Land takes a pounding in 2007

mastermind2005

Development Land Land values are back by 25 per cent, demand is down by around 60 per cent and an estimated 50 per cent of sites remained unsold this year, writes Fiona Tyrrell

After years of staggering growth and record prices the development land sector ran into difficulties in the second half of 2007.

For many years development land was the star performer with record prices being achieved every year. Now altered lending policies from the banks and the slowdown in the residential housing market have combined to impact negatively on the number of sales of sites and the values being achieved.

Land values are back by 25 per cent, demand is down by around 60 per cent and an estimated 50 per cent of sites remained unsold this year.

Earlier this month the largest and most important remaining site in Sandyford, Dublin 18, sold for €15 million less than its guide price of €90 million.

Despite its high-profile location and good transport links, the five-acre site at Blackthorn Avenue, Dublin 18, sold for around €75 million through joint selling agents CB Richard Ellis and Savills HOK. Had it been sold 12 months previously it would have made up to €40 million more.

Other notable transactions during 2007 were the sale of the Burlington Hotel in Dublin 4. Bernard McNamara acquired the 3.8-acre Burlington site from the Jurys Doyle group in March for €288 million. He also spent about €100 million buying adjoining land that was formerly the headquarters of Allianz.

There is still activity in the market, but it is at adjusted levels. This is driven by the lack of debt available in the market.

Banks are now looking for more equity from builders.

Financial institutions want 50 per cent cash from buyers, compared to the 25 per cent last year, according to Garvan Walsh from Kelly Walsh. "Unless you are a serious player the banks don't want to know. The day of the part-time developer is over and the banks don't want to know about provincial sites."

The slowdown in the housing market is also having an impact on values, he says.

With so much unsold stock, developers are having a hard time convincing their bank managers, and indeed themselves, of the merit in building more, according to Walsh.

Ronan Webster from CB Richard Ellis agrees: "There are people out there willing to buy but they have to demonstrate that you are reflecting current bank and market conditions."

Banks are now looking much more closely at developers, their track record and the site in question. "Banks are looking for a demonstrated track record in securing planning permission and getting developments across the line," says Webster.

Silent investors have disappeared from the market in the last couple of months, he adds. Private investors providing mezzanine finance for developments are a thing of the past.

In general, commercial development sites fared best in the sector and continued to attract good demand particularly in Dublin, Galway and Cork, according to Donal Kelleher from Savills HOK.

In the residential sector it was infill residential sites with planning permission in Dublin, Naas, north Wicklow and established commuter towns which did the best.

There remains a considerable volume of land in provincial locations unsold at year-end, according to Kelleher. "We expect the content of schemes in some of these towns to be reassessed where higher density planning permissions are no longer viable in the current market. Many of these areas will see a return to traditional lower density housing."

All commentators agree that the record number of housing completions in 2007 will fall dramatically.

An estimated 45,000 new home completions are expected in 2008. In the second half of this year lower land values have been recorded across the board.

The number of unsold sites is high. One commentator estimates that only half of all sites put on the market were sold this year - another agent believes that demand is down by 60 per cent on last year.

While there were fewer public sales, by tender/auction in the second half of 2007, there are more and more sales by private treaty and off-market but at a slower pace and reduced rate, says Kelleher.

As a result, agents are becoming more selective in the sites they take on. Land owners have to realise that buyers won't pay for it all at once, any more, and may look to stagger payments over a 12 to 18-month period, according to Walsh.

An average apartment site in Dublin was selling at €150,000 per unit last year - now that has dropped to €100,000, says Walsh.