Irish Property Market chat II - *read mod note post #1 before posting*

hometruths

https://www.boards.ie/discussion/comment/120664079#Comment_120664079

No idea of new build market but what you say about Greystones doesn't surprise me.

But it raises an interesting question.

Assume a big estate of 3 bed semis selling for 500 and something 12 months ago, with a new phase of identical 3 bed semis in same estate are now selling for 600 and something, a 100k increase. Or 20%.

So what is accounting for the 20% increase in price? Sure labour and any materials not already purchased will be significantly higher for this phase but according to the SCSI that's only 37% of the total cost of delivering the house. It seems highly unlikely that a 20% increase in the total price is entirely down to labour and materials.

From the rest of the list of SCSI costs it's difficult to see where such a dramatic rise could come from in 12 months.

The single biggest cost after the actual hard cost of the build labour and materials is the land acquisition cost, but presumably if it is in the same estate the land for this phase would have been acquired at the same time and price as the previous phase.

So where has the increased cost come from?

Or is it most likely that the developer is charging what the market will bear (and understandably so), and most of that increased price is down to demand, and in a breakdown of costs the SCSI way it reflects an increased developers margin?

And if he is about to start constructing the next phase of that development, but he thinks the market will bear 20% lower in a years time is he likely to say sod that I am not going to take the risk?

Or is he likely to say that's the swings and roundabouts of the market, I'll carry on and deliver the houses?

It's not impossible to imagine a scenario in which a 20% drop in prices doesn't result in a total cessation of supply. Particularly if there is a 3% zoned land tax to deal with.

Murph3000

https://www.boards.ie/discussion/comment/120664032#Comment_120664032

Pretty odd statement to throw out with the disclaimer, "as far as I remember". According to Raisin bank they are guaranteed by the EU Directive 2014/49/EU. Irish banks guaranteed by the central bank of Ireland. Call me paranoid, but I dont trust any financial institution.

"They arent paying higher interest rates for the craic". I believe they are just passing on rates on offer by other European Banks. E.g. several banks in Italy, France, Germany offer these rates to their customers.

Dont get me wrong, I wouldnt stick all my cash in Raisin, but I wouldnt stick all my cash anywhere.

Murph3000

https://www.boards.ie/discussion/comment/120663975#Comment_120663975

Because they have a large amount of cash on deposit and they are probably squeezing the non bank mortgage providers out of the market.

DataDude

https://www.boards.ie/discussion/comment/120664273#Comment_120664273

Yes all very valid points. The only thing I would say is while build costs might only be 37% of the total cost. Most of the other factors are also inflating significantly and are in some shape or form linked to wages (site development, marketing, professional fees). Wages in the construction sector are rocketing no doubt. Finance costs could also conceivably have doubled or worse.

That said, you are right on value of the land and this is ultimately the ‘floating variable’ that links the cost of building a house and the price it can be sold out.

House prices could drop much more than 20% and remain viable in places like Greystones assuming land values fall (which they should).

It’s the parts of the country where land values are lower because sale prices are much closer to total construction costs where the concern would be.

Murph3000

https://www.boards.ie/discussion/comment/120664184#Comment_120664184

Exactly, lots of older people with big funds in the bank, basically those people are paying to keep other peoples mortgage rates low.

There may be a realization that they cant squeeze already struggling mortgage holders.

Blut2

https://www.boards.ie/discussion/comment/120663858#Comment_120663858

The issue is from an interventionist state (ie SF government) point of view it doesn't actually matter if the developers don't build. If developers stopped building all new construction next year, and say a 5-10% vacant property tax was brought in as a result, they would be forced very rapidly to sell their vacant sites to the state rather than let them sit there idle for potentially years.

The state would then build social/affordable housing on said cheaply bought sites, using the construction workers who are no longer employed by the developers.

The state has no lack of finances for building social/affordable housing bear in mind - it literally has billions of euros sitting, unable to be spent, for just this use. The issue is getting construction workers right now. So developers going out of business, and suddenly a lot of construction workers being available for hire, if anything solves the problem rather neatly.

hometruths

https://www.boards.ie/discussion/comment/120664325#Comment_120664325

The problem with these calculations is they work out hard costs - labour/materials etc - per sqm to get that cost and then calculate many of the soft costs eg land acquisition etc via a % of the total expected cost based on the hard costs.

But it bears no reality to either a) what the house actually costs the developer to build and b) what the house actually sells for.

For example you mention things like sales/marketing/legal fees etc, yes they might be higher now than 12/18 months ago in the real world for a private seller selling a single house, but if you look at the figures quoted by the SCIS they're just arbitrary figures thrown out as industry standard.

There is no way those costs have dramatically increased in 12 months for a developer selling Phase 3 who has already used Sherry Fitz to sell Phase 2. If selling prices have increased you can be sure all SF had to do was slap a banner on the myhome ad saying Phase 3 released, and email the waiting list they picked up in Phase 2.

And there is no way a developer selling 250 cookie cutter houses at 370k a pop, is paying 8400 per house in sales and marketing etc as quoted by SCSI.

But SCSI produces these figures based on percentages and comes up with the figure of 370k to build the average house. And then everybody says "Oooh the price of an average house cannot possibly fall beneath 370k or else developers will stop building because they need an 11% margin, the SCSI said so."

It's total nonsense!

Yes, there is not as much fat on the bone in Carlow as in Greystones, but there is fat nonetheless.

The land tax is key. If works as intended in theory it could bring costs down across the board, by removing the incentives to make inefficient use of undeveloped land.

If it is paired with a vacancy tax which removes the incentives to make inefficient use of existing built property it is very easy to imagine a world where prices drop, supply remains constant and everyone picks up cheaper houses.

It's only fantasy land stuff because that world puts the fear of god into politicians!

Dav010

https://www.boards.ie/discussion/comment/120664441#Comment_120664441

The developers/contractors will rub their hands with glee at the mere thought of what you posted.

J_1980

https://www.boards.ie/discussion/comment/120664441#Comment_120664441

There is an insane amount of refurbishment opportunities available. There is way more to be made and it can be 0% tax if you’re smart around it as a builder….

working for the state as a tradie in a fully taxed job is insane in current state. Just go to oz/uk and make serious money.

hometruths

https://www.boards.ie/discussion/comment/120664184#Comment_120664184

I think that's more of the how they are keeping rates relatively low rather than the why.

I presume its political.

RichardAnd

https://www.boards.ie/discussion/comment/120664340#Comment_120664340

This is true. I actually know people who have been sitting on 300k in savings for a few years. I have about 10k in cash in the bank and that's it; everything else is in investments or the house. Keeping cash these days is, sadly, madness.

BlueSkyDreams

https://www.boards.ie/discussion/comment/120664320#Comment_120664320

Not wholly relevant to the subject matter, but with respect to bank strategies, what do people think the traditional irish banks will do to contend with Revolut?

Revolut are planning to offer mortages before the end of next year, with significantly reduced application and processing time and lower mortgage rates for customers due to lower processing costs.

I dont know what kind of scale they will offer their product at, but surely it has the potential to be a game changer in a small market like ireland.

fliball123

https://www.boards.ie/discussion/comment/120663858#Comment_120663858

Want to build your talking like they dont have to make money to stay in business, its a kin to a hair dresser running an business and thinking I am not sure if I am going to cut hair and then expect to stay in business. There is no pause button here and all covid business supports are gone. My Enmity is due to the fact that they are making a lot of profit and there is gouging going on in the areas of extension work. They are business people I still don't know how a developer continues being a business person with out developing :) .. Investment is going to be way down as the cheap credit tap has been turned off.

BlueSkyDreams

https://www.boards.ie/discussion/comment/120664468#Comment_120664468

Is it not the case that the 3% vacant land tax has been evaded by approx 50% of land owners?

