"Here's why developers need to sell Dublin city apartments for €470,000"

Tar.Aldarion

https://fora.ie/cost-of-an-apartment-in-dublin-building-3660640-Oct2017/

APARTMENTS IN DUBLIN need to sell for almost half a million euro in order for them to be worthwhile to develop, a new report has found.

According to a study carried out by the Society of Chartered Surveyors Ireland (SCSI), a developer needs to sell medium-rise apartments in the city centre for €470,000 for a project to be viable.

Construction costs make up less than half of these figures, which include the likes of VAT costs and developers’ profit margins.

As part of the study, the SCSI analysed 28 housing schemes consisting of a total of 2,146 two-bedroom apartments, all of which were based in Dublin.

The apartments were split into three different types: low-rise suburban of three-storey blocks, medium-rise suburban of between three- and six-storey blocks and medium-rise urban of five- to eight-storey blocks.

It was found that the cost of developing a low-rise block was a minimum of €293,000; medium-rise in the suburbs was a minimum of €400,000, while medium-rise in urban areas was a minimum of €470,000.

In all cases, the actual cost of building was usually about half of the development costs.

The SCSI gave an example of how the sums broke down for an apartment that costs just under €443,000.


In this case, the actual cost of building the housing unit is €263,000 when the cost of acquiring a site is included.

Development contributions, professional fees and selling costs bring the price to €305,000, while the cost of finance adds another €30,000.

According to the SCSI, most building projects need a 15% profit margin to win financial backing. This is because the development needs to both make a profit and have some cash set aside for unforeseen issues.

This brings the amount an apartment needs to sell for to €400,000. When VAT is added in, this rises to €442,938.

According to the report, the sales price of two-bed apartments in Dublin across all three categories currently range from €338,000 to €383,000. It said that this means that there is a ‘viability gap’, with many developers unwilling to build apartments.

In a similar study published last year, the SCSI found that an average three-bed, semi-detached house in Dublin needed to sell for €330,000 to make it worthwhile to develop.

Paul Mitchell, the chair of the SCSI working group that authored the report, said that the study showed that apartments are often expensive to build.

“Popular perception is that the supply situation can be alleviated by building upwards. However, the most expensive apartments are the medium-rise ones in the city,” he said.
“This is due to the fact that these buildings have a more complex structure and require a wider range of mechanical and electrical services, sophisticated facades, basement parking and much more.”

The SCSI acknowledged that apartments are too expensive for most people to buy. It said that only one category of apartment, low-rise in the suburbs, is both commercially viable to build and affordable to a couple on the “average wage” of €45,000 each.

Speaking to Fora, Mitchell said that several areas could be looked at to bring the cost of delivering an apartment down.

“A reduction in the required car parking spaces would be one, and a contributions rebate in affordable locations could be another, but there is no silver bullet,” he said.

Other suggestions was for a VAT rebate to be introduced or for the minimum apartment size to be lowered.

Here is the press release for the report:

https://www.scsi.ie/news/view?id=99

Society of Chartered Surveyors Ireland publish “The Real Costs of New Apartment Delivery” Report
24 October 2017
Main Findings:

The cost of delivering a low rise apartment in suburban Dublin is €293K
Delivery cost of medium rise apartments in the city ranges from €470K to €578K
Report finds delivery of affordable medium rise apartments in Dublin is not commercially viable
Affordability analysis found viable apartments require joint income of €87,000
Construction costs make up 43% of total cost, while soft costs - such as VAT, margins, levies and fees make up - 41% of total costs
Site purchase costs make up remaining 16% - but site costs range from €33K to €125K per apartment
Surveyors say addressing costs issue requires multi-faceted approach including increasing supply of serviced land, flexibility in design, and improved rates/access to financing


Tuesday 24th October 2017. A major new report has found that the cost of delivering a two-bedroom, low-rise apartment in the Greater Dublin Area is €293K ex VAT. The report by the Society of Chartered Surveyors Ireland found that the cost to deliver medium rise (5-8 storey) apartments in the city ranged from a low of €470K to €578K at the higher end.

‘The Real Costs of New Apartment Delivery’ report also found that the actual cost of building the apartment – known as hard costs – made up 43% or less than half of the overall costs.

‘Soft costs’ such as VAT, levies, margins and fees make up 41% of the costs, while site costs accounted for 16% of the total.

ChartApartmentCosts

Fig 1 - The report shows it is currently not commercially viable to deliver affordable medium rise apartments in Dublin.

Paul Mitchell, Chair of the SCSI working group that authored the report, said the research showed that contrary to popular perception apartments are expensive to build.

“Some people might have thought that building large numbers of apartment schemes – as opposed to building houses - might provide a more cost and time efficient solution to our current supply crisis. However, our report shows that costs can vary from €293K for a low rise suburban apartment – which is the one most similar to the average 3 bed semi – to €578K for a medium rise apartment in the city. While prices can vary significantly depending on design one of the key variables was site costs. In our report site costs vary from €33K per apartment to €125K and this highlights the paucity of serviced land.”

“Another popular perception is that the supply situation can be alleviated by building upwards. However, as we can see in this report the most expensive apartments are the medium rise ones in the city. Our research shows the higher you go the greater the costs. This is due to the fact that these buildings have a more complex structure and require a wider range of mechanical and electrical services, sophisticated facades, basement parking and much more.”

Affordability & Viability

According to the report the sales price of two-bed apartments in Dublin across all three categories currently range from €338K to €361K to €383K. Based on the Central Bank lending rules of a Loan to Value of 90% and Loan to Income cap of 3.5 times salary, a first-time buyer couple would require a deposit ranging from €34K to €50K and a combined salary range of €87K to €129K to afford these.

