Property Market 2016

The_Conductor

If supply was increased- prices would fall. Economics 101.
You can cut taxes all you like- but if there isn't either an increase in supply- or a drop in demand- it won't have any effect or impact on prices.

Bob24

The_Conductor wrote: »

If supply was increased- prices would fall. Economics 101.
You can cut taxes all you like- but if there isn't either an increase in supply- or a drop in demand- it won't have any effect or impact on prices.

And even if you were to believe developers would magically pass the saving to property buyers (which I of course agree wouldn't be the case) ... I have a very hard time to believe there is scope for 100k of tax cuts on a 300k property.

They're really trying to misrepresent reality to blame others.

SarahMollie

I personally feel that developers will do their best to deliver any increased supply in such a controlled manner that prices likely won't fall much or at all. Also, there is so much pent up demand out there, that unless there is a sudden avalanche of supply, its unlikely.

More units in combination with the CB rules, should hopefully stop prices racing ahead however.

Bradz213

Bob24 wrote: »

"The Construction Industry Federation has said the cost of a €300,000 house could be cut to €200,000 if the next Government reduces tax levels."

Talk about giving unrealistic expectations ...

The builders are making very little at the moment. Any tax cuts won't see a reduction in sale price. It will be just give builders incentive to build.

Supply isn't going to make them drop. Why would builders build a house for a loss?

MayBea

El_Dangeroso wrote: »

I've a friend working in a bank who says she's constantly surprised with the cash otherwise modest-living people have tucked away.

She said there's much more cash than debt around in her experience.

And she is definitely right. The Irish households had a total of just over €95 billion on deposit at the end of November'16.
The figures from the Central Bank release : "The outstanding stock of Irish private-sector deposits totalled €176 billion at end-November. Of this, 54 per cent represented household deposits,.."

Cuddlesworth

Bob24 wrote: »

"The Construction Industry Federation has said the cost of a €300,000 house could be cut to €200,000 if the next Government reduces tax levels."

Talk about giving unrealistic expectations ...

I don't know about the tax levels, but if builders are selling new builds outside of Dublin for 200k, and similar houses in Dublin for 500k, its fair to say that reduced Taxes would make a small dent on house prices.

SarahMollie

Cuddlesworth wrote: »

I don't know about the tax levels, but if builders are selling new builds outside of Dublin for 200k, and similar houses in Dublin for 500k, its fair to say that reduced Taxes would make a small dent on house prices.

Not really, infact that doesnt matter at all.

If people are still willing to pay €500k in Dublin, the the price will stay at €500k and the builder makes more money. The only way prices fall is if there is a shortage of buyers willing to pay.

Also, cost of a site is way more in Dublin, so its not really a fair comparison.

dubrov

Cuddlesworth wrote:

I don't know about the tax levels, but if builders are selling new builds outside of Dublin for 200k, and similar houses in Dublin for 500k, its fair to say that reduced Taxes would make a small dent on house prices.

Bob24 wrote:

"The Construction Industry Federation has said the cost of a €300,000 house could be cut to €200,000 if the next Government reduces tax levels."

I think the suggestion was a 4-5% Vat cut. Somehow this converts to a saving of 100,000 for the buyer 😉

If the cut does go through it will really only benefit landowners. Land prices will rise to offset the reduction. Of course a lot of builders also own a lot of land.

Bob24

dubrov wrote: »

I think the suggestion was a 4-5% Vat cut. Somehow this converts to a saving of 100,000 for the buyer 😉

I suspect if you ask them to specify they will quietly say they were basing their estimate of a drastic reduction of VAT, excise duty, income tax, USC, and corporate tax in the construction industry (though I am not even sure it would be enough to shave 100k off the price). Clearly not a realistic assumption but it makes it easy to give crazy figures without being called a liar (their original sentences vaguely mentions "reduce tax levels", not clearly a 4% VAT cut).

PhoenixParker

I'd say they're looking to cut the development fees they pay to councils.

Sleepy

I'd say that 100k figure assumes that the government were to stop taxing any aspect of development, from development levies right down to VAT and PRSI.

I'm sure I'm right in assuming that a high percentage of the build cost of a house / apartment is labour. How efficiently are these developers managing that cost? Are they hiring contractors directly for each project or are layers of sub-contractors taking bites out of the cherry at each level? How much are the guys doing the building getting paid? Is there scope to hire cheaper workers? How are the architects, engineers and surveyors being paid? Is there room to reduce planning costs via re-use of plans etc.?

