Irish property developers rising like a phoenix

Like a phoenix rising from the ashes there is a new vibe and a new confidence in the Irish property market which proved to be one of the more challenging areas in light of the 2008 US led mortgage crash. When you consider that the so-called “bad bank” NAMA was effectively forced to acquire unviable property loans from the Irish banking community this perfectly reflects the situation at the time. Indeed a phenomenal €74 billion worth of property loans were required by NAMA for a seemingly knockdown price of €32 billion.

However, it is common knowledge that without this intervention the Irish property market would have imploded.

Why the renewed confidence?

While Ireland was forced to go cap in hand to Euro partners for a bailout due to not only an economic slowdown but an array of financial scandals, the recovery has been quicker than many had expected. However, new build numbers remain painfully low although a number of properties have been sold on or transferred out of the NAMA set up.

So, while there is perhaps renewed confidence, albeit a fragile confidence, amongst the property development community there are many challenges ahead.

Housing shortage

In what has been an extremely volatile 20 years or so for the Irish property market the country is now in dire need of new homes. Indeed official government figures suggest 30,000 new homes per year will be required to fulfil current demand at an overall cost of €6 billion per annum. While this does not seem out of reach, bearing in mind the boom years of times gone by, it is not as easy as that!

While funding of €6 billion is required, official figures show that only €424 million of bank finance was made available to the Irish new housing construction industry in the year to June 2015. This is a woeful situation when you bear in mind the renewed demand for property. However, many banks had their fingers severely burnt when the property market crashed and are reluctant to dive in headfirst without more certainty on future economic performance.

Can the funding crisis be resolved?

A number of former darlings of the Irish property development sector have themselves emerged from the ashes announcing equity arrangements with an array of overseas investment houses. Historically the vast majority of new build properties in Ireland were financed by bank debt but this situation has changed. For the foreseeable future funding will be made available via equity stakes often negotiated with overseas partners. At some point the domestic investment arena in Ireland will become involved but at this moment in time it seems as though foreign investors are the only ones with confidence in the sector.

So, within the space of a decade we have gone to oversupply of new build properties in the Irish property market to a significant shortage. We can only hope for a smoother growth path in years to come but history shows that the property market is volatile and while lessons may have been learned from the 2008 worldwide crash, sometimes these memories fade fairly quickly.

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