It’s a south Dublin village, close to public transport, schools, the sea, and soon, thousands of new residents.
Yes, over the coming years, Stillorgan village is set to expand significantly, thanks to the construction of hundreds of new apartments. In the village itself, Cairn Homes is set to build more than 370 apartments on the old Blake’s restaurant site, while across the road, Kennedy Wilson is building more than 200 apartments at The Cornerstone, formerly home to Leisureplex bowling alley.
The developments, just some of the many under construction in the area, have much to appeal to residents, offering convenient locations, high internal specs, co-working spaces, gyms and residents’ lounges.
The demand for apartments is only from one customer – that's institutions
And yet it’s unlikely that even one of these apartments will ever be sold on the open market. Most are primed for the high-end rental market, with rents likely to be well in excess of €2,000 for a two-bed unit.
Yes these days, when a developer is pitching a new development for sale, they are only looking for one buyer.
And it’s not a situation specific to Stillorgan. At a time of a much discussed housing crisis, there seems to be only one customer for new-build apartments – institutional investors.
Stephen Garvey, chief executive of housebuilder Glenveagh, recently remarked: “The demand for apartments is only from one customer – that’s institutions. There’s no private demand out there, there’s no State demand out there.”
Indeed while local housing authorities did buy up a lot of new-build apartments for social housing, the Government has since changed tack on this.
So State demand is waning; but is there really no demand from first-time buyers or traditional apartment buyers out there? Or rather, is there simply no demand for apartments at prices that developers want to sell them at?
There is no doubting that the reputation of apartments with household buyers has taken a bit of a battering in recent years. Tales of multimillion bills for apartment owners to rectify fire safety and construction issues for boom-time apartments, has understandably made people wary of buying an apartment over a house.
Rising management fees are another issue, while in addition, the presence of the Central Bank’s mortgage rules do mean that buying a home, which someone might grow out of over time, may not make good financial sense.
Indeed among some new buyers, there is a sense that buying an apartment can be a waste of their first-time buyer (FTB) status.
This is because while a FTB only needs a deposit of 10 per cent to buy their first home, someone trading up needs 20 per cent, unless they can successfully claim an exemption.
Big properties take a long time to sell; apartments just turn over
Saving 20 per cent of the cost of a home can be very difficult, if not impossible for some would-be trader-uppers. And if their apartment doesn’t rise in value at the same time as house prices, it can make that transaction even more difficult, as the equity in their home isn’t keeping pace with house price growth.
This may put someone off buying a “starter home” which they want to move on from in a couple of years.
And yet it must be a leap to extrapolate the above into “no private demand”.
Given soaring house prices, not to mind ever more expensive rents, many would argue that if starter-home apartments were to be built, there would be interest in them.
On the second-hand market, south Dublin agent Janet Carroll says she has “no issues selling apartments whatsoever”.
Carroll is still seeing interest from investors, particularly from individuals with self-directed pensions looking to buy, or those availing of the immigrant investor programme to acquire an Irish residency visa by investing in Irish property.
For Carroll, selling an apartment can be quicker.
“Big properties take a long time to sell; apartments just turn over,” she says, adding that interest is also coming from international tech-sector workers and international investors seeking a safe harbour alternative to the UK.
Does she see demand for new-build apartments?
“Most definitely and I think it should be done,” she says.
After all, supply is minimal on the new apartments market.
Indeed while the Help to Buy scheme promises a tax rebate of up to €30,000 on the cost of a new apartment, it’s nearly impossible to find one that falls within the maximum purchase price of €500,000.
You are going to find it difficult to build apartments where apartments are not going to sell for a sufficient premium
At the time of writing, for example, we could find only 11 new developments where apartments are listed for sale in Dublin on both daft.ie and myhome.ie. But of these, only one, Aderrig in Adamstown, where prices have yet to be released, might actually be targeted at the typical FTB market.
Instead, where new apartments are being built to sell to individual buyers, it is very much at the upper end of the market; think Cairn Homes’ Donnybrook Gardens development, where prices start at €850,000, or The Pinnacle in Mount Merrion, where prices start at €760,000.
Knight Frank is the agent behind The Pinnacle, and also has a number of other high end apartment units coming to market shortly, aimed at the down-sizing/international-buyer market.
Ray Palmer-Smith, director of new homes with Knight Frank, says that 25 per cent of the units at The Pinnacle have been sold thus far.
As well as people looking to downsize and stay in the area they are familiar with, he says there is a lot of demand from Irish expats who are looking for a base back home, but may not actually look to live there.
“They’re not necessarily looking to move in the two to three years – it’s more of a five- to 10-year plan,” he says, noting that these buyers are coming from an international environment where it’s more of the norm to live in an apartment.
