• Home
  • NAMA property for sale
  • About
  • The Developers
  • The Tranches

NAMA Wine Lake

Click the green link above for latest news and over 2,600 related articles. NAMA – National Asset Management Agency – part of Ireland's response to its banking crisis and property bubble

Feeds:
Posts
Comments
« Cork mega auction of 65 properties with maximum reserves of €9.9m. Result : 2 properties sold for €95k
NAMA chairman interview on RTE Radio – agreement on just one developer business plan “close to finality” »

What do you think of competition in the property sector in Ireland? I think it would be a good idea (with apologies to Gandhi)

June 25, 2011 by namawinelake

(1) Why are construction costs in the Republic of Ireland twice those in Northern Ireland?

(2) Why are prime rents in Belfast one half of those in prime Dublin?

(3) Why has residential property dropped by more from peak values in Northern Ireland than in the Republic?

If Irelandis serious about regaining its competitive edge, perhaps one of the first steps needed is to make the National Competitiveness Council (NCC) more competitive. On Thursday (June 23rd, 2011), it produced its annual “Cost of Doing Business in Ireland” 2011 competitiveness survey using figures, mostly from….. 2009. So if you want to read an historical text, you might get some satisfaction from the NCC’s annual report. If you want to know about what has been generally happening in the past 18 months, look elsewhere. This entry examines what the report had to say about property.

But first, turning to the three questions at the opening. The Society of Chartered Surveyors in Ireland annually publishes rebuilding costs in the Republic, their latest survey is analysed here. In Northern Ireland the Association of British Insurers (ABI) /RICS Building Cost Information Service has a calculator (free registration required) which calculates rebuilding costs. In the Republic rebuilding costs this year vary between €119-169 psf; in Northern Ireland, as of this morning the standard cost of rebuilding a 1,000 sq ft 3-bed semi-detached house is GBP 69,000, that is GBP 69 psf or at current exchange rates of GBP 1 = €1.1252, €77.64 psf. So why does construction cost one price in Dundalk in the Republic, yet in Newry, 23kms away it costs 50% less? Wages, and in particular the wages set out in the Registered Employment Agreements (REAs) might be partly to blame but if you’re a building company in the Republic you pay 12.5% corporation tax and 26% in the North, so should high wages and low corporation tax not cancel each other?

Secondly, according to its most recent annual outlook, property powerhouse CB Richard Ellis reports that prime office space rents for €15 psf inBelfast and €30 psf inDublin. Okay Belfast is still by some standards a regional backwater without the financial services or technology hubs that exist in Dublin, scenes of savagery in the Short Strand this week will not help the city’s image and the corporate tax rate in the UK is still 26% and the betting on here is that Northern Ireland will find it difficult to financially justify lowering that rate on a regional basis because of the accompanying cut in Westminster funding that under the EU Azores principle must accompany the setting of regional differential tax rates. Northern Ireland is also in the sterling area and international companies prefer the stability (!, yes even after this week’s events in Greece) and lower currency risks of being in the bigger currency. But still, that our costs are twice those of Belfast?

As regards the third point we have really beaten ourselves up in the Republic over the collapse in the property market. We lost the run of ourselves, we had easy money stuffed down our throats to buy houses, planning authorities were greedy and incompetent, the financial regulatory system let us down, government was venal and hubristic, the media changed perceptions with the  sexy portrayal of property, prices spiraled out of control ending up costing more than eight times the average wage, we were building half the number of houses each year of the UK which has 15 times the population, ghost estates in the middle of no-where, the ECB taking its eye off the ball….. Right, so why is it that property prices in Northern Ireland are down 44% from peak whilst in the Republic they’re down by just 40.8%?

In truth the report by the NCC does tangentially address some of the above issues, but what it fails to do is to explicitly expose the extent of the anti-competitive practices in the Republic. It does refer, softly, to the following:

(1) The creation of residential and commercial property registers to foster price discovery which may lead to a better functioning marketplace

(2) The abolition of upward only rent review clauses which mean that for some commercial tenants in Ireland, they are paying rents appropriate to the boom.

(3) The examination of Joint Labour Committee agreements (JLCs) and REAs to foster a better functioning labour market

(4) Reform of personal bankruptcy arrangements

Property costs are dealt with from page 42 of the NCC’s report. It might be of interest that there is a suggestion that the normal vacancy rate in Dublin is now 15%, up from 7% previously and that there is an imminent shortage of large-scale prime property.

Share this:

  • Twitter
  • Facebook
  • Reddit

Like this:

Like Loading...

Related

Posted in Irish economy, Irish Property, Politics | 14 Comments

14 Responses

  1. on June 25, 2011 at 1:33 pm Laura

    I’d like to add to this – why is average rent on residential property equivalent to 45% of average take home pay? Rents have only fallen in the upper tranches of properties, barely at all in the lower end.


