Insolvent developers are going to have to bite the bullet and sell off their apartment schemes at a loss of €50,000 per unit, writes JACK FAGAN

SPECULATION as to the property disposal plans of the various banks has become something of an obsession for much of the real estate industry as it grapples with diminishing values and an ever-increasing number of insolvent properties. Equally interesting will be the decision by developers to accept – or not – Nama’s advice to offload impaired assets and loans.

No one seems to have escaped the blitz, from the owners of modest two-up, two-down homes in the poorer areas of Dublin to those living on the more fashionable roads where houses sometimes look as though they are suffocating in luxury and brashness.

A great many of the properties bought in recent years are down in value by up to 50 per cent and, while this obviously means that they are in negative equity, the banks have no option but to sit tight as long as the mortgage arrangements are functioning.

It is a different matter altogether where completed or partially-built apartment developments are closed up waiting for Nama to adjudicate on the developers’ business plans.

Most of these schemes are currently in limbo and, though selling agents have had regular approaches from individuals wanting to buy some of the homes at current market values, they have been unable to do business because of the absence of a response from Nama.

Ultimately, this stock will have to be sold at much reduced prices. However, with so many heavy hitters from the estate agency business now employed by Nama, there is little chance of the market being flooded with apartments lest it should lead to a further fall in prices.

Even at the revised values, many builders stand to lose up to €50,000 per apartment for the simple reason that site costs in the boom years generally worked out at about €100,000 per unit and building costs were running at €130 per sq ft.

Last week’s sale in the Dublin Docklands of new one-bed apartments from €190,000 and two-bedroom units from €230,000 may well be seen as a benchmark for future sales in the city, even though they were specifically aimed at young people on the affordable housing list.

For those with a preference for the outer south Dublin suburbs, there should be plenty of opportunities to buy in Sandyford where there are well over 1,000 unsold apartments. Two-bedroom units should be available from between €200,000 and €260,000 – back to 2002 values, when sanity prevailed – if the developers are serious about shifting them.

Any developer unhappy about the prospect of selling at these values need only look at Wyckham Way, where one-bedroom apartments were making €410,000 during the 2007 boom. For the same money today, a buyer will get a four-bedroom house in the same area.

But then we should remember that residential developers are not the only ones with serious challenges ahead. Many of them will be only too happy to recall that during the boom years they were outbid for some of the best located and most expensive development sites.

As the property bubble got bigger and bigger, the limelight was seized by groups of business executives who, in a fit of avaricious madness – not to mention vanity of finance – believed that they too could make a killing from yet another apartment scheme. Some of these aspiring developers will shortly have an opportunity to explain to Nama how they plan to repay their extravagant borrowings. Ouch!

Though there are local and overseas buyers prepared to pitch for the best of the sites, the revised values are unlikely to be anywhere near 50 per cent of the original selling price. And it will be considerably worse for those who bought development land in provincial towns and villages. The market for these sites has been seriously eroded and it could be many years before a bank will be prepared to fund their development.