The completion of new homes in Ireland may fall by up to 40 per cent on last year’s levels because of delays caused by coronavirus.
A new Knight Frank report estimates that even allowing for a two month delay in production on new homes schemes followed by an easing in Covid-19 restrictions, strict social distancing rules will slow down project completions.
“We expect that new completions in 2020 will be substantially down on the 21,241 units delivered last year, and the market could see a reduction of between 25 per cent to 40 per cent in output,” said Knight Frank new homes director Ray Palmer-Smith in the report.
It predicts that once restrictions have been lifted, social distancing measures will limit workers allowed on site and their interactions with each other, which will slow project completion.
It anticipates delays in the connection of utilities and services to new housing developments as where two utility engineers typically visit a site, only one will be allowed.
Similarly, there will be delays at builder merchant yards where customer access will be restricted, and global supply chains are likely to face delays in accessing materials overseas.
While Knight Frank expects large developers to complete planned housing phases which are already under way, small to mid-size developers may hold off on starting new units. “Developers still repairing their balance sheets from the last economic downturn will especially be cautious in this regard.”
With developer confidence already adversely impacted by Brexit uncertainty, followed by a shock general election result here in February, new completions were on course to be negatively affected compared with last year. Now the latest restrictions on construction are expected to further impact housing output.
Developers will also be more concerned if there will still be buyers for their homes once the crisis recedes. The widespread loss of jobs and reductions in wages will impact on the ability of buyers to obtain mortgages.
Those with mortgage approval already in place may need to be reassessed if their financial circumstances have changed, and the report also speculates that mortgage rates could rise.
“Evidence from Canada shows that mortgage rates started to rise at the beginning of the crisis before falling as a result of the monetary stimulus unleashed by the central bank. However, north American banks are in much better financial health than European banks, and it is not certain that rates in Ireland will not rise as a result of Covid-19.”
Knight Frank New Homes saw a drop of 25 per cent in new inquiries in March, although Palmer-Smith says the impact has been mitigated by the adoption of virtual viewings, and some sales are still taking place.
He anticipates any fall off in new homes output will be matched by a fall off in buyers no longer able to avail of mortgages, and demand will hold for the reduced level of stock.
“Competition from those seeking to acquire and move into a new home in 2020 will ensure demand for the reduced level of stock delivered in 2020.
“While the residential market as a whole will likely see some price adjustments in the short-term, the scope for these in the new homes market is more limited because of this.”