    • on June 25, 2011 at 1:42 pm Mark Mc Hale

      Agreed


      • on June 25, 2011 at 1:49 pm namawinelake

        @Laura/Mark, I suppose relatively high levels of Rent Assistance might be partly to blame. Here are the latest levels and there is much anecdotal evidence that these allowances are distorting the market

        http://www.welfare.ie/EN/Schemes/SupplementaryWelfareAllowance/Pages/RentSupplement.aspx


  2. on June 25, 2011 at 1:55 pm Brian Flanagan

    Very interesting post which suggests that property prices are a long, long way from the bottom. Maybe, someone could drill down into the NI and ROI building costs to identify the differences for materials, supervsion, labour, plant hire, fees etc.


    • on June 25, 2011 at 2:20 pm namawinelake

      @Brian, “Maybe, someone could drill down” Someone like a competition council, maybe a national one!


    • on June 25, 2011 at 4:31 pm Laura

      The other question is why commercial property owners are prepared to leave empty buildings with zero income rather than accept reduced rents? They can only do this if they can afford to, or if not acting this way would upset the cartel by enabling a general price fall? Still it should not be worthwhile to be able to indulge a rate of zero. So why have vacancies climbed faster than rents falling?


    • on June 25, 2011 at 6:05 pm SG

      Don’t comparisons with NI have to start with the fact the UK debased its currency by 25%. Good neighbours!


      • on June 25, 2011 at 6:22 pm namawinelake

        @SG, fair point but when a country’s currency devalues, that makes their exports more attractive to countries with stronger currencies. So how many Northern Irish building firms have been engaged on work here in the Republic? Because that should have been a natural consequence of devaluation. And if they did devalue and construction materials became cheaper then presumably we would have started imports from Northern Ireland; where’s the evidence of that?


  3. on June 25, 2011 at 2:18 pm KOR

    I think there may be less of a problem than you think. The question is whether the SCS figures are correct. I am reliably informed that buildings costs are about €60-70 per square foot to first fix.


  4. on June 25, 2011 at 3:03 pm who_shot_the_tiger

    In Dublin, it costs €125,000 to build a standard 1,000 sq. ft. 3 bedroom semi detached home. That includes development, siteworks, fees and local authority contributions. It excludes any offsite costs, VAT, land, overheads and profit.

    Brian’s point about drilling down in order to identify the anomalies is an excellent one and something that I would have done a few years ago out of pure curiosity, but today…. I couldn’t be bothered. Two parish pump entities, one rowdy the other supine, both in different ways living off their neighbours.


  5. on June 25, 2011 at 6:59 pm Sporthog

    @ Laura,

    The cost of providing a residential property is so high that it is a struggle to make a profit. The revenue have a IT 70 form which explains various costs which can be included and not included.

    For example, buy a two bed apartment for 200K in South Dublin. Here would be some of the costs.

    Insurance 350,
    Block management fee = 1200,
    Interest on 200K at 5% = 10,000, but only 75% of this cost can be offset against profit for taxation purposes.

    Capital repayments = The money that you pay back to reduce the loan, this cannot be used in profit / loss calculations.

    NPPR fee = 200, again this cannot be subtracted from your profit, and may be increased to 500 / year in the next budget.

    PRTB Fee = 70E per tennant,

    In addition there are high social costs, damage by other tennants to the communial areas, i.e. elevator, underground car park, damage to carpets, windows. This would be reflected in the management charge.

    Furniture / fabric maintenance of the apartment, allowed 15% of this cost over a certain number of years, I think 6, thereafter dropping to 10% for the next 4,

    In addition there is your own time which you have to spend maintaining the property, dealing with tennants, sorting out problems, finding new clients etc.

    So when you sum it all up, I don’t believe it makes a good business plan. Landlords are operating in the realm of taxation on a loss, more and more costs to the landlord are being introduced / increased which cannot be subtracted against income for taxation purposes.

    The only real gain might be in capital appreciation of the property in the long term, but this is looking very unlikely for a number of years to come, perhaps 5 or 7. And if you do buy low now, and sell high in 15 years time you will be liable for Capital gains tax. Unless you live in it for more than 12 months prior to selling it.

    There is also the part V risk factor, where if you buy in a upmarket new housing estate, the local council can put in 25% of the units as social housing. I believe the affordable aspect of Part V is no longer in use. This may have an impact on the value of your investment, depending on your perspective of course.

    You would actually make more money on deposit in a savings account, and just paying dirt tax of 25% on the interest earned. Less hassle, and depending where you put your money, less risk.


    • on June 25, 2011 at 7:32 pm Brian Flanagan

      @Sporthog

      Good comprehensive reply. You say (correctly I’m sure) “You would actually make more money on deposit in a savings account, and just paying dirt tax of 25% on the interest earned.”

