Top Construction & Property Stories: Year in Review 2016

We hope that 2016 has been a good year for you and yours and we would like to wish all our readers a Happy New Year and a prosperous 2017.

As the year draws to a close, and as we prepare to celebrate the New Year, Construction Network Ireland looks back on 10 of the biggest stories of 2016 in the construction industry to look at – topics that engaged and enraged, many of which will continue to play out in the year to come.

Housing

If analysis, reports and soundbites could solve any issue, then the housing crisis in Ireland would have been solved comprehensively in 2016.

Local authorities, banks, and government all released detailed analyses of the issues which have caused the backlog in the construction of new houses, while ignoring their own part in causing the current crisis.

In an attempt to put a cohesive plan in place, Minister for Housing Simon Coveney launched his much anticipated “Rebuilding Ireland – Action Plan for Housing and Homelessness“, a plan that raises as many questions as it answers.

One such question – given only 72 homes have been built by local authorities in recent years, how will they now build 40,000 in the next five years? Where will construction workers come from and what will be done to address wage inflation in the industry.

As the plan was analysed it also emerged that, in the time-honoured practice of Irish governments, large parts of the reports were merely a re-hash of previous government promises.

Shortly after the report was launched, Minister Coveney had to concede that the 47,000 social houses promised under the plan included the 35,000 previously promised by Minister Alan Kelly in 2014. At the time, it was believed that just 75 of those had been built.

The report does include a provision for a fast-track process for planning which would be extremely welcome, as well as an investment of €5.3 billion by the Department of Expenditure and Reform, but whether or not this was a PR announcement or a serious start to addressing a genuine crisis remains to be seen.

Sky High Rents

The major shift in Irish society from a nation of owner-occupiers to a nation of renters was underscored by quarterly ESRI statistics released by the Residential Tenancies Board which showed that 20% of Irish people now live in rented accommodation.

One of the knock on effects of a lack of housing stock available is that rents will start to creep up, and that has been the case for the past five years – in 2016 that creep turned into a gallop.

As always, what happens in Ireland happens even more so in Dublin and rents in the capital are now officially at an all time high. By mid-year the figures released by the Residential Tenancies Board, showed that rents in the capital were up by 10 per cent.

The rest of the country is seeing rents rising significantly too, although despite this rents outside of Dublin still have not hit peak rates.

Rent Controls

In a bid to bring some control to the market and protect renters, the Minister for Housing brought in a bill to bring in rental controls in high demand areas in Dublin and Cork.

The rationale given was that some areas are seeing significantly higher increases than the market average and need to be slowed down, while areas that are not increasing by the same amount do not need any market interference.

While this was a clumsy enough approach, it was made even clumsier by Fianna Faíl, whose support the minority FG government needs to pass any bill, declaring that 4% was far too much and that areas of Galway, Limerick and Waterford, along with some commuter towns (but not others) should also be included.

Things got clumsier still when Sinn Feín found an apparent loophole in the legislation, which means that prices could increase by up to 8% when the current two year moratorium on increases lapses.

The bill eventually passed mostly unchanged, but this is a story that will have profound effects on supply of rental properties in these markets – whether or not is has a positive effect remains to be seen, as the supply of rental accommodation may trickle to a halt in 2017.

Mortgages – what mortgages?

Many of those renting are looking to buy, and a large problem with producing new housing stock is in getting first-time buyers on the property ladder.

According to figures released by the Central Bank, almost 60 per cent of houses that were purchased during 2014 were for cash, little surprise given the difficulty many first time buyers are having getting mortgage approval.

When the figures for this year are collated and released they will not be much better. Part of the problem, according to research by the Economic and Social Research Institute (ESRI), Irish banks do not have enough available funds to solve the mortgage crisis.

Where the money is needed to fix this issue is not clear.

First time buyers

In an attempt to stimulate this market, the government launched an incentive scheme for first-time buyers of new homes.

The scheme gives first-time buyers of new homes with a mortgage of more than 80 per cent of the buying price up to €20,000 of the purchase price based on tax paid over the past four years.

The scheme was back-dated to January, so many first-time buyers who had not gambled on the scheme will be happily surprised, many for the first time, with a budget announcement.

While the scheme is certainly a start and will be popular with young first-time buyers, it does little to improve supply or to make the business of construction in Ireland any less complicated.

Student Housing

One of the positive developments of 2016 was the rapid increase in purpose-built student housing in university cities in Ireland.

Construction is underway in Dublin on 1,900 purpose built student housing units which will be brought to the market next year, according to figures compiled by Dublin City Council.

Purpose built student accommodation can be built quicker and is also not subject to the high-spec regulations that has made smaller apartments financially unviable for most developers. The added bonus is that freeing up rooms previously occupied by students helps increase stock available for non-student renters.

