The viability of residential development could be under threat in the face of proposed limits on the amount of debt Irish-regulated property investment funds can hold. It is thought that this could slow the delivery of new projects.
Rules outlined by the Central Bank in November last year, would cap leverage at 50pc of a fund’s value – well below the average level for those that invest in large multifamily housing developments.
Industry figures are now standing up to challenge the submission as part of its consultation process, claiming that new regulations will change the risk-return relationship in Ireland for the worse.
“Making this change could force some investors to rethink their approach to the Irish market,” said Marie Hunt, executive director of property services firm CBRE. “They either will look at other geographies, or reallocate investment to other sectors.”
CBRE’s 2022 market outlook highlights increasing regulatory and planning uncertainty in Ireland as factors negatively affecting the future funding of residential property.
Ms Hunt said property funds and their representatives were examining the impact of the CBI’s proposals. But she is confident that the response would be negative.
“If you’re an international investor considering Ireland, you’re going to be looking at the high frequency of regulatory change. For private equity type investors, this is going to be a challenge.”
Many experts estimate that without the availability of high borrowing levels, funds are likely to “diversify capital geographically” and be invested elsewhere.
In that scenario, the Central Bank’s rules could result in lower supply over the three years of their implementation until the market rebalanced. Or funds may also choose to move to domiciles with lighter regulation, thereby avoiding the leverage rules entirely.
LSL News.