Budget measures aimed at rebooting apartment building should be the final piece needed to make “a majority” of planned schemes viable, the country’s largest home builder has said.
Michael Stanley, chief executive of Cairn Homes, said a suite of budget measures announced on Tuesday, together with new apartment construction guidelines unveiled during summer, are probably worth about €70,000-€80,000 per apartment.
“The budget measures, when considered in conjunction with the other measures [earlier this year], will make a very significant difference to apartment output and should make the majority of [plans] viable,” he said.
“This is absolutely enough to be the tipping point – helped by the fact that building cost inflation is very low again, after a few tough years.”
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Michael O’Flynn, chairman of O’Flynn Group, one of the country’s largest privately owned home builders, said Paschal Donohoe’s move to cut the VAT rate on the sale of completed apartments to 9 per cent from 13.5 per cent “will be a help towards viability”.
The Minister for Finance also announced in his budget speech that he would introduce enhanced corporation tax deductions for certain apartment construction projects and conversion of non-residential buildings into flats.
He will also exempt rental profits from cost-rental scheme homes from corporation tax and will give landowners facing residential zoned land tax more time, into 2026, to progress development plans.
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Other measures aimed at boosting housing supply include an extension of a scheme allowing part repayments of stamp duty on the transfer of land that is subsequently developed for residential purposes.
There will also be supports for “over the shop” premises to be converted into residential units in cities and certain major towns.
Irish apartment completions fell 24 per cent last year to 8,763, dragging the total number of new homes down almost 7 per cent to 30,330.
Market observers say apartments will need make up a large portion of total completions if the Government is to have a chance of reaching its target of 300,000 new homes built by 2030.
The Land Development Authority (LDA) and approved housing bodies have been the main buyers – and forward funders – of apartment schemes in recent years amid a market failure in this segment of the property market.
A Department of Finance paper last year highlighted how the viability of building apartments for sale to owner-occupiers had worsened over the years as building and financing costs surged. It put the cost of developing an average two-bed apartment at €450,000-€550,000, while the median price for flats was €330,000 in Dublin and €265,000 nationally.
Overseas private rental sector (PRS) investors, which had piled into the apartments sector in the second half of the last decade, largely evaporated from 2021 amid spikes in interest rates and construction costs.
However, industry players say there has been a pickup in PRS interest in the market in recent months following a drop in borrowing costs and planned tweaks to the Irish rent caps regime.
Pat Farrell, CEO of lobby group Irish Institutional Property, said the budget measures were a “positive step”.
“It’s moving us closer to closing the viability gap on apartments. If the Government is aiming to build an average of 50,000 units per annum, 25,000 of those will have to be apartments,” he said.
Eddie Byrne, CEO of Ires Reit, the country’s largest private apartments owner, said: “People are definitely going to go back and have a look at a lot of schemes to see if the figures work.”
He said if Ires Reit’s share price rose to a level where it could consider raising fresh equity then he would look to use the group’s balance sheet to enter into forward-purchase deals with developers.
