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Irish Construction Sector continues to see growth

Deloitte Private

The latest Ulster Bank Construction Purchasing Managers' Index has revealed that construction sector activity was at its strongest in seven months in January 2016 with job creation levels also rising for the third month running.

Total activity in the construction sector has increased in each of the past 29 months, according to the index. All three sub-categories monitored by the index - housing, commercial and civil engineering - recorded a rise in activity. The sharpest increase was in housing activity which recorded the strongest growth since October 2014.

Business sentiment was little-changed at the start of the year, remaining strongly positive. Rising new work was the main driver of optimism regarding activity for the year ahead, with three-fifths of respondents predicting growth. It is estimated 120,000 new homes are needed in the Republic and the shortage is one of a number of issues that has featured during the general election campaigns.

Construction firms increased their purchasing activity at a stronger pace in January due to a rise in new orders. Input buying has expanded in each month since March 2015.

The strong latent demand from owner / occupiers and a shortage of supply in Dublin and the surrounding commuter belt together with the demand for office space within Dublin, has contributed strongly to the increase in construction activity. Such increase in activity has led to the beginning of a return of bank lending to investors and developers.

The strategy of NAMA to deliver 20,000 residential units by 2020 together with their aim to ensure development of the Dublin Docklands area will also be a driver for growth going forward. Deloitte have had a direct involvement in the delivery of such strategy through the Diswellstown Manor development at Castleknock, Co. Dublin. This is a Statutory Receiver led development (David Carson of Deloitte) of 119 residential homes, with the finance being provided by NAMA. The first phase of this development successfully launched to market in September 2015. Deloitte are also directly involved in the management of delivery of regional residential units at developments in Ennis, Gorey and Betystown in Co. Meath.

However, recently a group of five builders / developers have complained to the European Union competition directorate that the Government’s proposal that NAMA fund the building of 20,000 homes as part of a plan to tackle the housing crisis is illegal State aid. They argue that when the State got EU approval in 2009 to establish NAMA it was intended to repair the banks’ balance sheets and that the Government has gone beyond what was agreed with Brussels. Any traction achieved with such a challenge is likely to have a detrimental effect to the pace at which the Government targets are achieved and may also result in a slowdown in the growth of the construction sector in the medium term.

Overall however, while a return of bank lending to investors and developers is positive news for the property industry, lenders must ensure that they have sufficient due diligence and controls over their lending. Such controls would include adequacy and transparency of reporting to the Lender by the Developers together with effective management and co-ordination of all elements of the development programme. 

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