Funding of Dublin apartment schemes viable again, AIB says

AIB has decided it can start funding the building of apartments in parts of Dublin again – a decade after the property market imploded.

The State-controlled lender, in which the Government is currently seeking to sell up to a 28.8 per cent stake, has begun talks “in recent weeks” with developers for the funding of large-scale projects in Cherrywood, Dundrum and the docklands area in the capital.

That's according to questionnaire responses submitted by AIB this week to the Joint Committee on Finance, Public Expenditure and Reform, and to the Taoiseach, which have been obtained by The Irish Times.

“AIB is backing mixed housing schemes where apartments and houses are being built, but in terms of ‘pure’ apartment developments, we are only now getting meaningful engagement from the market on potential schemes,” AIB said. “We believe that the inflection point on viability has just been reached in suitable parts of the city.”

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Planning rules

Apartment building imploded in Dublin city during the downturn, with a contraction of bank financing exacerbated by tighter planning rules introduced at the height of the boom. A Government report in late 2015 found that excessive prescriptive planning standards – including restrictions on the numbers of apartments serviced by each lift and the numbers which had to have windows on two sides – had contributed to a “virtual collapse” in new developments.

The then minister for environment, Alan Kelly, loosened apartment design guidelines in late 2015 to allow for one-bedroom homes of as small as 45sq m and studio apartments in certain developments of 40sq m.

Financial industry sources said the economics of building apartments has been helped most recently by an ongoing rebound in apartment prices as well as the fact that some developers are looking at cutting the high cost of building underground car parks by constructing them half above ground.

Dublin apartment prices were rising at an annual rate of 8.6 per cent in April, outpacing house prices, according to Central Statistics Office data.

David Eherlich, chief executive of Irish Residential Properties Reit, which owns almost 2,400 apartments in Dublin and aims to develop a further 600, last month criticised aspects of planning laws for apartments – including requirements that half of such homes are "dual aspect", as well as parking and density rules – which are adding the cost of building.

The trust, which floated on the Irish stock market in 2014, is currently appealing a decision by Dún Laoghaire-Rathdown County Council in April to refuse permission for a scheme of 467 apartments at Rockbrook in Sandyford.

RTÉ site

Meanwhile, Cairn Homes, which in 2015 became the first Irish homebuilder to list on the stock market in almost two decades, this week agreed to buy 8.64 acres of land at broadcaster RTÉ’s Montrose complex in Donnybrook. The company plans to build 500 apartments and nine houses on the site, subject to planning permission.

Cairn Homes' chief executive, Michael Stanley, told reporters on the sidelines of the company's annual general meeting in Dublin last month that apartment building is the clearest way to meeting rising demand for housing the Dublin. He said this is especially the case if Dublin is to secure a large slice of financial services activity that is set to leave the City of London for other European Union locations ahead of Brexit.

AIB's submission to the Oireachtas committee said: "While apartment viability will remain challenged in the medium term, AIB is striving to be the chosen bank for several large-scale apartments during the remainder of 2017 for delivery during 2018-2019."

The bank said it would typically provide debt financing for up to 65 per cent of the total cost of an apartment development, including the site value.