How is the plant being sourced? Is it being hired at a high daily rate so frequently that it'd make more sense for the development company to purchase their own (as has been the case frequently when I've done procurement analysis for clients).

If Finance is prohibitively expensive for developers can a public loan system be looked into for large scale development that incorporates an element of social housing? If developers are expecting 15% profit levels, why isn't competition driving some of them to build higher volumes at 10%?

There's room for efficiency gains in almost every business and with our current shortage, it seems we need to go the Ikea route with regards to construction: design once and well, build in high volumes and sell at low margins.

Villa05

Sleepy wrote:

There's room for efficiency gains in almost every business and with our current shortage, it seems we need to go the Ikea route with regards to construction: design once and well, build in high volumes and sell at low margins.

Tom Parlon will have a stroke

johnp001

Sleepy wrote: »

I'd say that 100k figure assumes that the government were to stop taxing any aspect of development, from development levies right down to VAT and PRSI.

I'm sure I'm right in assuming that a high percentage of the build cost of a house / apartment is labour. How efficiently are these developers managing that cost? Are they hiring contractors directly for each project or are layers of sub-contractors taking bites out of the cherry at each level? How much are the guys doing the building getting paid? Is there scope to hire cheaper workers? How are the architects, engineers and surveyors being paid? Is there room to reduce planning costs via re-use of plans etc.?

How is the plant being sourced? Is it being hired at a high daily rate so frequently that it'd make more sense for the development company to purchase their own (as has been the case frequently when I've done procurement analysis for clients).

If Finance is prohibitively expensive for developers can a public loan system be looked into for large scale development that incorporates an element of social housing? If developers are expecting 15% profit levels, why isn't competition driving some of them to build higher volumes at 10%?

There's room for efficiency gains in almost every business and with our current shortage, it seems we need to go the Ikea route with regards to construction: design once and well, build in high volumes and sell at low margins.

I agree with this, specifically the key point

why isn't competition driving some of them to build higher volumes at 10%?

The answer being that there is no competition thanks to NAMA where the guys at the top are paid not to build and that building in volume (or any other action that increases supply) would drive down the price of building land.
(Some, not all, building land is certainly held by some, not all, developers)

Another reason is that by not building the construction industry has now effectively lobbied/held-to-ransom into a position where it seems increasingly likely that government policy will be to directly increase their margins. In what other industry does the public clamour for the taxpayer to subsidise profit margins for private enterprise?

OfflerCrocGod

No mention of increasing the amount of land with planning permission thus reducing the cost of sites? Seems like an effective way of reducing the cost of building. Why is land/planning regulation always ignored?

Bradz213

10% isn't a good model. You want to making at least 25% for it to be viable. 10% leaves too little room for error

Sleepy

You expect to make a 25% net profit on a business venture? :eek:

Bradz213

May only make 15% but surely the plan should be to aim for 25%.

PhoenixParker

Sleepy wrote: »

You expect to make a 25% net profit on a business venture? :eek:

It's a multi-year project with high risk exposure so a 25% net profit isn't unreasonable. It's probably 6-7% a year and easily eaten up by poor management or sheer bad luck (bad weather, unexpected ground conditions, supplier failures, economic changes).

SarahMollie

Totally agree. A lot is invested in a building project and the money remains tied up for a considerable period of time. If factors change mid project, you can be left with a significant loss.

Sleepy

I'll hold my hands up, I was ignoring the multi-year part.

Obviously any improvements to speeding up planning should help developers to reduce their margins somewhat as the return would be over a longer period - just one more area that needs to be examined for efficiencies!

dubrov

Bradz213 wrote:

May only make 15% but surely the plan should be to aim for 25%.

These days, because the market is so volatile, if you aim for 15% you'll either lose 10% and are bust or make 40% and are a multi millionaire

dubrov

PhoenixParker wrote:

It's a multi-year project with high risk exposure so a 25% net profit isn't unreasonable. It's probably 6-7% a year and easily eaten up by poor management or sheer bad luck (bad weather, unexpected ground conditions, supplier failures, economic changes).