If so, if SF increased it to 5% or 10%, would owners still be able to evade it with ease?

Also, the vacant property tax of 0.3% seems incredibly low.

Why is this not increased?

It always amazes me that even in very expensive and high expenditure areas of Dublin you will see some commercial buildings sit idle for literally years. Right on the main street.

Surely that kind of practice should be made unviable for the property owner.

fliball123

https://www.boards.ie/discussion/comment/120663991#Comment_120663991

The price drops currently happening are function of our demand. People were struggling to get on the ladder this time last year so in the time between then and now interest rates have rocketed up, not only would potential buyers be paying a lot more just on interest alone they would have to pay more for the property price increases that happened up until 6 months ago. Remember people are also dealing with other inflationary issues such as food, energy, petrol and a lot of people are struggling and the people that are struggling tend to be those who are younger and not on the property ladder. The banks stress tests will also be taking would be buyers out of the market as well.. Price rises to date have been a function of our limited supply and what the rising interest rates have done is reduce demand via affordability the only way this will reverse this is if interest rates start dropping again and that will not be happening any time soon (I reckon at least another 2 years before we see this happening). There are more properties coming on stream according to daft it is rising slowly but surely. Once again expecting those buying to pay more and more and allow construction companies keep their billions in profit margin is not going to happen and proof is in the pudding if prices keep dropping for the foreseeable its a sure sign we have hit the affordability ceiling with housing and the construction industry will have to make a choice from the choices I outlined above in a previous post.

fliball123

https://www.boards.ie/discussion/comment/120664079#Comment_120664079

Well it may take a bit of time but it will have to be passed on if rates continue to rise. The thing is with the first time buyers mechanisms, it would mean that these guys would have to see a serious drop in property price to realise any kind of negative equity for example with the 30k FTB to start you off you would need to see a fair drop in price to realise a loss. Having said that there will be a lot of FTB now looking on at price drops and may well actually for the first time in a decade think this time next year I could get a place cheaper. Also the banking stress tests and mortgage repayments will take people out of the demand via affordability. We will also see more government interference in the market and I will put money on one thing the government will introduce tax relief on mortgage interest next budget another way to keep prices from falling.

fliball123

https://www.boards.ie/discussion/comment/120664184#Comment_120664184

This will be changing already there is fear in Irish banks of deposits running for the hills in search of more favorable saving rates. Raisin are upping the game 3.6%, it wont be long before the the big 2 have to pivot

Dav010

https://www.boards.ie/discussion/comment/120665110#Comment_120665110

Crikey, that is insane.

Businesses want profit, and if your business isn’t maximising profit, your acumen has to be questioned. If they charge market rate, they are not gouging, and if you pay a gouger rather than someone who offers better value, that is on you.

Your analogy is a poor one, it would be more relevant if you said it was like a hairdresser who isn’t busy, laying off un needed staff or closing a couple of days a week to reduce costs. If developers don’t see good market conditions, they quite rightly will wait until the market/costs improve again.

Timing belt

https://www.boards.ie/discussion/comment/120664868#Comment_120664868

It’s a business decision not political.

if they increase lending rates they will lend less out as demand will fall off. Their Mortgage books will then start shrinking as more is being repaid than lent out. They then have to buy assets with a lower return than lending and Share price falls as a result…

fliball123

https://www.boards.ie/discussion/comment/120665249#Comment_120665249

How is it insane I think a business hitting the stop button because they may not make as much profit as they were is insane. So what do they do? Can they afford to just stop and expect the business to stay viable? There is also a ticking clock of the shinners getting into power here and they have been quite vocal about how they intend to deal with developers. So once again can they afford to just let things lie and if so for how long? The two viable option they would of had up until now to stay afloat would of been loans which are now a hell of a lot more expensive and in 2 months time they will be more expensive again if they are looking to get by using credit and government interference which as pointed out now has a time constraint. So your opening line "business wants profit" I have pointed out now on multiple posts they have been making a very healthy profit margin and if they stop building they may well move from a "business want profit" mantra to a "business wants to survive" proposition. Also the knock on impact of them not building will be a further drop in raw materials less demand will push that price point lower.

