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Archive for August, 2012

It was the top price residence sold in 2006 at €31m, and today it on the market with an asking price of just €5m. Gortanore, the 2,500 sq ft house on 3 acres of prime development land in upmarket Foxrock, south Dublin was bought by David Arnold’s D2 in 2006 and was the €31m was the top price paid for a residence in that year. Like that other white elephant, the €58m Sean Dunne-associated Walford on Shrewsbury Road, the purchase of Gortanore was followed  by a fraught planning application, fiercely opposed by locals. Eventually permission was granted for the demolition of the house and the construction of a mixed use development with  37-apartment, shops, office space with 90 car-parking spaces.

O’Mahony Pike, the architects for the scheme, had attracted criticism from Foxrock residents who said that the design was out of keeping with the Edwardian style that made up the original neighbourhood.

The plans were met by 52 local objections. Despite this, Dún Laoghaire Rathdown County Council granted permission to demolish the house and outbuildings and build 37 apartments in three blocks with a gym and conference room, shops and commercial space at street level, and 90 car-parking spaces, 84 of which are at basement level. The apartments, on the edge of Foxrock village, are 1,800-3,000sq ft  in size and are designed to have a full-time concierge. A development of apartments with similar aspirations was built close-by by Sean Dunne at Hollybrook, also on Brighton Road.

Industry sources suggest the existing plans are unbuildable in the current climate, and that the permission will, in any event, presumably expire next year.

Loans on some of David Arnold’s property did get acquired by NAMA, for example One Warrington Place in Dublin 2 which went on to be NAMA’s first staple finance sale. Loans on other properties stayed with the original lender, for example the Woolgate Exchange in London whose cGBP300m sale recently fell through and No 23 Saville Row in London’s West End, the sale of which for GBP 210m (€270m) was announced by UK commercial property portal CoStar.co.uk today.

The joint agents for Gortanore are Jones Lang LaSalle (listing and brochure here) and local agent Daphne L Kaye (listing here). The current €5m asking price was originally on the latter agent’s listing but this has since been removed and replaced with “price on application”

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This morning, the Central Bank of Ireland (CBI) has released its monthly snapshot of the state of Irish banks focussing on deposits and lending. The data covers the period up to 31st July 2012 and shows that during the month of July 2012, deposits by ordinary households and businesses increased slightly at the so-called “covered” or State-supported banks – essentially the two pillar banks, Bank of Ireland and AIB, and also Permanent TSB. The increase of €0.4bn from €104.6bn in June 2012 to €105.0bn in July 2012 continues a trend of stabilising private sector deposits at the covered banks, and over the past year such deposits have increased by €2.4bn. Deposits are now back at May/June 2011 levels though are still €20bn lower than in October 2010 on the eve of the IMF/EU bailout. The CBI monthly commentary doesn’t appear to be available yet.

The CBI doesn’t provide an analysis of private sector deposits at the covered banks – about the only analysis it doesn’t provide – but in terms of all banks operating in Ireland including foreign and IFSC banks, Irish household deposits fell by €119m in July, which brings such deposits to €92.0bn, the same as the July 2011 level. Total deposits from all sources in all Irish banks declined by  €24.9bn in July with the main cause being a €25bn decline in deposits by Monetary Financial Institutions and the CBI has been asked for a comment.

The Department of Finance last week published its “Deposits Trends” series for July 2012 which showed, according to the Department “deposits at the Covered Banks rose by €1.5bn (1.0%) month-on-month to €154.4bn. This represents an increase of €14.3bn to €154.4bn since reaching a low-point of c. €140bn in July 2011. This demonstrates depositor confidence in the strength of the banking system following its successful recapitalisation last year” These deposits include deposits at overseas branches, in particular at the Bank of Ireland/British Post Office, so they are of limited use, but trend indicates positive news.

Here is the full set of deposit statistics for the different categories of bank operating in Ireland.

First up is the consolidated picture for all banks operating in Ireland including those 450-banks based in the IFSC which do not service the domestic economy.

Next up are the 20 banks which do service the domestic economy and include local subsidiaries of foreign banks like Danske, KBC and Rabobank. There is a list of all banks operating in Ireland here together with a note of the 20 that service the domestic economy.

