Homebuilder Abbey's executive chairman Charles Gallagher said the latest interest-rate rise by the European Central Bank (ECB) may be a "good thing" for the Irish property market because demand for homes was expanding at a "torrid rate". Gabrielle Monaghan reports.
He was speaking a day after the European Central Bank raised borrowing costs for the fifth time since last December, bringing mortgage rates to a near four-year high.
"Interest rates may temper demand a little," Mr Gallagher said in an interview after Abbey's annual general meeting.
"The market has grown so dramatically that there was bound to be consolidation."
Goodbody Stockbrokers predicted this week that, in a "moderate slowdown", housing completions would fall to 77,000 in 2008 from 92,000 units this year.
Some 23 per cent of the Republic's economy is reliant on construction compared to just 14 per cent a decade ago, giving the economy "unparalleled" exposure to the industry.
Mr Gallagher partly attributed the forecasted decline in housebuilding to increased difficulty in obtaining planning permission in Ireland and said he was unconcerned about the economy's reliance on the construction sector.
"Any fast-growing economy is going to have high exposure to the construction sector.
"Just look at the Chinese economy," he said. "As a result of our needs, Ireland is still under-housed compared to the rest of Europe.
"We also need more infrastructure so, even without house-building, construction will be a fundamental part of the economy."
Mr Gallagher said he was optimistic about the country's economic outlook because "wages continue to rise, there's plenty of employment, and I suspect the Budget is going to give general relief to taxpayers, such as wider tax bands".
Abbey doesn't plan to adapt its business model in the face of predictions of slower demand for residential construction. The company recently started building three and four-bedroom homes in Balbriggan, Portlaoise, and Kilcoole, Co Wicklow, and told shareholders that new homes continue to sell well in both Ireland and England.
In July, the company reported an 18 per cent drop in pretax profit for the year to the end of April, citing pressure on margins and rising land prices in Britain, and warned profit would be lower again in the current financial year.
Abbey said, though, that volumes in Ireland would rise "quite a lot".
"Ten years ago, we had no business here, and now we're going to expand in the next two years by building even more houses," Mr Gallagher said yesterday.
Abbey, which had planning permission for 2,588 plots by July, told investors the Irish market "continues to be robust" and that its projects "are doing well throughout Leinster".
The pace of growth in the construction industry in September was the slowest since March, the Ulster Bank Construction Purchasing Managers' Index showed yesterday.