The capital is not tied up multi year though. Builders do phases and capital tends to be only tied up for 6-12 months depending on the size of the phase

OfflerCrocGod

dubrov wrote: »

These days, because the market is so volatile, if you aim for 15% you'll either lose 10% and are bust or make 40% and are a multi millionaire

The market is fairly stable, prices are flat in Dublin and rising slightly in the rest of the country.

Some of the UK house builders are making 20%+ gross margins and they are abnormally large. You don't expect to be making 20%+ margins for long before attracting competition but the housing market is restricted due to limited zoned land.

dubrov

OfflerCrocGod wrote: »

The market is fairly stable, prices are flat in Dublin and rising slightly in the rest of the country.

I can't see why you think the market is stable.

Here are the CSO stats (% change) in Dublin for the last 10 years
2006 18.2
2007 5.5
2008 -9.2
2009 -24.1
2010 -14.5
2011 -15.1
2012 -12.2
2013 8.4
2014 21
2015 10.2

The_Conductor

dubrov wrote: »

I can't see why you think the market is stable.

Here are the CSO stats (% change) in Dublin for the last 10 years
2006 18.2
2007 5.5
2008 -9.2
2009 -24.1
2010 -14.5
2011 -15.1
2012 -12.2
2013 8.4
2014 21
2015 10.2

You're looking at the figures over a 10 year period- if you instead look at it monthly basis- over the past year- what Croc is suggesting isn't a million miles away from what anyone would surmise.

Of course you'll have massive swings after the mayhem we've had in the Irish economy- the fact of the matter though is since last September- when the Central Bank rules kicked in fully- the situation has broadly stabilised.

c montgomery

dubrov wrote: »

I can't see why you think the market is stable.

Here are the CSO stats (% change) in Dublin for the last 10 years
2006 18.2
2007 5.5
2008 -9.2
2009 -24.1
2010 -14.5
2011 -15.1
2012 -12.2
2013 8.4
2014 21
2015 10.2

Wow that really shows how unstable the housing market is and has been.
Why can't we have a stable functioning market?

Gumbo

Sleepy wrote: »

I'll hold my hands up, I was ignoring the multi-year part.

Obviously any improvements to speeding up planning should help developers to reduce their margins somewhat as the return would be over a longer period - just one more area that needs to be examined for efficiencies!

You have to change the law for that to happen.
Currently people get 5 weeks to lodge an observation or objection to a planning application so this time cannot be altered at all.

The planner then has 3 weeks to consider the proposal.

I have 4 projects in for planning at the moment and 2 of the were decided after the 6th week so the planning process can be extremely quick depending on location. (DCC).

Villa05

The_Conductor wrote:

You're looking at the figures over a 10 year period- if you instead look at it monthly basis- over the past year- what Croc is suggesting isn't a million miles away from what anyone would surmise.

Could you say the same if someone was to look at the monthly figures for late 2007 early 2008

Soft landing or calm before the storm.

Property market as you are well aware has been dysfunctional for over 20 years

The_Conductor

Villa05 wrote: »

Property market as you are well aware has been dysfunctional for over 20 years

If you want to look at the longer term- go all the way back to the 70s and early 80s. Vicious swings are not a new phenomenon.

My point was the implementation of the Central Bank rules has resulted in prices stagnating by and large- its also resulted in the volume of property hitting the market, and that on the market- falling off a cliff- however, thats for another discussion.

We have, probably for the first time- measures in place- which went against the wishes of our politican classes and their short term opportunism- to try and smooth out the wilder excesses of our property markets. They are only imposing what would be seen anywhere else- as prudent lending obligations on our lending institutions- as they are seen as incapable of prudence in their own rights (and sure why bother being prudent- when the government will bail them out if they screw up- and not for the first time for some two of them..........)

The big issue now- is lack of supply- and a side effect of the Central Bank's measures- is that this constraint has been exacerbated- which wasn't highlighted as a potential side effect of the measures.

We need supply to hit the market- consistent supply- in locations where people want to live- and this simple *need* has not been addressed by anyone at all thus far.

Goat Paddock

dubrov wrote: »

I can't see why you think the market is stable.

Here are the CSO stats (% change) in Dublin for the last 10 years
2006 18.2
2007 5.5
2008 -9.2
2009 -24.1
2010 -14.5
2011 -15.1
2012 -12.2
2013 8.4
2014 21
2015 10.2

What a roller coaster. Bonkers.