And lastly the six State-guaranteed or “covered” financial institutions (AIB, Anglo, Bank of Ireland, EBS, Irish Life and Permanent and INBS – Anglo and INBS have now been merged to form the Irish Banking Resolution Corporation, IBRC)

(1) Monetary Financial Institutions (MFIs) refers to credit institutions, as defined in Community Law, money market funds, and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in economic terms), to grant credits and/or to make investments in securities. Since January 2009, credit institutions include Credit Unions as regulated by the Registrar of Credit Unions. Under ESA 95, the Eurosystem (including the Central Bank ofIreland) and other non-euro area national central banks are included in the MFI institutional sector. In the tables presented here, however, central banks are not included in the loans and deposits series with respect to MFI counterparties.

(2) NR Euro are Non-Resident European depositors

(3) NR Row are Non-Resident Rest of World depositors (ie outsideEurope)

UPDATE: 31st August, 2012. The CBI commentary on today’s figures is here. There is no comment yet on the €25bn decline in MFI deposits.

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The Nationwide Building Society has this morning published its UK House Price data for August 2012. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £164,729 (compared with GBP £164,389 in July 2012 and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). After three months of price declines, the Nationwide is describing this morning’s results as surprising given the continuing recession. The Nationwide provides comments on the seasonally adjusted figures, which show a 1.3% rebound in August. Prices in the UK are now 11.5% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of August 2012 being GBP £164,729 (or €207,641 at GBP 1 = EUR 1.2605) is 33% above the €156,517 implied by applying the CSO July 2012 index to the PTSB/ESRI peak prices in Ireland.

With the latest release from Nationwide, UK house prices have risen 1.2% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index is now at 803 (because only an estimated 20% of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK, small changes in UK residential have a negligible impact on the index) meaning that average prices of NAMA property must increase by a weighted average of 24.5% for NAMA to breakeven on a gross basis.

According to the UK’s Office for Budget Responsibility which independently monitors and comments on the UK economy, house prices are projected to fall by 0.4% in 2012 before increasing by 0.1% in 2013, 2.5% in 2014 and 4.5% in 2015 and 4.5% also in 2016.  UK inflation has now come down below 3% per annum despite being elevated since the banking crisis in 2007, overall inflation in 2012 is set to stay close to 3%  – remember that UK inflation has increased by over 16% since their peak whereas in Ireland inflation has been subdued and is one third of that – the UK has pumped GBP0.3tn of “quantitative easing” into its GBP1.5tn economy and another GBP50bn has recently been announced. UK interest rates may increase later this year to combat inflation – the base rate has been 0.5% since February 2009.The UK economy is officially projected to grow by an anaemic 0.8% in 2012 in real terms, close to our own Department of Finance’s projection for Ireland at 0.7%.  However both the Bank of England and the Confederation of British Industry have recently projected nil growth or recession in 2012.

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The drip-drip analysis of the results of Census 2011 – taken on the night of Sunday, 10th   April 2011 – continues with the Central Statistics Office (CSO) this morning releasing further information on our housing. Some of the information has emerged previously, but there is both additional detail published this morning as well as totally new information. The CSO’s press release is here and the report itself is here.

Possibly the most striking change in Irish residential property between the previous census in 2006 and Census 2011 was the surge in households renting their accommodation rather than purchasing it. Whilst the overall population of the State grew by 8% between 2006 and 2011, the number of households paying rent to private landlords grew by a staggering 120% from 145,317 to 320,319 – overall renting households increased by 47% from 323,007 to 474,788 but the increase in local authority/housing association renting was much less than the increase in private landlord renting. Research into reasons behind this phenomenon would be interesting, but a mortgage credit drought, declining house prices, rocketing unemployment and an economy which shrank by 10% will all have played a part.

What is just as fascinating on here is the assumption on the part of some that the renting phenomenon evidenced in 2006-2011 was temporary and will be reversed as soon as economic conditions stabilise. There seems to be an assumption that there is some ingrained social need in Ireland to own property. But there was once also a need to be guided by the Church, to be deferential to banks and politicians and to generally acquiesce with the groupthink emanating from Dublin 2/4. Whilst the spurt in the number of households renting might indeed reverse when the economy stabilises, the trend might also continue with a generation still warned off owning property by the experience of the last decade.

