Housebuilder fears sterling weakness will hit Irish costs

The decline of sterling will cause significant cost problems in the Republic, the executive chairman of listed housebuilder Abbey has warned.

In an interview after the group's annual general meeting in Dublin on Friday, Charles Gallagher said he "would not be the least bit surprised" if sterling fell to parity with the euro in the near term.

“The Irish economy generally suffers from quite high levels of cost and that is going to be a problem with this sterling devaluation.”

To be a buyer of sterling "you'd have to seriously believe that Brexit is going to lead to a successful outcome in the short term", he said, his comments coming as sterling breached 90p against the euro.

Mr Gallagher said he was very disappointed by the Brexit vote and “disconcerted by the direction” of British policy, “as are the markets”.

Despite the uncertainty, Abbey plans to invest a “substantial amount” in Irish housebuilding in near term, which would see completions here rising from 27 in 2015 to 60 to 70 this year and “comfortably” more than 100 in 2017.

Statement

In a statement to the agm Mr Gallagher described trading over the last few months as “satisfactory”, adding that the group remained on track “for a solid result”.

“In southern England business continues to be supported by the UK government’s Help to Buy equity loan programme. In Ireland our projects in Delgany, Cornelscourt and Ratoath are progressing well,” Mr Gallagher said.

However, he highlighted Irish cost issues, particularly levies and VAT on housebuilding in the context of Central Bank policies on curbing mortgage lending.

“If the Central Bank is going to have mortgage curbs and high deposits and there’s a feeling that we need to constrain the actual capital value of houses in the economy, well then we have to look very hard at the costs.”

Mr Gallagher also sees Ireland facing a new threat as the UK competes more aggressively for investment outside the EU. “As Britain gets hungrier, if things get tougher there, there’s 65 million people there and they’ll have to compete,” he said.

Closing the gap

“Ireland has benefited over time from its very competitive tax structure. Now the UK is closing the gap,” Mr Gallagher said.

" [The UK] has been attracting inward investment because it has been a major centre in the European Union. That reason for investing in Britain will no longer exist."

Mr Gallagher said this would mean investors would be seeking new reasons to invest in the UK."That means probably in reality, like it or not, they will probably have to become even more competitive. And they will want Apple, they will want Google, they will want HP."