Some interesting commentary in this article …
How Nama and Gerry Gannon unlocked Belcamp
Just before Christmas Eve, Gerry Gannon, the high-profile developer and member of the so-called Maple 10, lodged a planning application for a large development at Belcamp on the Malahide Road.
A back-of-the-envelope calculation, based on the size of the development (31,000sq m) and the prices being sought for comparable houses, indicates Gannon will realise about €55 million in sales at current prices. A back-of-the-envelope calculation, based on the size of the development (31,000sq m) and the prices being sought for comparable houses, indicates Gannon will realise about €55 million in sales at current prices. Construction costs will be somewhere in the region of €35 million based on published industry rates. Gannon Properties will obviously be able to avail of various economies of scale but the €35 million figure does not include site works, development levies and various other costs. This leaves Gannon Properties with a margin of €20 million which is almost completely wiped out by the cost of acquiring the site at approximately €19 million. This figure is arrived at by taking the €105 million that Gannon paid for the 81-hectare site in 2004 and assigning a pro-rata value of €19.5 million to the 15 hectares he will be building on.
This in a nutshell is the problem that confronts developers. If you are trying to recoup the cost of land you bought prior to the crash, then developing it is marginally profitable at best, given house prices at the moment. It would appear, however, that many other developers are either unwilling or unable to to write down the value of their sites to a level which is appropriate to the market value of the houses they want to build on them. They seem to be hanging on in the hope that prices can be forced up to a level where they can cover the original cost of their sites and make a profit. For this they need two things: people prepared to take on mortgages that are too big for their incomes, and banks willing to lend to them. As we know to our cost, there is no shortage of either.