Rental property owners are waiting anxiously to see how Nama will deal with the estimated 12,000 unsold apartments in the Dublin area
WITH SOME estimates putting the number of unsold apartments in the greater Dublin area as high as 12,000, the next few months could be a testing time for owners of rental properties. Investors struggling to deal with negative equity and rising interest rates, not to mention lower rents and more frequent void periods, are now concerned about Nama’s plans for unsold apartment developments in the Dublin suburbs.
With the second tranche of developers loans and assets already with Nama, the State’s bad bank is expected to come up with a formula in the coming weeks for dealing with so many unsold apartments. It will either row in behind the business plans produced by developers or suggest an alternative way to maximise the value of the apartments. Either option could make life more difficult for those already under pressure to keep their rental portfolio in the black.
Some builders are seeking Nama approval to fit out newly completed units so they can be rented until there is a recovery in sales. This solution is working quite well in some suburbs but if it is extended to any great extent it will undoubtedly swamp the rental market in areas already over- supplied. It would also trigger a further fall off in rents. This has already happened in a number of areas, in particular in Tallaght, where agents have been letting some of the 1,000 vacant apartments and hotel suites built by Liam Carroll’s Zoe Group. 0ther builders have already resorted to letting apartment blocks before the issue comes before Nama.
Because of the size and gravity of the overall problem, Nama will undoubtedly encourage some developers to sell off units at current market values to clear part of their bank debts. It has already made some friends in the development industry by making cash available to finish off well- located developments which will be sold in due course. However, as some development loans have been passed to Nama at huge discounts, it will be well aware of the dangers of flooding the market with new apartments at rock bottom prices. Were new investors to buy these homes at a fraction of the original price, they would then be in a position to lease them at rents well below the going rate, creating further problems for those who bought at the top end of the market. God only knows where all this could end.
With so much uncertainty around, some investors have already moved to copperfasten their rental income by leasing their properties to local authorities for social housing. In one particular case, Fingal Co Council leased a three-bedroom house for four years at € 900 per month and while the owner will have no say in the choice of tenant they will be expected to deal directly with any problems that arise during the tenancy. Other investors wanting to exit the market at this stage have no option but to hang in there, either because of the sharp decline in the value of their property or because most people waiting to buy a residential investment cannot hope to get a mortgage unless they have substantial savings.
Even with price reductions of 50 per cent and more on many of the newly built apartments it could take years to clear the surplus stock, not only because of the large number of units overhanging the market but also because many young couples now prefer houses to apartments. The exception is city-centre locations where young people still like the convenience and vibrant lifestyle.
All this is happening at a time when the property industry is anxiously awaiting the publication of a study by the Department of the Environment which will show the actual number of unsold houses and apartments as well as ghost estates throughout the country. That will inevitably lead to a whole new debate.