Here are the highlights of today’s report:

 

 

 

General

  • Population of 4,581,269 in 2011 up from 4,239,848 in 2006
  • 1,994,845 dwellings in the State up from 1,769,613
  • 1,649,408 households in the State, up from 1,462,296
  • Average household size of 2.73, down from 2.81
  • 56,000 households comprising just visitors or residents temporarily absent
  • 289,451 vacant dwellings in 2011 up from 266,331 in 2006
  • Of the vacant dwellings, 59,395 are holiday homes up from 49,789
  • 474,788 households renting in 2011, up from 323,007
  • Households renting from private landlords increase by 120% from 145,317 in 2006 to 323,007 in 2011
  • Home ownership falls sharply from 74.7% in 2006 to 69.7% in 2011

Vacant dwellings

  • Excluding holiday homes, there were 230,056 vacant dwellings in 2011
  • 168,427 were houses and 61,629 were apartments
  • Dublin has 17,597 vacant houses and 25,333 vacant apartments
  • Longford has 3,758 vacant dwellings, one of the lowest number in the State
  • Cork has 25,987 vacant dwellings, with nearly 20,000 OUTSIDE Cork city
  • Limerick has 9,661 vacant dwellings, with over 7,000 OUTSIDE Limerick city
  • Galway has 15,364 vacant dwellings, with 11,792 OUTSIDE Galway city
  • Mayo has 12,000 vacant dwellings, Donegal 13,000 but Leitrim has only 4,000
  • The vacancy rate including holiday homes is highest in Leitrim at 30.5%

Holiday Homes

  • 59,395 in April 2011 up from 49,789 in 2006
  • Donegal has highest number of holiday homes at 10,636
  • Cork, Kerry and Wexford also have large numbers of holiday homes
  • 777 holiday homes in Dublin
  • Laois has lowest number of holiday homes by county at 149

Rented accommodation

  • 474,488 households renting
  • 130,000 renting from a local authority
  • Households renting from private landlords increase by 120% from 145,317 in 2006 to 323,007 in 2011
  • Average weekly rent is €166 with private landlords, €59 for local authorities
  • Average weekly rent with private landlords fell 7.6% (or €14 per week) between 2006 and 2011
  • Average weekly rent with local authorities rose 0.3% (or 20c) between 2006 and 2011

Mortgages

  • 583,148 households have mortgages (the Central Bank says there are over 750,000 mortgage “accounts” on principal residences, the difference is being investigated)
  • There has been a decline in mortgaged households of 10,000 since 2006
  • 459,805 mortgaged households are described as “at work”
  • 50,792 are described as being “unemployed”
  • 72,551 are described as being “not in labour force”

Foreigners

  • There are 42,724 Polish households in 2011 compared with 18,667 in 2006
  • Over 40,000 Polish households rent, with 1,820 mortgaged households
  • There are 50,506 British households in 2011 compared with 46,277 in 2006
  • Over 31,000 British households own their home
  • There are 36,304 EU Accession households excluding Poles
  • There are 15,840 African households, up from 13,200 in 2006
  • There are 21,646 Asian households, up from 14,517 in 2006

Lifestyle

  • 1,051,942 households have broadband connection
  • 426,096 households are not connected to the internet
  • Only 26,952 households are not centrally heated
  • 2,555 households have no sewerage facility
  • Nearly 500,000 households have their own septic tank or individual treatment system
  • 161,532 households have their own water source

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This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for July 2012. Here’s the summary showing the indices

  • at their peak (various months in 2007 depending on type of property and location)
  • the NAMA valuation date (November 2009)
  • 12 months ago (July 2011)
  • the start of this year (end December 2011)
  • last month (June 2012)
  • this month (July 2012)

The CSO’s indices are Ireland’s premier indices for mortgage-based residential property transactions. The CSO analyses mortgage transactions at nine financial institutions : Ulster Bank, Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank of Ireland group), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The indices are hedonic in the sense it firstly groups transactions on a like-for-like basis (location, property type, floor area, number of bedrooms, new or old and first-time buyer or not) and then assigns weightings to each group dependent on their value to the total value of all transactions. The indices are averages of three-month rolling transactions.

