Developers forced to sell new homes at a loss

PROPERTY developers have been forced to sell many new homes at a loss this year due to the downturn in the construction industry, according to leading builders.

The Irish Home Builders Association (IHBA) claimed yesterday that many of their members had to take a financial hit on the sale of new housing units just to stay in business.

The IHBA claimed such losses were incurred even before the cost of acquiring the site was factored into the equation.

With the supply of new homes far exceeding demand, the organisation said a majority of developers who have sold new housing units in Dublin during 2009 had suffered significant losses.

IHBA chairman Dominic Doheny said many developers were willing to take such a loss in order to keep some level of cash flow for their business.

In a new report: Housing Review 2009 and Outlook 2010, the IHBA maintained that prices of new homes had fallen by over 40% on a national average from a peak in February 2007 but that house prices have now reached “the bottom of the cycle”.

The organisation cited a wide range of developments in the greater Dublin area where there have been general price reductions in excess of 40%. For example a two-bed apartment at Beechpark, Leixlip, Co Kildare, is being sold for €175,000 compared to €325,000 three years ago – a 46% reduction.

A larger two-bed apartment at Carrickmines Green off the Glenamuck Road in south Dublin was on sale for €530,000 in 2006. However, its asking price has been reduced by 53% to €250,000.

Mr Doheny said house prices had fallen so far in many cases that they were at a level where they were below the cost of building a replacement property.

The IHBA, which represents 1,500 building firms, also claims the level of unsold houses is greatly exaggerated and that the overhang of properties for sale in the greater Dublin area represents less than eight months’ supply in more normal trading conditions and 12 months on a national basis.

Mr Doheny said that such figures indicated that there will a shortage of new homes in the capital once confidence is restored to the market. But the IHBA admitted that there were wide variations in the level of oversupply between different parts of the country. Mr Doheny predicted that it could take up to seven years to clear existing housing stock in some parts of the country such as Leitrim and Longford.

It is estimated that there are up to 40,00 unsold homes across the Republic, including 9,000 in Dublin.

The report states that planning permissions for new homes are at a 10-year low, with the number of new starts in 2009 down by up to 75% on last year.

The IHBA predicts that 28,000 new homes will be completed this year, but expressed concern that downturn in the construction market will continue well into 2010.

The association has also launched an initiative designed to assist people who are reluctant to buy a new house amid fears over their own job security.

The “mortgage shield” cover will mean house buyers will have their mortgage paid for up to one year in a three-year period in the event of being made redundant.

Tom Parlon, director general of the Construction Industry Federation, complained that tighter lending conditions by the banks for mortgages was acting as a severe barrier to prospective buyers despite improved affordability given falling house prices and lower interest rates.