Peadar Tóibín
Question:244. Deputy Peadar Tóibín asked the Minister for Finance the equity-to-debt ratio rules for banks when they lend to developers; and how these compare with other European countries. [44013/24]
View answerDáil Éireann Debate, Tuesday - 5 November 2024
244. Deputy Peadar Tóibín asked the Minister for Finance the equity-to-debt ratio rules for banks when they lend to developers; and how these compare with other European countries. [44013/24]
View answerThe Department of Finance estimates that in order to build 50,000 homes per year, an average of €20 billion of development finance will be required.
While the State can contribute approximately €3 billion of this on our direct construction projects, the remaining €17 billion required for development must be secured by our homebuilders from private sources – our domestic banks, non-bank and alternative lenders, international institutional capital and private equity capital.
Since 2008, the funding landscape for residential development in Ireland has fundamentally changed. While there are now fewer domestic banks providing funding for residential development, there has been an increase in additional non-bank lenders active in the market, reducing concentration risk.
Lenders set risk limits around the type and nature of lending activity and in order to secure debt funding for residential development, it is necessary for a developer to also have equity funding in place on a project. The inclusion of equity in the funding structure is very important from a governance and risk management perspective. It is not desirable that domestic banks provide senior debt at unsustainable levels and levels of debt should appropriately reflect the risk profile of development projects. The inclusion of equity in the funding structure is, therefore, a key component of a sustainable, robust funding market for property development.
In relation to any specific equity-to-debt ratio, it is not possible to quantify details of development lending for residential development by our domestic banks, owing to commercial sensitivity. Banks set their own lending criteria based on their own risk appetite.
A substantial increase in the supply of new homes is the only route to solving Ireland’s housing crisis. While a portion of this private investment will come from our domestic banks, in order to deliver the homes we need, funding will be required from a diverse pool of sources, including both domestic and international capital. As a result, we continue to attract and welcome inward investment to our housing market, as we have successfully done with investment in other sectors of our economy.