Cash transactions: Unfortunately, this month the CSO has not published information on the overall size of the residential property market, nor the cash/mortgage split. It is hoped that it will be available in September 2012. It is understood that the CSO has started to receive data from the Revenue Commissioners which shows all individual residential property transactions, but the data is still being validated and tested. Why is this information so important? Because at present, the CSO analyses mortgage-based transactions only, and cash-based transactions may be of a different nature, with the perception being that they will value property at a lower level than mortgage-based transactions. Personally I am skeptical because if, as some commentators suggest, residential property prices are in fact down 60% nationally from peak, then this would indicate the cash-based component has fallen by dramatically more than the mortgage-based component. In fact if cash comprises 50% of the market, and the average decline is 60% and the mortgage-based component is down just 50%, this indicates the cash-based component is down a staggering 70% which seems unlikely – what mortgage company valuer will value a property at 50% from peak, if he knows that there are significant numbers of cash transactions at 70% from peak?

Separately we are now expecting the Property Regulatory Services Authority will introduce the new House Price Database in September 2012. In Northern Ireland, last week they introduced a residential property price index based on all transactions.

As for the key questions:

How much does property now cost in Ireland? The CSO deliberately doesn’t produce average prices. The former PTSB/ESRI index did, and claimed the average price of a property nationally hit the peak in February 2007 at €313,998, in Dublin in April 2007 at €431,016 and outside Dublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI prices as sound and comparable to prices captured by the CSO series, then these would be the average prices today:

Nationally, €156,157 (last month €155,916, peak €313,998)

In Dublin, €184,584 (last month €185,225, peak €431,016)

Outside Dublin, €142,316 (last month €141,900, peak €267,987)

I don’t think the CSO would be happy with this approach but it seems to me that the PTSB/ESRI series, as represented by its historical indices, closely correlates with the performance of the CSO indices.

What’s surprising about the latest release? Prices nationally have risen for the second time since September 2007 – yes there have been a few flat months, but this is the second month after May 2012,  since the boom that prices have actually increased, albeit by just 0.2% in one month. The increase however was outside Dublin – Dublin houses fell by 0.3% in the month and Dublin apartments fell by a staggering 3.9% in the month.

 Are prices still falling? No, prices are up 0.2% nationally after a decline of 1.1% in June, the blip increase of 0.2% in  May following a decline of 1.1% in April 2012, it was flat in March 2012 which followed a 2.2% decline in February 2012, 1.9% monthly decline in January 2012, 1.7% decline in December 2011, 1.5% decline in November  2011, 2.2% decline in October 2011, 1.5% decline in September 2011 and 1.6% decline in August 2011.

How far off the peak are we? Nationally 50.3% (52.6% in real terms as we have had inflation of 4.9% between February 2007 and July 2012). Interestingly, as revealed here, Northern Ireland is some 53% from peak in nominal terms and 59.5% off peak in real terms. Are forbearance measures by mortgage lenders, a draconian bankruptcy regime and NAMA’s (in)actions distorting the market? Or are cash transactions which are not captured by the CSO index so significant today that if they were captured, the decline in the Republic would be even greater?

How much further will prices drop? Indeed, will prices continue to drop at all? Who knows, I would say the general consensus is that prices will continue to drop. This is what I believe to be a comprehensive list of forecasts and projections for Irish residential property [house price projections in Ireland are contentious for obvious reasons and the following is understood to be a comprehensive list of projections but please drop me a line if you think there are any omissions].

What does this morning’s news mean for NAMA? The CSO index is used to calculate the NWL Index shown at the top of this page which aims to provide a composite reflection of price movements in NAMA’s key markets since 30th November 2009, the NAMA valuation date. Residential prices in Ireland are now down 30.9% from November, 2009.  The latest results from the CSO bring the index to 803 (24.5%) meaning that NAMA will need see a blended average increase of 24.5% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index calculated from mortgage-based transactions. Ireland does not yet have a publicly available register of actual sale prices, but one is finally expected at the end of September 2012 – read the latest on the House Price Register here. There are four other residential price surveys, based on advertised asking prices or agent valuations (see below, details here). In addition Phil Hogan’s Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end to which the transactions relate, and which is not hedonically analysed – it is next to useless.

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What did the bailout Troika ever do for Ireland? They’ve already given us the Fiscal Advisory Council which independently pronounces on whether or not the Government’s plans will help meet our budget targets. You can wave goodbye to the days of Charlie McCreevy and the “if we have it, we’ll spend it” approach. You can largely wave goodbye to cynical giveaway budgets on the eve of elections. The Fiscal Council might have gotten off to a rocky start in 2011 when the Government ignored the recommendation for a bigger budget adjustment, but with the legislative backing of the Fiscal Responsibility Act, you can expect the Council to come into its own in the run-up to Budget 2013.

