2008Review:Buyers haven't gone away, you know, says Ronan O'Driscoll- but selling the 30,000 empty new homes will be a challenge

THANKFULLY, WE are coming to the end of the GUBU year for new homes in Ireland. It was unquestionably grotesque, unbelievable, bizarre and unprecedented. Whilst we entered 2008 with some degree of nervousness, we were hopeful that it would be a better year than the annus horribilis that was 2007. Sadly, the market went from bad to very much worse.

Savills started the year in spectacular style, selling over 650 new homes between January and Easter, with very successful new launches virtually every week. This demand had been triggered by some of our leading developers who reduced prices significantly in the early part of the year.

The market responded very positively to the value, with reductions of up to 25 per cent on some new Dublin projects. In January, we even had queues at three of our new developments for Manor Park Homebuilders, Capel Developments and Albany Homes.

To a certain extent, however, we became victims of our own success. Most of the other developers and agents followed suit by also reducing prices, so the impact was diminished and, by the end of April, even reduced prices were not generating any new sales. The credit crunch had hit and suddenly the Irish realised that they were not the only ones feeding on a frenzy of easy credit and supernormal capital growth. The financial world changed very quickly and the property market retrenched. In the second half of the year, virtually nothing happened, with the exception of economists who rubbed their hands together enjoying the schadenfreude. They had, eventually, been proven right.

So, the new world is upon us. We are now faced with the prospect of having to sell over 30,000 new homes, which stand idle today in Ireland.

Mortgages will not be as freely available anymore and the economic outlook is bleak. Tough times are ahead, it's fair to say.

This oversupply, which equates to a city the size of Galway, is made up mainly of urban apartments and rural new housing and holiday developments. I believe the outlook for the former is far better than for the latter.

I don't dwell on statistics because I believe that 87 per cent of them are made up on the spot; however, we have seen prices of new developments in Ireland fall by as much as 40 per cent so far this year in Ireland. The number of sales has dropped dramatically and is currently down by 70 per cent on 2006 levels.

Spectacular. Depressing. Encouraging. It is encouraging because I believe we have finally reached the agonising bottom in terms of price. We are also facing the prospect of a lengthy period of very, very low interest rates. Whilst the macro economic ills will prevail, those who do take out mortgages next year will enjoy the double-whammy of really attractive low prices and extremely favourable low interest rates. It is a very long time since those two factors co-existed.

In many cases, developers are now offering new homes at cost price or less. As they analyse and focus on the stockpile of completed properties, many more will offer extremely good value next year.

By next spring, we will most probably see further interest rate reductions. Over the past two-and-a-half years, people have been renting rather than buying. With lower prices and lower interest rates, it is now much more sensible for people to pay off their own mortgage rather than someone else's.

The market is on the floor and people will be able to get some very good value. Since the top-of-the-market in May 2006, 29 months ago, people have been holding back and it is fair to assume that during that period, a level of pent-up demand has been building.

"They haven't gone away, you know." This demand will be released at some point soon.

In general economic terms, 2009 will be a very poor year. The residential property market is, to a certain extent, ahead of the economic situation. The market has been weak for a much longer time than the economy. Property was overvalued at the peak in 2006 but it is my contention that it has now, in the main, corrected. The difficulty is that, however low the price, confidence will be slow to return in a recessionary environment.

What is certain is that, like bank shares, property prices are attractive right now and those willing to make an early move should enjoy the maximum gain.

The outlook for non-city based developments remains very challenging. First-time buyers can now afford to buy in the cities so they don't need to tolerate long commutes anymore. It will therefore take much longer for out-of-town locations to recover. Similarly, the Irish holiday home market has been terribly damaged by oversupply, which was driven by over-generous tax breaks and over-enthusiastic planners and county councillors.

Residential investment activity overseas has virtually ceased and I do not expect any real recovery in this sector until the domestic market substantially recovers and credit frees up.

Irish investors had become extremely active on a global scale and have punched well above their weight mainly in the UK, southern and eastern Europe, North America and Dubai. Virtually all of these markets have been impacted to varying degrees and Irish investors who had intended to sell-on their apartment upon completion will have no option but to hold their property and generate rental income in the interim.

Next year, I believe that finally, following almost three years of turbulence, the market will turn the corner. There will almost certainly be casualties in the sector as the industry continues to adjust to a smaller, leaner and more competitive model.

The number of new homes completed will be in the region of 20,000 units nationally, or a quarter of the 2005 figure. Developers will be very slow to start new projects, so new home completions next year will be taken from built stock. Supply will therefore continue to reduce.

Amid all this, however, 2009 will offer definite value and I believe that we will look back on it as the year of the beginning of the upturn.

• Ronan O'Driscoll is director of new homes at Savills