price inflation slowing, the new homes market should be flourishing. But a combination of Brexit fears and economic nervousness has produced a cooling down, writes Fran Power
The autumn season for new homes is up and running and, given the various market indicators, it looks like an ideal time to buy. The supply of new builds is higher than it has been for more than a decade. Prices are more or less static in Dublin. There are even price drops in some of the higher-end markets. The Help to Buy (H2B) scheme is giving a leg up to first-time buyers saving for deposits, while high rents mean that, for those who can afford to buy, it is cheaper to do so than rent. Furthermore, interest rates are forecast to stay low for the next five years, so a buyer can lock into a mortgage at an attractive fixed rate.
But economic indicators are one thing. How confident we feel as buyers is another. And a look at the latest Daft.ie price report, published today, and recent price reports from IPAV (Institute of Professional Auctioneers and Valuers), as well as the official CSO figures show that the market is definitely cooling.
"There is," says Austin Hughes, chief economist at KBC Bank, "a pause or a speed bump."
Transactions for the year to date are down. The number of new homes sold in Dublin for the first six months of the year was 1,733. Last year, that figure was 2,112. Across the country as a whole, transaction numbers for new home sales are also down by 6pc, according to figures just in from Daft.ie.
"The question," says Hughes, "is not what will I pay, but will I leap or not."
From a buyer's point of view there are a number of factors at play.
"The most immediate issue is uncertainty about Brexit," says Hughes. "I think that may cast a shadow over those buyers and builders' perceptions of where the market is going."
Other ''known unknowns'' include uncertainty about whether the H2B scheme will be extended in Budget 2020, and the possibility of the mortgage lending rules being tweaked.
"A series of unfortunate events are combining together and making people a little bit nervous," says Hughes. "That nervousness, remember, is born of the lessons of the last boom and bust, so it is understandable that when there is any edginess in the market the reaction is quite pronounced."
Beyond the immediate uncertainties, says Hughes, there is the issue of the balance between supply and demand and the perennial question of whether we are building the right houses in the right places at the right prices.
Over at Sherry FitzGerald New Homes, managing director Ivan Gaine agrees that the combo of Budget and Brexit is a challenge for the moment.
Sherry FitzGerald are launching new schemes in Dublin 18, luxury houses at The Nurseries, and a range of apartments at Trimbleston, both in Dublin 14, while in Glenageary, apartments and houses are launching at Feldberg. Roughly 80pc of their new home sales are priced at €500,000 or under, and so are aimed at the first-time buyers' market and will potentially be affected by any changes to the H2B scheme.
But it's not just buyers who are affected, says Gaine. The knock-on effect will be to hit supply too.
"If you're looking at funding a project, if you're looking at taking on labour, if you're looking at acquiring land, you're in the place of going, What do I do? It's really tough."
John McCartney, director of research at Savills, has a different take.
"Housing output has gone through a bit of a dip. The rate of growth in new housing completions has slowed a bit between Q1 and Q2, but I think that will recover again in the second half of the year."
The slowdown is due, he believes, to the introduction of new planning guidelines for apartments last March, which meant no one wanted to press 'go' on a development until they saw the changes.
"Once they came in, in March 2108," says McCartney, "you got a jump in commencement notices and eventually the lagged effect of that will hit in the second half of this year."
He points to planning permission figures published by the CSO last week which show a 156pc rise in apartment schemes approved over the same quarter of last year. Prices for apartments, of course, continue to rise - both in the cities and around the country, signalling that a strong demand still exists. However, many of the new units approved were build-to-rent apartments, so they will not be available to FTBs or downsizers.
Commuter belt grows
The exodus from the city centre continues. Business has been brisk so far this autumn - particularly in the market below €450,000 says Will Coonan of Coonan New Homes, who handles many of the schemes launching in North Kildare, South Meath and West Dublin.
Most of these schemes comprise three- and four-bed houses, and roughly 50pc to 60pc of the buyers he deals with are FTBs. Of those, roughly half are commuting to the city facing long drive times to secure a more affordable property. There is at least a increased supply of new homes to choose from. According to the latest Daft.ie figures, the number of transactions rose from 25pc to 31pc of house sales for the first half of 2019 in comparison with the previous year.
"The availability of land in the commuter belt is better," says Will Coonan, who points out that the flurry of schemes is due to an adjustment, "because we came from such a collapse - from building almost no houses a year, to building around the 20,000 mark - it feels like there's a lot going on, but we're just getting back to a normal level."
Gemma Lanigan of DNG New Homes agrees that increased supply is affecting the commuter belt. "There is a lot more competition between developments. Take for example Naas, where Castle Farm is - there are six competing developments out there. What is happening is that, instead of one scheme selling 30 on a weekend, each scheme is selling five or six. The volume of purchasers hasn't necessarily increased - but definitely the volume of what they can buy has, in certain locations where there is land."
And that, it hardly needs saying, is good news for buyers.
Regional cities lag behind
While Cork has seen an uplift in the number of new schemes coming to market, in other regional cities supply is still a trickle. "It's a little patchy in terms of performance," says Ivan Gaine. Galway, he says, is seeing next to nothing in terms of new schemes.
"Limerick has been ok," he adds, "but again the price points are lower and the viability is pretty narrow [for developers] in terms of the margins there."
Supply may suffer
Gaine points out that while supply has increased, there are potential problems in the pipeline for developers and by extension for the delivery of homes to consumers. "Permissions are being granted, but that doesn't mean they are being built," he says, pointing out that the questions of viability and affordability need to be addressed together.
"I would be cautious rather than complacent in terms of where supply is coming from because we can see it slowing down somewhat," says Gaine. "A little bit of it is Brexit-related, but a lot of it is cost and viability."
It is important to take the long view, says Hughes. "The economy is still healthy. We still have a shortage of new homes and we're back to the point when new house prices are rising more slowly than wage growth, which is a trend we haven't seen for a very long time. All of those would point to what is quite a healthy market and those longer terms fundamentals will reassert their influence in time."