Land sales picking up pace in Cork after three-year covid lull and other pressures
Waterfall, Bishopstown land sold €10.4m and is now being developed for housing, with three-bed homes selling for over €400,000
THE residential land market and the delivery, or lack thereof, of new homes across the country has been in strong focus over the last 18-24 months but, the fact of the matter is that we have come a long way since the outbreak of covid-19.
In reality it could be argued that we have done incredibly well to have navigated once in a lifetime obstacles such as lockdowns and site closures, to significant challenges of supply chain issues and unprecedented levels of construction cost inflation.
The truth is we are operating in a market that is significantly different to the one that we were used to. Let us not forget, it has only been 30 months since the outbreak of covid-19 and within that timeframe we have witnessed an entirely new planning system (Strategic Housing Development process replaced by the Large-Scale Residential Development process), a complete overhaul within An Bord Pleanála and new Development Plans in both Cork City and County that has pushed minimum density requirements in suburban areas to 40 units per hectare which is likely to put further pressure on viability of higher density schemes.
Macro elements such as global volatility and uncertainty have also interrupted major supply chains and contributed to levels of inflation so significant that it challenges the viability of projects in some of Cork’s most popular residential locations. The sharp rise in interest rates has significantly added to the cost of borrowing funds. This has led to a market that is either unwilling or unprepared to acquire sites that don’t benefit from planning permission given the significant cost now associated with bringing a greenfield site through the planning system.
Additionally, there have been a number of policy changes that have been implemented that will impact land values: the Part V requirements to satisfy Social & Affordable obligations has increased from 10% to 20% of the overall scheme, and the contentious Residential Zoned Land Tax (RZLT), due to be implemented in 2024.
Government has stated that the aim of the RZLT is to prevent land hoarding and stimulate the delivery of new homes on sites that have services in place to cater for such development. Sites that are deemed to be developable but remain inactive will be subject to an annual tax of 3% of the value of the land. Unsurprisingly, the measure has received considerable backlash from developers who see this as counterproductive and an unnecessary and additional cost further prohibiting the delivery of much needed housing.
Taking all of the above into account it was no surprise 2022 was subdued in terms of transactional activity as the market struggled to adapt to the changing landscape. However, as cost inflation cooled (albeit still elevated) we started to see interest and transactions return from early 2023. Contrary to perception, there has been significant activity over the last nine months, but one would be excused for thinking otherwise with most transactions taking place off-market. To date in 2023, Savills alone has completed and finalised just under €18m worth of sales across three sites, namely Abbey Wood, in Midleton, for €3.3m, Compass Hill, in Kinsale (pic, above), for €4.1m, and the well-documented sale of the site in Waterfall, Bishopstown, for €10.4m.
Furthermore, we also have several deals agreed that total a value of just over €25m. This is across seven different sites including a site at Inishannon that was guiding €3.25m, a commercial site in Mahon that was guiding €3.3m and two residential sites with full planning permission just north of the city centre at just under €9m combined.
Of the seven different sites, only three were launched to the open market. In total that accumulates to approximately €43m worth of sales handled by Savills in 2023 alone and with the capacity to deliver in the region of 1,000 new homes to the market.
Other significant deals in Cork include 12 acres on the Waterfall Road immediately adjacent to the N40 which is currently agreed at just over €7m subject to planning permission. We also understand that a deal is close to being agreed on about 70 acres in Maglin, Ballincollig.
What is fuelling the renewed appetite for residential development sites in particular? Aside from the cooling of construction cost inflation mentioned above, the demand for the end product continues to outweigh supply. There were concerns that asking prices for new homes had reached a point that was making new home purchases unaffordable for first time buyers (FTBs).
However, Government incentives such as the Help to Buy and First Home Schemes along with the Central Banks move to relax mortgage lending rules has ensured that New Homes remain in the reach of FTBs.
Additionally, policies have been put in place to stimulate the development market. Project Tosaigh was introduced as part of the Housing For All strategy which sees the Land Development Agency (LDA) acquire houses from private developers and offer them as Affordable Houses, while a development contribution waiver was introduced earlier in the year and applies to all sites that commence construction between April 2023 and April 2024. Another Government scheme, the Croí Cónaithe (Cities), has also been implemented recently and aims to bridge the viability gap between the cost of building apartments and the value of the end product. Funding of up to €144,000 will be made available to developers for qualifying apartment schemes to assist with the delivery of much needed apartment units, particularly in city centres.
It is clear Government has a central role to play in the development of new housing in the market, now more than at any time in the past. However there remain areas that need to be tackled, not least the shortage of a skilled workforce to deliver the ambitious plans providing an average of 33,000 new homes every year up to 2030. Securing planning permission is only part of the process as discussions with Uisce Éireann (formerly Irish Water), Transport Infrastructure Ireland (TII) and other state/semi state bodies still need to be co-ordinated to deliver end product. A fractured approach adds time and cost in securing planning permission which ultimately adds to overall price of delivering housing.
The market we operate in today is significantly different to that of three years ago.
It has become a far more complex landscape that can be difficult to navigate with the introduction of new policies, a new planning system, outstanding development challenges and instability in terms of global activities. Nevertheless, the last nine months has shown the appetite remains strong for development sites to deliver much needed housing.
James O’Donovan is an
associate director with Savills