UK Company Ziggurat, was one of the first to the market when it bought and redeveloped the former Montrose Hotel and the company is now also developing properties in Dublin, Cork and Galway.

Among the properties Ziggurat has purchased is a site on Dominic St, close to Bolton St, where it is developing 380 new units.

The development of more purpose built student accommodation is essential – the situation is so dire that the Union of Students in Ireland (USI) wrote to 100,000 households asking them to consider renting a room to a student in an attempt to alleviate the housing crisis.

Commercial Real Estate

Commercial real estate in Ireland saw one of its strongest years of sales ever, despite a slowdown in the value of NAMA sales in the second half of 2016.

At the start of the year, it was predicted that there would be in excess of €3 billion in commercial real estate transactions in 2016 – there was €2.9 billion in the first half of 2016 alone.

As a result, estimates have been revised up significantly. Real estate firms Cushman & Wakefield and JLL are predicting that by the end of 2016 the total value of commercial property transactions in Ireland will be between €3.7 billion and 4 billion.

If the higher estimate is born out when figures are tallied in early 2017, it would represent a 7.5 per cent increase on the 2015 figure.

Some of the biggest sales of the year were of shopping centres – Dundrum, Liffey Valley and Blanchardstown all changed hands for eye-watering amounts, but there were also a swift trade in regional shopping centres.

The Hotel industry also saw a flurry of investment – at the start of the year, it was expected that sales for hotels in Ireland this year could top the €1 billion mark for the first time.

Given the sales of Beacon, Morgan and Spencer hotels; the Gresham, the former Burlington Hotel, along with dozens of smaller properties in Dublin and around the country, this figure looks set to be easily exceeded.

The possible slowdown in the tourism industry next year, when the weak sterling is expected to hit numbers from the UK may slow this market in 2017.

Foreign Investment

Foreign investors love it here – Kennedy Wilson has invested north of €1 billion in the Irish property market since 2011 and earlier this year the company’s Chief Executive Bill McMorrow described Ireland as “the most attractive property market in Europe“.

More than three-quarters of properties which sold for more than €1 million in Ireland over the first 6 months of 2016, were sold to foreign investors, according to research conducted by CBRE and Allsops – these included hotels, shopping centres and residential properties.

While investment was welcome when the country was on its knees, the volume of sales means there is a serious danger of imbalances in the market.

The IMF has issued a warning over the level of foreign investment in the Irish commercial property sector – the worry is that the recent influx of foreign investment in Ireland could go out like the tide if market sentiment changes.

In a bid to calm down this flurry of investment, as part of the Finance Bill Minister for Finance Michael Noonan announced that overseas property investment funds would be subject to a new 20 per cent tax on profits from 2017 on.

The new levy is a withholding tax, which means it must be held back by fund managers before any profits are distributed to investors or shareholders, meaning it will be paid to the Revenue Commissioners regardless of where the investors are based.

Project Eagle

One of the biggest property stories of the year was the curious tale of NAMA’s Northern Ireland property portfolio and the very curious manner in which its sale came about.

The package of 850 loans, codenamed Project Eagle, was sold to US vulture fund Cerberus for about €1.6 billion and the deal has been mired in controversy since the get-go.

The Comptroller & Auditor General, whose remit includes deciding whether the state has gotten good value for money, published a report which claimed that NAMA sold the portfolio for at least €220 million too little.

NAMA disputed the report and said that the C&AG’s staff were under-qualified to make the assessment, and a series of hearings in front of the Public Accounts Committee (PAC) became increasingly acrimonious.

It later emerged that the National Crime Agency in the UK is investigating some aspects of the sale – this is a story that is going to run and run.

And finally…

Brexit

The story of the year for the construction industry was not actually a story related to construction, or at least not directly.

The fallout from the decision by the UK to leave the EU will have profound consequences on the Irish economy and by extension the Irish construction industry in the years to come.

On the positive side, it looks like there will be some movement of major multinationals and some UK firms to Ireland for at least part of their business, which will bring some jobs, investment in office and housing, to Ireland.

Extra pressure will be put on existing infrastructure and the market for high specification office space looks set to be firm for the foreseeable future.

On the negative side, the UK still makes up for a large proportion of Irish exports – food and construction materials in particular. If/when British Prime Minister Theresa May triggers article 50 early next year it could have a devastating knock-on effect on the Irish economy.

The choices made by the UK – and the US as well – in 2016 will effect Ireland’s small, open economy for years to come, and by extension on the Irish construction industry.

Or it could all be fine, as Theresa May and President-elect Trump clearly think.

Whatever happens, the year to come is going to be an interesting one – let’s enjoy the last few hours of 2016 while we can!