However, a couple on the average salary of €45K and combined salary of €90K with a deposit of €34K would only be able to meet the mortgage requirements for a low rise suburban apartment priced at €338K. (Category 1, see Example 1 in Note to Editor)

According to the most recent CSO figures, only the top 20% of households are earning over €80,000 per annum.

The report also found that the only apartment that is commercially viable to deliver at affordable levels is this low rise suburban type It says the viability gap for higher end, low rise suburban type apartments is €38K and that this widens to €137K for upper end medium rise apartments in the city.

Recommendations

The Director General of the SCSI Aine Myler said the purpose of the report was to provide independent information, to inform debate and suggest potential solutions to tackling the current housing crisis which exists in Dublin.

“According to the report only one category of apartment – low rise in the suburbs is commercially viable to build and affordable to first time buyers on the average wage. In Ireland, apartments comprise just 12% of our housing stock; the EU average is 50%. The clear message from this report is that we must drive down the costs of building apartments if they are to provide part of the solution to our housing crisis.”

“In the report, we outline the effect which cost reductions on all the key inputs would have on the bottom line and we hope these will be studied carefully by policy makers. While the Government has signalled its intention to introduce some new measures – and this is welcome – one of the key points highlighted in this report is the need for an increase in the availability of serviced land. The report shows that site costs account on average for 16% of total costs. The increase in costs between low rise suburban and medium rise city apartments is +179% and this is clearly not sustainable”

“Two other key areas which if addressed could lead to sizeable reductions are flexibility of design and finance costs. The obligation to have a car parking space for each apartment adds considerably to costs and is out of sync with modern urban lifestyles. Every 2% reduction in interest costs for builders leads to a reduction of €7K in the cost of an apartment. If the proposed Home Building Finance Ireland was able to offer finance to builders at 4% rather than the current 8%, €14K would immediately be wiped off the cost of an apartment. If the viability and affordability gaps are to be closed, these are the areas which need to be addressed as a matter of urgency,” Ms Myler concluded.

The latest SCSI report is a follow up to last year’s report ‘The Real Cost of New House Delivery’, which found that the average cost of building a 3-bed semi in Dublin was €330K.

Note:

“Another popular perception is that the supply situation can be alleviated by building upwards. However, as we can see in this report the most expensive apartments are the medium rise ones in the city. Our research shows the higher you go the greater the costs. This is due to the fact that these buildings have a more complex structure and require a wider range of mechanical and electrical services, sophisticated facades, basement parking and much more.”

I guess high rise needs to be incentivised then.

jimmycrackcorm

I'm curious as to how much it will cost to develop a high rise apartment block outside the city centre.

I.e. disassociate the economy of scale from the usual site costs.

Varik

Tar.Aldarion wrote: »

I guess high rise needs to be incentivised then.

Ye I agree, it's not in the developer's interest to house as many people as they can but to get the best return on each investment. It is in the government's interest to increase supply.

A high density development might get 4X what the low density does on a single site, but they could also develop multiple sites for the same investment and get a much higher return.

Paddytheman

So why does a re-development like Oliver Bond have costs of 450,000 per unit? (As per newstalk article over the weekend) Surely taking away land cost, advertising/selling etc this figure should be considerably lower?

Eric Cartman

Paddytheman wrote: »

So why does a re-development like Oliver Bond have costs of 450,000 per unit? (As per newstalk article over the weekend) Surely taking away land cost, advertising/selling etc this figure should be considerably lower?

because expenses like new range rovers , fancy coffees, their offices being redevelopped, architects cocaine habbits and electricians costing 6-700 a day really contribute a lot.

Bonzo Delaney

Eric Cartman wrote: »

because expenses like new range rovers , fancy coffees, their offices being redevelopped, architects cocaine habbits and electricians costing 6-700 a day really contribute a lot.

After hours is over yonder

Here we go

I'd assume they also price in the cost of moving people in and out as there refurbished. Similer with dolphins barn it's done I phases and the cost of re housing the first batch of people into new accommodation before anyone even breaks ground. And having to completely finish first phase move people back in and move people out of second phase before they start again . and this continuing as they go would have more costs if they just had a clear run to build new

Fliucharbith

I posted this is in another thread, but it belongs here too.

I intimated it in another thread, but I'll say it more clearly here; there is something rotten at the heart of property issues in Ireland (and most developed countries in the world).

The thing about removing car park spaces, for example, just screams "short-term solution". And saying its only short term is generous.

We need to get to the root of the problem and the biggest barrier to that is the ever-increasing amount of spurious detail. The problem/solution isn't car parking spaces, as much as it isn't about red tape. We cannot see the forest for the trees anymore.

Demand is too high, space is too little, employment opportunity is overly condensed, inflation disparity between costs and income, free houses for some while others will never be able to afford one.........and on and on.

Either concentrate on reducing the population, or take a drastic wrecking ball to the whole thing and start again with working policies and pragmatic strategies.

Theres a lot to be said for a controlled explosion versus waiting for it to fall down on top of you at any given moment.

The government are NOT going to build enough accommodation and neither are developers, its simply not going to happen! They will miss the targets this year by a country mile. They will miss them next year by a country mile. And the year after, and the into the future. So instead of tackling the problem head on, we continue to kick the can down the road while fretting over who builds a few apartments in some tiny spot that will never solve anything.

The whole thing is foooked, seriously! And anyone thinking that this kind of thing is "sustainable" or "stabilised/stabilising" or "it can only keep going up!" is out of their ever-loving mind or have their heads buried so deep in their bias they don't know which way is up anymore.