      This is also true of very many other business sectors. In the past, I have done several studies of profitability in the SME sector which showed that ROCE was often quite high while profit margins were slim or non-existent. However further probing showed that the capital employed in many of the businesses was negligible (due to overdependence on trade credit, short-term loans and mininal profit reserves). In most cases the businesses were really “working for their bank”. After allowing for risk, they would have been better off running a savings account as their business.


  6. on June 25, 2011 at 8:07 pm Sporthog

    @ Brian Flanagan,

    Well ultimately in the example I gave above it would depend on the rental income, I would imagine it would be in the region of around 900 / month. Which would make 10,800 per year. Even if you got 1,000 / month that is still only 12,000 year. The numbers just don’t add up. It’s just not profitable.

    Trying to find the sweetspot, where the landlord does make a profit, the tennant gets accomodation of a good standard at a reasonable rent, and the taxman takes a fair cut is not easy.

    Unfortunately it appears to be the conundrum where it is more profitable not to provide a service, not just in rental property, but as you have mentioned in other areas of business.

    Why take the risk? Especially with interest rates going up, our bankruptcy laws (Change for 2012?), taxation rules changing, and the risk of Part V,?


  7. on October 6, 2011 at 2:14 pm Only 3.5m sq ft of vacant office space left in Dublin city centre « NAMA Wine Lake

    […] a deal on Liam Carroll’s 300,000 sq ft building which was earmarked to become Anglo’s HQ. The historical vacancy rate in Dublin has been […]



Comments are closed.

  • Recent Posts

    • Test – 12 November 2018
    • Farewell from NWL
    • Happy 70th Birthday, Michael
    • Of the Week…
    • Noonan denies IBRC legal fees loan approval to Paddy McKillen was in breach of European Commission commitments
    • Gayle Killilea Dunne asks to be added as notice party in Sean Dunne’s bankruptcy
    • NAMA sues Maria Byrne and Graham Byrne in Dublin’s High Court
    • Johnny Ronan finally wins a court case
  • Recent Comments

    Wisemama on Eddie Hobbs’s US “partner” fir…
    Dorothy Jones on Of the Week…
    Sean Bean on Eddie Hobbs’s US “partner” fir…
    John Foody on Of the Week…
    Wisemama on Eddie Hobbs’s US “partner” fir…
    otto on Of the Week…
    Frank Street on Of the Week…
    Wisemama on Eddie Hobbs’s US “partner” fir…
    John Gallaher on Of the Week…
    John Gallaher on Of the Week…
    who_shot_the_tiger on Eddie Hobbs’s US “partner” fir…
    Sean Bean on Eddie Hobbs’s US “partner” fir…
    otto on Of the Week…
    Brian Flanagan on Of the Week…
    Robert Browne on Gayle Killilea Dunne asks to b…
  • Twitter Updates

    • Funniest case in Irish legal history? 1. ex-Cllr Fred Forsey convicted of RECEIVING a corrupt payment 2. developer… twitter.com/i/web/status/1… 3 years ago
    • Really looking forward to this at 9pm tonight, esp the first Garda on the scene. Well worth reading this background… twitter.com/i/web/status/1… 3 years ago
    • Tea time on the day the president of the ECB tells us we [in Ireland] are paying more interest on our loans than th… twitter.com/i/web/status/1… 3 years ago
    • “I am grateful for you to refer to Mr Sugarman...on the specific question of Unicredit, responsibility at ECB lies… twitter.com/i/web/status/1… 3 years ago
    • @JMcGuinnessTD now confronts ECB about "the honest whistleblower" @WhistleIRL and his disclosures of liquidity issu… twitter.com/i/web/status/1… 3 years ago
    • Details, including court documents of class action in New York against Ryanair and CEO Michael O'Leary.… twitter.com/i/web/status/1… 3 years ago
    • Draghi tells @paulmurphy_TD the ECB doesn't remove govts, the people do, that's democracy. Bet the people will be m… twitter.com/i/web/status/1… 3 years ago
    • Wow! Draghi says there is no net interest cost for the Anglo bonds whilst they're held by the Irish central bank. T… twitter.com/i/web/status/1… 3 years ago
    Follow @namawinelake
  • Click on date for that day’s posts

    June 2011
    M T W T F S S
     12345
    6789101112
    13141516171819
    20212223242526
    27282930  
    « May   Jul »
  • Blog Stats

    • 5,104,381 hits

Blog at WordPress.com.

WPThemes.


Privacy & Cookies: This site uses cookies. By continuing to use this website, you agree to their use.
To find out more, including how to control cookies, see here: Cookie Policy
  • Follow Following
    • NAMA Wine Lake
    • Join 10,037 other followers
    • Already have a WordPress.com account? Log in now.
    • NAMA Wine Lake
    • Customize
    • Follow Following
    • Sign up
    • Log in
    • Copy shortlink
    • Report this content
    • View post in Reader
    • Manage subscriptions
    • Collapse this bar
%d bloggers like this: