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-1- Circulation: Area of Clip: Page 1 of 12 Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 34322 300400mm² WHAT THE FUTURE HOLDS FOR PROPERTY Una-Marie O’Neill An expert panel, led by Central Bank chief economist Gabriel Fagan, discussed Ireland’s housing crisis at the SundayBusinessPostProperty Summit Pictures: Maura Hickey the midst of the current, interminable sector in Norway and Sweden however, housing crisis, this was faster than Japan, which took year’s annual Sunday’BusinessPost five years. Nonetheless, it damaged this property summit heard from a country the most. Ireland’s banking crisis cost us more than 30 per cent of our total of 18 property experts in the guise of individual speakers and GDP,compared to 2.7 per cent of GDP in collective panellists from various Norway, 3.6 per cent in Sweden, 12.8 per cent in Finland and 14 per cent in Japan. domains within the sector. The Central Bank’s new chief economist, Gabriel Fagan, led the summit with his views on how lessons have been Fagan’s address was followed by the first learned to reduce financial stability risks of our international speakers, Natalie from the property sector. He cited a more Elphicke, chief executive and founding cautious approach in lending from the director of the UK Housing & Finance banking sector,, as well as a change from Institute, who was awarded an OBE this year for her services to housing. debt to equity type financing and improved Elphicke and her compatriot, Simon micro-prudential supervision and Leask, head of the Advisory Team for macro-prudential policies as stabilising Large (site) Applications, Atlas, both described factors. their roles as ‘enablers’ in accelerating “Property investments are generally the delivery of housing, finance long-lived assets, while construction and investment. “The effects of a credit crunch are not investment is more volatile,” he said. “Property andbanking are interdependent.just financial and economic, but also political and social, and have huge ramifications Property is important to banking for housing, ” said Elphicke. because 55 per cent of our banks’ gross “Ailhousing is local, soyouhavetolook assets are in households.” for local perspectives. You need to drive Fagan offered a comparison between delivery, not simply lead it. In areas that Ireland’s systemic banking crisis between we have identified community leadership, 2008 and 2014 and banking crises that had strategic clarity and local partners had occurred in Finland, Norway, Sweden who knew what their area needed and Japan in 1992,1991,1992 and 1998 and why, things got done. Knowing what respectively. institutional investors were looking for Interestingly, despite Ireland suffering also accelerated delivery.” Elphicke urged local councils and authorities the highest losses as a percentage of GDP to be more proactive in identifying at peak - at 9 per cent compared to the and realising the vast assets, resources Nordics’, whichrangedbetween2.8 and 4.4 per cent and Japan at 2.7 per cent, it and skill sets that their members have to offer in order to enable faster housing has taken Irish banks four years to return deliveries. She outlined a number of from their crisis peak to profitability. options, including suggesting councils That recovery is on a par with Finland, look at deferred consideration [payment] arrangements, selling fixed-term longlease but took twice as long as the banking In All housing is local interest now andretainingthe value -2- Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 Circulation: Area of Clip: Page 2 of 12 34322 300400mm² of the freehold interest, and being flexible ford to buy or rent, thus creating a return in the planning process. to unsustainable commuting patterns. She also suggested councils fund their The private rented sector was the topic own housing organisations through pru of debate after lunch, undertaken by Bill dentialborrowing, settingup institutional Nowlan of WK Nolan Property and a director investment partnerships whereby the of Hibernia Reit; Andrew Nugent, Call for a Housing Minister councils provide the land for developmentthe president of the Society of Chartered Ireland needs a housing minister while the investor pays for the Surveyors Ireland and Dr Peter Stafford, with sole responsibility for creating the director of Property Industry Ireland and implementing a clear housing development. A bolder suggestion was that councils and a regular Property Plus columnist. strategy and with the authority enter guarantee purchase agreements All three agreed that the lack of a to carry out that responsibility whereby they agree to buy the completed comprehensive housing strategy and a efficiently and unencumbered by homes fromadeveloperifabuyercan’tbe dedicated housing minister role, as well political or electoral burdens. found on the openmarket, which she said as planning delays and state interference had experienced a 100 per cent success were driving up land and building costs Cost burdens rate in cases she oversaw in Britain and and adding to the renting crisis. Two cost bases were identified as They were among a number of speakers stumbling blocks in the current led to increased developer and market confidence and a greater appetite to build. throughout the day that called for a root housing crisis. They include bureaucratic “Central governments can’t do it all,” and branch review of Ireland’s current, costs, including taxes, Elphickesaid. “Faster housing deliveries complex planning system and restrictions.levies, application and appeal costs “Rent caps will have absolutely no are achievable, but remember, institutional before building commences, and and commercial investors have effect on the situation,” added Stafford. the high land, labour and material shorter committed borrowing windows, costs of building. so the process has to be time efficient.” Key Property Summit points New housing trends Officemarket ‘euphoria’ Nama's role The role of Nama and its remit Marie Hunt, head of research at CBRE must be identified more clearly. Should the state agency, in its new Ireland, and Aidan Flynn, head of corporate role as developer with competitive finance at Duff & Phelps, looked advantages, be allowed to compete at the commercial property market and with private developers to deliver commercial funding. According to Hunt, 2015 has been anotherhomes? The first panel discussion on why we are not still not meeting the demand for housing saw developer Michael O’Flynn lock horns with Nama’s head of asset management, Mary Birmingham. The panel was joined by South Co Dublin County Council chief executive Dan McLoughlin bumper year for the commercial A housing strategy and Trinity College’s Professor property market, but now that deleveraging Current housing policy is activity is winding down, next year of Economics, Ronan Lyons. Closing the morning session, Hooke will bring a different market with more short-sighted and a result of kneejerk reactions to critical needs. We & MacDonald director David Cantwell secondary trading and more institutional need a comprehensive and cohesive discussed trends and influential factors buyers. strategy based on both immediate “All sectors are at different stages of in the residential market. “We are seeing and long-term sustainable a growing number of single people who the cycle, and while the office market is needs. want to five alone so we need smaller, now in the midst of a development surge, that hasn’t yet commenced to any great single person households,” he said. “We’re also seeing changing family degree in the retail or industrial sectors Planning Experts resoundingly called for a structures emerging, such as single parent yet,” she said. Flynn went further and explained that root-and-branch review of Ireland’s families; marital separations; multiple generations in one household and many the office market is at the peak or ‘euphoria’ planning system. stage of the cycle, while the hotel empty nesters left with large houses that sector was at the ‘excitement stage’ with they under use but with very few alternatives for them in terms of retirement further growth predicted; while retail sector was at an ‘optimistic’ stage of the accommodation. ” Cantwell said more of the population cycle. “There is potentially a lot of office stock were making the choice to be long-term renters rather than property owners, and in the development pipeline in 2016, but families were being squeezed out of urban as long as this is delivered in a controlled centres where they could neither af¬ way, which is likely to occur because of -3- Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 Circulation: Area of Clip: Page 3 of 12 Michael O’Flynn of The O'Flynn Group, Ronan Lyons of Daft.ie and Trinity College Dublin, and Daniel McLoughlin of South Dublin County Council Tom Parlon of the Construction Industry Federation; Ian Kehoe, editor, The Sunday Business Post; and Paul Cooke, chief executive, The Sunday Business Post 34322 300400mm² -4- Circulation: Area of Clip: Page 4 of 12 Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 Tina-Marie O’Neill, Property Simon Leask of the Advisory Communities Agency Finance Institute Editor, The Sunday Business Post Team for Large Applications in Britain, with Natalie Elphicke (Atlas), Homes and of Britain’s Housing and 34322 300400mm² -5- Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 Circulation: Area of Clip: Page 5 of 12 34322 300400mm² -6- Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 Circulation: Area of Clip: Page 6 of 12 the scarcity of debt funding for speculativeIndustry Federation, Hubert Fitzpatrick; Karl Deeter, compliance manager at Irish development, there is no reason Mortgage Brokers and another regular to be concerned considering the strong Property Plus columnist; Mary Hughes, volumes of demand for office accommodation,” president of the Irish Planning Institute, said Hunt. Retail and industrial sectors are expected and Ralph Montague, architect and managing partner at BIM specialists, ArcDox. to grow as office growth begins to slow. The panel’s general topic of ‘politics, “Pat Gunne recently said that by 2018, policies and property’ honed in on the there could be an oversupply of office Irish planning system, the lack of a cohesive space. But that is scaremongering, and and effective housing and land will only happen if all planned building management strategy and the dual effect goes ahead,” Hunt said. “However, applying this has had on increasing costs. or receiving planning permission While acknowledging its failings, Mary doesn’t mean there’s funding to proceed Hughes defended the planning system. with a project.” She called for a more active land management, A slowdown in the office sector could particularly in response to the see anincrease in rents, however. “Office criticism of Bill Nowlan earlier in the rents in Dublin are set to reach €55 per day, in which he said: “No one should be square foot by the end of the year. That forced to live in substandard conditions, could increase next year to €6 6 and peak at €69 per square foot by 2017. That will but on the other hand, the cost of providing an en suite facilities with south facing put off multinationals from setting up balconies and basement car parking to here,” she said. someone without children on welfare is “Returns will be strong again next year, overegging that omelette. but possibly not as strong as the phenomenal “Likewise, providing an 800 square growth we saw over the last foot apartment for a 25 -year old transient two-year period, particularly as yield worker in Google is quite unnecessary, compression stabilises,” said Hunt. because he/she spends most of his/her However, healthy levels of take-up continue. “Morethanl73,000 square metres time either at work, or in a restaurant or at recreation. of lettings were completed in the first “Such a person’s housing needs are nine months of 2015, and more stock is now coming into the pipeline with 21 somewhere to hang their clothes and sleep. Yetour housing standards are set on commercial schemes under construction, the basis of old traditional family models, eight of which are pre-let,” she said. and not for the preference of miUennials. ” Michael Walsh, head of property and Nowlan also said that with 12 department construction at legal firm Byrne Wallace, reviewed the changing legal landscape for agencies, 26 local authorities and no planning strategy in place, project property investment and development and current legal trends (see adjoining management is a problem. panel). “What are missing are leadership and vision. We have the labour force and the building experience. But space standards have increased,” he said. “Atthe same time, at least 25 per cent of the price of a house is tax-related. The planning system is too localised, and The final panel discussion of the day included the director of housing planning takes far too long to approve applications.” and development at the Construction Theproblem with planning 34322 300400mm² -7- Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 Circulation: Area of Clip: Page 7 of 12 34322 300400mm² From left Tina-Marie O'Neill of The Sunday Business Post, Michael O’Flynn of The O'Flynn Group, Ronan Lyons of Daft.ie and Trinity College Dublin, Daniel McLoughlin of South Dublin County Council, and Mary Birmingham of Nama at a panel discussion during the Property Summit Simon Leask of the Advisory Homes and Communities Team for Large Applications Agency in Britain (Atlas), -8- Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 Bill Nowlan of WK Nowlan Property and Hibernia Reit; Andrew Nugent of the Society of Chartered Surveyors in Ireland; and Dr Peter Stafford of Property Industry Ireland Marie Hunt of CBRE in conversation with Aidan Flynn of Duff & Phelps Circulation: Area of Clip: Page 8 of 12 34322 300400mm² -9- Circulation: Area of Clip: Page 9 of 12 Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 Karl Deeter of Irish Mortgage Brokers makes a point, observed Fitzpatrick of the Construction Industry Federation Gabriel Fagan, chief economist of the Central Bank of Ireland by Hubert 34322 300400mm² -10- Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 David Cantwell of Hooke & MacDonald delivers Circulation: Area of Clip: Page 10 of 12 his address Michael Walsh of ByrneWallace, Mary Hughes of the Irish Planning Institute and HRA Planning, Ralph