House prices may be ‘corrected’

CHAIRMAN of house building group Abbey plc Charles Gallagher warned yesterday that a 15% to 20% house price correction in the Irish market cannot be ruled out.

Ruling out a house price collapse because of the low interest rate environment and reasonable economic prospect, Mr Gallagher said that, once demand starts to wane in this country, a "significant correction rather than a house price collapse cannot be ruled out".

However, he doubted if the environment was there to create the kind of negative equity witnessed during the Thatcher era in Britain. Back then interest rates doubled in a short period from 7% to 15% at a time when people were seriously over-borrowed.

Mr Gallagher was speaking after his group reported strong first half profits that saw the group's share price rise by €1.110 to €8.40 in Dublin yesterday in early trading.

The group has declared an interim dividend of 10c per share.

In the first half a strong performance in Ireland and good margins from its British housing operation saw pre-tax profits pace ahead by 36% over the same period last year to €28.8m.

Turnover for the six months to end of October was €93m, an increase of 5.6%. "Firm prices supported margins on our UK activities compensating for lower volume. As indicated at the year end Ireland is enjoying a very strong year," he said. "Looking forward, the housing division is on course for significantly more sales in the second half."

The company completed 354 sales in the period 163 in Britain and 191 in Ireland.

During the period, Abbey added 361 plots with planning permission to its approved land bank. Contracts were exchanged for the purchase of an additional 350 plots subject to necessary consents.

Joint venture turnover arising from plot sales at Abbey's development in Clonsilla, Co. Dublin totalled €1.5m generating an operating profit of €981,000. M&J Engineers, its UK plant hire business, generated operating profits of €1.12m on a turnover of €9.88m.

Overall given the state of the two economies Mr Gallagher is forecasting about 1,000 houses being constructed.

In the Irish context he said it was imperative the government continues to address the infrastructure deficit as a matter of urgency. Looking ahead Mr Gallagher said expansion into the Czech Republic, specifically Prague, is a distinct possibility.

The move is currently under investigation and, with EU accession coming up, Prague should provide the group with decades of house building opportunities.