Next month, we’ll have the House Price Database of all residential property prices from the start of 2010 – that’s the Database that has been called for, ever since the Kenny Report in 1973. The idea of a Database proposed by Judge Kenny in 1973 was universally supported by Fianna Fail, Fine Gael and Labour but somehow, in forty years whenever they were in office, they failed to introduce it until Ajay and the boys and girls from the Troika came onto the scene.

By the end of this year, we should have a reformed personal insolvency regime which tries to bring Ireland into the 20th century, and who knows, if we have honest and effective debates in the Oireachtas, we might even get a regime fit for purpose for the 21st century.  Thanks to Klaus and Craig and the other good people in the Troika, we’ll no longer have draconian 12 year bankruptcy periods but something which tries to balance the needs of borrower and lender.

And in 2013, Ireland will have a central credit registry which will keep track of all your loans, and how well you’re repaying them. It might sound Big Brotherish but it is part and parcel of modern developed economies. It should make getting credit easier for deserving borrowers with a good credit history, and it should stop (mostly our) banks making bad loan decisions. You can wave goodbye to loans being given the nod, just because of cosy rounds of golf with the bank official, it will come down to the brass tacks of what you owe and how well you deal with your debt. And you can thank Istvan and his associates for pushing us to it.

The Bill to create the credit registry will be published in September 2012, but yesterday the Government gave us basic details. The registry will be operated by the Central Bank of Ireland, and will try to capture all commercial and personal credit transactions, so that prospective new lenders can check to see if you – whether “you” are a business or a consumer – can afford a new loan. There is no facility for Joe Public to check other people’s credit standing, but there will presumably be a facility for Joe Public to verify the accuracy of their own standing.

NAMA will be one of the lenders whose information on borrowers will be collated by the CBI, and indeed lending by local authorities will also be captured. The bulk of the information is likely to come from the banks and credit unions.

Another Troika innovation.

And lastly, in defence of the Troika which is likely to receive a lot of political flak in the next four months in the run-up to Budget 2013. Remember we have a colossal gap between what we generate in tax and what we spend on welfare and public services. That gap is not the fault or creation of the Troika, but closing the gap is what the country needs and what the Troika is overseeing. As the Memorandum of Understanding makes clear, the Irish government still has sovereignty and can change proposals in the Memorandum as long as the budget gap is closed. So whether it’s property tax, water charges, PRSI, medical cards or whatever else comes on the agenda in the next four months, our government can make adjustments and substitute different measures as long as they generate the same financial result.

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A recurring theme on here is that NAMA does not have the significant control over Irish residential property commonly attributed to it ,with just 13,000 homes subject to NAMA loans in a country with 2m homes, 300,000 of which are vacant and a country with an overhang of excess property over long-term averages of 80-100,000 homes. NAMA has 8 years to work out its loans, so the annual impact on our residential market is not likely to be significant.

However, NAMA is likely to have a dominant role in commercial property, with €6-7bn of Irish commercial property securing its loans. Remember our commercial property market was worth just €500m last year, and looks set to be worth even less this year. NAMA is the player in Irish commercial property. So it is a little surprising that it doesn’t attract more scrutiny in this area, and we don’t come across more criticism like that reported here today.

Today, Fianna Fail TD for Longford-Westmeath, Robert Troy has accused NAMA of being responsible for the closure of the Harvey Norman furniture store at the Lakepoint shopping centre in Mullingar. The store closed last Sunday with the loss of 22 local jobs, and there doesn’t seem to be much hope of transferring the workers to other stores nationally.

Having met with the Harvey Norman boss for the Irish chain, Deputy Troy (pictured above) says that it was the €200,000 annual rent which led to the store closure and job losses, and he has harsh words for NAMA, accusing the Agency of refusing to engage with the retailer which, it is claimed, made “five concrete proposals” to deal with the high rent bill.

NAMA did launch an initiative last December 2011 to deal with requests from commercial tenants facing serious difficulties caused by high rents. Indeed the latest from NAMA is that it has approved 97% of the 149 requests for rent reductions that it has received, and rejected just 4 requests.

NAMA was asked for a comment on the TD’s comments today, but has not responded at time of writing.

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