And they’re also willing to pay significant sums; sums FTBs and other buyers simply cannot afford.
“You are going to find it difficult to build apartments where apartments are not going to sell for a sufficient premium,” says Palmer-Smith.
Here lies the conundrum; building apartments is expensive, as we are frequently told.
Back in March, figures from Mitchell McDermott, a firm of project managers, showed that the cost of building a two-bed apartment stood at about €440,00.
Ireland is not alone in attracting a wealth of capital into the build-to-rent sector, but it does have specifics that make it particularly attractive to international funds
Meanwhile last year, the Society of Chartered Surveyors Ireland (SCSI) found that the cost of building a two-bed apartment in Dublin ranges from €359,000 for a low-rise unit in the suburbs, to as much as €619,000 for a high-rise unit in the city centre.
So, to make a development viable, the sales prices would need to be in excess of this.
As the SCSI report notes, “The viability of apartment delivery is the real impediment to making apartments available to owner-occupiers. Until this is accepted and addressed the position will not change.”
Ken MacDonald, managing director at Hooke & MacDonald, says that the private demand for apartments could potentially be “a very large cohort of people”. But points to the aforementioned costs as “the big stumbling block” to attaining this.
So who can afford apartments at the price point needed? Institutional investors.
Ireland is not alone in attracting a wealth of capital into the build-to-rent (BTR) sector, but it does have specifics that make it particularly attractive to international funds.
Low interest rates are driving capital into assets such as property, while economic and geopolitical uncertainty makes investors risk-averse, and apartments in a country like Ireland, with strong employment rates, are seen as defensive. Buying a portfolio of apartments also helps an investor spread their risk; if the market turns, unemployment jumps up, out of thousands of tenants how many will get into trouble? Moreover, unlike other countries across Europe, Ireland has a growing population.
So yes, rents are already high; but the demographics are so favourable that it allows investors to think they are sustainable.
And funds appear willing to pay more than a household might.
This willingness to pay high prices is driving strong growth in new-apartment construction
Figures from a Hooke & MacDonald report from earlier this year show that the average price paid for a new build to rent (BTR) apartment in 2021 was €447,165, based on 4,660 such sales in Dublin and its commuter belt (the most expensive was the average of €635,000 paid for 63 apartments at Knockrabo in Dublin 14.)
Contrast this with figures from the CSO, which show that the average price (based only on household buyers) paid for an apartment in Dublin in 2021 was €381,892. This shows that institutional buyers are paying about €65,273, or 17 per cent more, for an apartment.
This willingness to pay high prices is driving strong growth in new-apartment construction. Figures from Dublin City Council show that in 2018, just over 15 per cent of all residential schemes applied for or granted were BTR schemes; by 2020 this had rocketed to almost 82 per cent.
“Virtually all applications for housing” in Dublin city now comprise BTR, city council chief executive Owen Keegan recently said.
Where once BTR was looked at to enhance the depth of housing offerings in urban areas, it is now the dominant player.
Indeed just 309 new-build apartments were sold in Dublin last year to household buyers, according to CSO figures, and of these, just 136 were in the city centre, 18 in south Dublin, 109 in Dún Laoghaire-Rathdown, and 46 in Fingal.
In Cork city, there were just 20 sales, 12 in Galway city, and zero in Limerick.
And yet, as the H&M report shows, there were more than 4,550 apartments sold to BTR investors.
So is the BTR sector crowding out owner-occupiers?
The industry says no. MacDonald says without BTR, such developments simply wouldn’t get built, and the rental market would be in a much worse condition than it currently is.
“These are not competing with individual purchasers and are not crowding them out of the market,” he says.
And yet, it’s worth considering the impact the funds themselves are having on costs.
According to the SCSI report, for example, land and other “soft” construction costs, such as fees, VAT and developer’s margins, account for more than 50 per cent of new apartment build costs. And the cost of land is typically determined by working back from the eventual worth of a development on it; so surely if enough funds are willing to pay a premium for the end product, then this must drive up the cost of land, which in turn drives up the cost of development?
How expensive then, would apartments be, if there wasn’t a ready supply of international buyers to acquire them?
It’s a question that may not be addressed in the short-term. To counter the difference between development costs versus prices that owner-occupiers are able to pay, industry wants to see the State contribute part of the cost of a new home via the new shared equity scheme, while a €120,000 development subsidy per apartment has been mooted under the Croí Cónaithe (Cities) Fund.
A move which is likely to keep prices high.
But there might be hope for potential new apartment buyers. Keegan recently asserted that “over-dominance” of BTR schemes in Dublin has become “unsustainable”.
He wants to see apartment developments built to a higher standard, and wants to press ahead with restrictions, which would see 40 per cent of properties in a BTR development sold on the open market.
Time will tell what impact this may have.
