Irish Homebuilder Profits Trail U.K. on Finance Costs, Davy Says

  • Lack of land is also having a negative impact on profits
  • Cairn Homes has competitive advantage after IPO, Davy Says

Irish homebuilders’ gross profit margins are trailing those of U.K. peers amid a “stubborn under supply” of development land and high financing costs, according to Davy, the nation’s largest securities firm.

Homebuilders in Ireland achieve an average 14 percent margin, based on a survey of seven companies, Davy said in a report published Tuesday. Margins in the U.K. are about 20 percent, Davy analyst Colin Sheridan said by phone.

“Our survey points to a weaker housing market, particularly in Dublin, than developers may have expected at the start of 2015,” Sheridan said. “Private developers with a significant need for bank financing remain hamstrung by the high cost that this type of financing currently attracts.”

Irish lenders, burnt by the real-estate bubble that burst in 2008, are now more hesitant to finance property construction, Stefan Gerlach, the central bank’s deputy governor, said on Oct. 15. Homebuilders are paying interest rates of more than 10 percent a year for loans to acquire development land, Sheridan said.

That’s given Cairn Homes Plc, which raised 440 million euros ($500 billion) in June in the first Irish homebuilder initial public offering in two decades, a competitive advantage because it has cash to acquire land rather than relying on loans, Davy said.

Royal Bank of Scotland Group Plc’s Ulster Bank unit is planning to sell loans linked to 17 percent of all the residential zoned land in Dublin, the bank said in September. Cairn may be a bidder for the plots, Goodbody Stockbrokers said Sept. 23.

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