Montague of ArcDox, Hubert Fitzpatrick of the Construction Industry Federation and Karl Deeter of Irish Mortgage Brokers 34322 300400mm² -11- Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 Circulation: Area of Clip: Page 11 of 12 Mary Birmingham of Nama speaks at the Property Summit’s first panel discussion Key legal trends in the property world Michael Walsh, a partner and head of property and construction at Byrne Wallace, reviewed the changing landscape for property investment and development and analysed current legal trends, ffere are some of his key points With the main established lenders, enforcement activity linked to the recession era appears to be at or close to its peak. However, some of the private equity firms who recently bought loans may only be beginning to work through the process of asset realisation. It appears there may be two to three years left to run in the ‘unravelling’ from the recession years. The importance and impact of the Persona] Insolvency Act The proposal to amend the personal insolvency legislation to reduce the bankruptcy term from three years to 12 months is to be welcomed at a number of levels. If adopted, it may attract more debtors to invoke the personal insolvency process, moving debtors out of the doldrums and unclogging encumbered assets. In time, as a result, we should see 34322 300400mm² -12- Sunday Business Post-Property supplement* Sunday, 6 December 2015 AVE: 37,742.56€ Page: 14,15 market to be traded and put to use. The practicalities of transactions and their completion Regulatory and legal developments have changed aspects of the conveyancing process in recent years. Two are worth particular mention because they render the system more robust and progressive, although they may have cost implications. The first relates to the extension in 20U to the entire country of compulsory registration of unregistered land. The second is the effective prohibition on a firm of solicitors acting on both sides of a conveyancing transaction, even with appropriate ‘ethical walls’. So, in a typical commercial lending transaction, there will be at least three firms of solicitors involved: one for the seller, the buyer and the lender. The importance of access to info, electronification and the improvements in this area Circulation: Area of Clip: Page 12 of 12 Often, lawyers rely on judicial interpretation or the common law or the law of equity for guidance as to outcome. Our judicial system builds in an appeals process for error correction as well as a process of clarifying and better interpreting law. How upward only rent reviews are still a factor Upwards only rent reviews have not gone away. For agreements for lease entered into from February 28,2010, each lease with an upward only rent review provision will be interpreted as providing an upward or downward review. For earlier leases, ‘upward only’ provisions function as they did before. With an eye to potential change of law in the future, some leases still contain ‘upward only’ wording. This is permitted by the current law, but the law dis-applies its effect. The importance of the The establishment of the Property Ser Construction Contracts Act vices Regulatory Authority, following Although enacted in 2013 the Construction enabling legislation in 2011, is most welcome. Contracts Act has not yet been commenced; The business community and the however, it is expected to come public alike can now access a Residential into operation in 2015. It should provide Property Price Register and Commercial increased confidence in the construction Leases Register, two searchable registers industry by introducing a statutory with key property information. This will regime for resolving payment disputes. help property protagonists to make more The Act will apply only to contracts entered informed decisions. into following its commencement. I understand that appointments to the The lost opportunity for capital Ministerial Panel of Adjudicators are underway. gains tax reform in Budget 2016 My personal view is that that Budget 2016 was a missed the opportunity in CGTterms. I think the tax revenue lost from a modest reduction in GGT rate (33 per cent, recently increased from 30 per cent) could have been made up by an increase number of disposals, given the recent recovery in asset values and an apparent willingness to sell assets at an acceptable tax rate. Litigation risk as a cause of instability While 1 don’t think litigation risk is a contributor to market instability per se, in an ideal world one would have black and white certainty when it comes to dispute resolution. However, neither life nor law are black and white, so that is not realistic. Applying the available law to individual circumstances can be challenging, particularly where the law is not explicit on a topic. 34322 300400mm²