Villa05

https://www.boards.ie/discussion/comment/120665057#Comment_120665057

Where did you see that?

If they are going into mortgages, one would suspect they would launch a competitive savings product first.

That may well be the catalyst for a flight or significant rate hike in deposits/mortgages at our banks

Blut2

https://www.boards.ie/discussion/comment/120664475#Comment_120664475

But your argument was that developers would just not build and drop out of the market and that that would be a problem for the housing market.

When in reality as fliball123 has outlined if developers stop building they very rapidly either fire all their contractors, or go bankrupt, or both.

Which if the state had no spare funds would absolutely be a problem because the building of new houses would stop, and unemployment would rise. But for Ireland now thats not an issue, the state will just hire every single unemployed construction worker they can get their hands on for their own currently massively overfunded projects.

Dav010

https://www.boards.ie/discussion/comment/120665364#Comment_120665364

Ok, our State has little if any track record of delivering on big capital projects. You only have to look at the debacle that is the children’s hospital to realise how inept they are, and yet you think the State should undertake huge housing development projects? It would be lunacy.

If the State did decide to become a developer, they would have to employ the very people some love to hate, developers and contractors for the projects. And we all know how that works out. Again, lunacy.

My argument is that developers are profit driven. If projected profits make a site development a risk, then they will postpone that development until conditions improve. Yes they will lay off un needed contractors, they have done it before.

fliball123

https://www.boards.ie/discussion/comment/120665430#Comment_120665430

True they made a sh1tshow of the childrens hospital, but you have to be realistic. If construction stops the government have no choice but to pick up the slack and build and it could well play into their hands having a lot of construction workers not working and assets that developers cannot use and could be purchased on the cheap. Put it this way they cannot just sit on their hands either as the shinners are stage left waiting to enter the fray. Developers are in straightened times with regards to credit and how that impacts their liquidity and on the clock with regards to their buddies in government.

AdamD

https://www.boards.ie/discussion/comment/120665364#Comment_120665364

I don't think the state would start employing construction workers. They'd do deals with contractors instead.

fliball123

https://www.boards.ie/discussion/comment/120665473#Comment_120665473

That is true of "this government" as I said this option is now time limited with an election coming.

wassie

https://www.boards.ie/discussion/comment/120663929#Comment_120663929

Danish online bank Bunq is paying 1.56% interest, paid monthly. Easy to open with an Irish IBAN.

I think there is a lot of decent cash amounts sittin in savings accounts for house deposits that folks are too scared to move for fear it will upset their AIP. In reality, any money sitting in a savings account of a regulated bank thats available at call and protected by the EU Bank Guarantee should not pose a problem.

DownByTheGarden

https://www.boards.ie/discussion/comment/120665364#Comment_120665364

Wow. You would think we have never seen that happen before :)

fliball123

https://www.boards.ie/discussion/comment/120665577#Comment_120665577

It happened in 08 - 12 yet back then we were knocking down ghost estates as we over built. The same cannot be said about today the difference is the number 1 issue within our country is housing. So you can smile and laugh about and deny this but the truth is if developers stop building they have no where to turn, a new government with the shinners at the helm will not be as pliable as FF/FG have been with regards to the protection of their really high profit margins and housing will be built with or without the current crop of developers. These guys have to make a decision to either build or hit the wall and someone else will do it.

wassie

https://www.boards.ie/discussion/comment/120665473#Comment_120665473

Exactly. The state has no capacity to employ and manage construction works directly. To do so would require serious project/construction management & site supervision capability which the state lost years ago.

It could be done, but setting it up would be a great cost and need to be a long term investment which is not politically compatible with short term election cycles.