The supply of development land coming to the market has steadily increased since early last year. The catalyst for landowners releasing their land on to the market was the reduced capital gains tax (CGT), introduced for disposals of development land in the Finance Act 2000.

Another factor, which encouraged owners of residential development land to sell - particularly in recent months - was the impending rise to 60 per cent in the rate of capital gains tax, which was scheduled to come into effect in April, 2002.

In a surprise move, the Minister for Finance, Mr Charlie McCreevy, announced in the Finance Bill on February 6th that the proposed increase to 60 per cent would not be implemented and that the rate was to remain at 20 per cent. Mr McCreevy stated that the threat of facing the higher rate of CGT had done its work - in that a significant amount of residential land had come on stream since the proposed increase was announced.

While to some extent this is true, delays in the planning process have meant that housing is still not coming on stream at the necessary rate, despite the availability of land for residential development.

If the 60 per cent rate were implemented, the market would potentially have become flooded with land available for sale as the deadline approached. Many developers were holding off purchasing land until later in the year for this reason.

Because of the uncertainty about the 20 per cent allocation of sites for social housing, land prices have fallen in the last year. Another factor resulting in downward pressure on land prices is escalating building costs in the construction sector. Building costs alone rose by almost 20 per cent last year.

New homes and apartment prices are no longer keeping pace with rising construction costs. This is having a major impact on land values. However, if, as expected, a large volume of land was to be put on the market later this year and early in 2002, in advance of the proposed increase in CGT, price levels would undoubtedly come under further pressure this year.

In our opinion, land prices have now levelled out and the economics of supply and demand will mean that values will begin to increase again towards the latter half of 2001 and into 2002. This has been underpinned by the Minister's new measures on CGT.

The major problem is the lack of supply of residential land with the benefit of planning permission. The lead-in time is so long that developers who have land with permission are not trading that land on to other builders - but are keeping it for their own use. This is set to lead to a reduction in the supply of new homes for the next two to three years. It will therefore increase the sales value of new homes, especially in Dublin.

There is huge demand for housing land, more so than apartment sites, as restricted building finance from institutions and the fact that investors are now out of the market has brought into question the development of apartments in some locations.

This is especially true for small towns/villages on the periphery of the greater Dublin area. I would advise landowners and architects to favour housing developments rather than apartment developments, as the site values are greater for housing units and carry much less risk for the prospective purchaser. Prime apartment sites in Dublin city will still be in strong demand.

Another issue is the huge supply of land and planning permissions in rural locations where demand is questionable. Surely it would be preferable to put more effort into speeding up decisions in the planning departments of the major cities.

Our research department has recently prepared a report on the housing market, The Realities of the Housing Market, which indicates that there is still a severe mismatch between supply and demand in the residential sector, particularly in the greater Dublin area. This indicates that demand for well-located residential housing unit sites will continue to be strong in coming years. Delays in the planning system will ensure that land with full planning permission will still achieve a premium.

Uncertainty on land values, restricted bank lending and the impact of new legislation has led to much confusion in the development land market. Getting proper advice has never been more essential.

Garvan Walsh is an associate director of Insignia Richard Ellis Gunne