Are the good times really back for the property business? Certainly a number of lead indicators are very positive with the best indicator of all, the crane count, at its highest level since the boom times of the early to mid 2000s.
While Dublin continues to push on, development activity in Cork is also very active.
In addition to the award-winning office building at One Albert Quay, the eastern end of the city centre is going to be further enhanced by Navigation Square, while the first new office build of any scale on South Mall for over 40 years is taking shape at JCD’s 85 South Mall development.
If you add in other quality developments such as Opera Lane and The Capitol, the shape of the city has been modernised and transformed in a really positive way.
Local Government is vitally important in ensuring that the “look and feel” of the city continues to improve.
There is a virtuous circle here in that new developments, fully occupied by multi-national and other tenants (apart from the obvious employment and other benefits) give City Hall a new flow of rates income which gives a great opportunity to further improve the public realm and put in place other investments to make Cork a more attractive city location.
Comparing the current market to the Celtic Tiger years, the big differentiator is how the market is funded.
Where the previous boom was largely fuelled by bank finance, it is almost non-existent in the current market and instead monies are being provided by a variety of sources, principally US and other foreign funders, who were never active before in the Irish market.
A number of new office developments have been able to avail of finance from such funds, who will lend based on a more sophisticated model than traditional lenders (without pre lets and so on).
Access to such funding has been important in kick-starting development which would never have come out of the ground if the more mainstream forms of finance were the only options available.
The flow of funding from these sources, together with other funding vehicles like private equity, has allowed for the transaction flow to continue to improve year-on- year and has brought much needed stability to the property market.
Government initiatives, particularly the CGT exemption for properties bought between December 2011 and December 2014, also helped to start the market transacting on a more normalised basis.
Although the stamp duty increase for commercial property purchases introduced in last October’s budget was disappointing, the market appears to have absorbed it and the negative effects of stamp duty for the market are at least partially off-set by the bringing forward of the CGT exemption period where properties purchased in the 2011 to 2014 window can now be sold free from CGT, once four years of ownership has passed.
Already our tax team in RDJ are advising on property transactions where the CGT exemption is in play and owners are looking to realise gains on properties acquired early in the recovery cycle.
We expect to see an increased level of transactions for the rest of this year and onwards into 2019, as it is an opportunity for vendors to take a profit without suffering any CGT dilution.
Looking at the property market outside of the commercial area, the big challenge remains the lack of residential development.
From our work with residential developers, it seems the main impediment to new residential building, certainly in the urban areas, has moved on from issues such as lack of funding and pricing levels, which did not allow sufficient return for the risk involved, to the non- availability of land which is serviced (or which can be serviced in the short term).
Various initiatives are in place at national government level to address this but progress has been slow.
Once the land is available (and zoning issues, which have been delayed by the Cork City boundary extension process resolved), we would expect to see an increased level of activity in the residential development area as a number of developers are sitting on the sidelines looking to start housing schemes to mop up the buyer demand.
So, as ever with the property market, plenty of challenges remain but overall our involvement in the sector is showing us a more mature active transacting market where investment yield, rather than capital growth, is key and one that is operating without the credit excesses that caused the Celtic Tiger era boom to crash land so spectacularly.
This new normal will do just fine for now.
John Dwyer, is a partner at Ronan Daly Jermyn
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