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Archive for November 19th, 2012

NAMA hasn’t lost any time after the High Court today rejected developer Tom McFeely’s bid to reverse the repossession of his former home at 2 Ailesbury Road – this evening the 5,000 sq ft property on one of Dublin’s best streets is offered for sale by Colliers International with an asking price of €3m. The property had been repossessed by NAMA in August 2012 after a protracted battle including last minute bids by Tom McFeely’s wife, Nina Kessler and son to argue for a delay to the repossession to allow their teenaged son to complete his secondary school  education and Leaving Certificate in 2013.

The property was understood to be subject to a €10m mortgage so, on that basis and even if €10m represented a 100% mortgage at the peak, the asking price represents a 70% discount, and the property might accordingly be described as being priced to sell.

The 5,100 sq ft semi-detached property is set over three storeys and is said to require “some refitting and modernization”. The advertisement on MyHome.ie for the property is here.

The 250-odd residents in Priory Hall, the development in Donaghmede, north Dublin remain in Limbo after being forcibly evacuated from their unsafe homes in October 2011.

UPDATE: The Irish Times is reporting that the property has now been sold for €2.5m to an unnamed Irish couple who plan to relocate from the UK. The sale has not yet been registered on the Property Price Register. The Irish Times reports that another €1m will be needed to restore the property to what it calls “proper residential use” which is a curious characterisation – was it not in “proper residential use” before? After all, a family including their teenaged son wanted to remain in the property for another year.

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The Nationwide Building Society has published its UK House Price data for October 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 164,153 (compared with GBP £163,964 in September 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). UK prices have declined by 0.9% in the past 12 months and are now 11.8% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of October 2012 being GBP £164,153 (or €203,960 at GBP 1 = EUR 1.2425) is 29% above the €158,322 implied by applying the CSO September 2012 index to the PTSB/ESRI peak prices in Ireland.

With the latest release from Nationwide, UK house prices have risen 0.9% 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 791 (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 26.5% for NAMA to breakeven on a gross basis.

The next forecast from the UK’s Office for Budget Responsibility which independently monitors and comments on the UK economy is due out on Wednesday this week 21st November 2012. According to the OBR’s current forecast, 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 nearly 18% since their peak in October 2007 whereas in Ireland inflation has been subdued and is less than 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 0.9%.  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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Whilst we mightn’t have full visibility on NAMA’s portfolio of commercial property in the UK, we learn today that the average price of commercial property across the UK has declined for the 11th month in a row.  NAMA has had a strategy for at least the past year and a half of quickly exiting the UK market, and in light of the last 11 months of declines and the uncertain outlook for the UK economy, we might be close to identifying an asset management strategy success at NAMA.

Last Wednesday saw the publication of the October 2012 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.

The Index shows that capital values fell by 0.3% in October 2012, which follows declines averaging 0.3% per month since December 2011. Prices reached a peak in the UK in June 2007 and fell steadily until August 2009 when a rally started. Prices then increased by 15% in the year to August 2010 but since then prices are actually down by 1.6% and in the last 12 months prices have decreased by 3.5%. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 7.6%. Commercial prices in the UK are now 36.4% off their peak in June 2007. The NWL index  falls to 791 which means that NAMA needs to see a blended increase of 26.5% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).

The table below shows the three subsectors in UK commercial property with an index for all three at NAMA’s valuation date of 30th November 2009 of 100. Offices have been relatively buoyant whereas industrial premises like factories and warehouses have been relatively flat.

The next forecast from the UK’s Office for Budget Responsibility which independently monitors and comments on the UK economy is due out on Wednesday this week 21st November 2012. According to the OBR’s current forecast, 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 nearly 18% since their peak in October 2007 whereas in Ireland inflation has been subdued and is less than 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 0.9%.  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 IMF thinks it should be levied at yearly 0.5% of a home’s market value, Minister for Finance Michael Noonan indicated that it will be closer to 0.25% and because the IMF was using out-of-date figures for local authority rates and stamp duty, the view on here is that it should be closer to 1% of market value to bring our property taxes in line with OECD countries.  And the betting on here is that by 2015, it will be closer to 1% than the 0.25% hinted at by Minister Noonan. But for 2013, when Budget 2013 is announced on 5th December 2012, you can probably expect an average property tax of €300-500 equating to about €500-600m in a full year, and given the necessity of having some exclusions and waivers and the ending of the €70m second home levy and the cost of administration, it is more likely to be an average of €400-plus on a €160,000 home with a 0.25% flat rate apply to bands of property values eg less than €50,000 to pay €125, home valued between €100-200,000 to pay €500. The Government has signaled that the new tax will be collected from mid-2013 but don’t let that fool you into thinking you’ll get a 50% discount in 2013, you’ll have the pay the full annual sum by the end of 2013!

Of course, it could also be zero if the Government follows the suggestion by Fianna Fail to substitute other measures for the property tax, but given the minimum €3.5bn size of the adjustment in 2013, the specific inclusion of a property tax in the Memorandum of Understanding with the Troika and the political capital already expended on the household charge, it is a safe bet that there will be a property tax in 2013 and that it will be an average of around €400.

It is understood the so-called “Expert Report” which was produced by a group led by quango-king Don Thornhill was delivered to Minister for the Environment Community and Local Government, Phil Hogan in July 2012 before the Dail summer recess, but it has remained under tight wraps since. It is unlikely to contain any surprises, this is generally going to cost you a few hundred euro a year and it will be a new tax, notwithstanding the fiasco of the 2012 household charge, which according to the Local Government  Management Agency has not been paid by more than 600,000 households at the end of October 2012. Preparations are already advanced to have the once-feared Revenue Commissioners – those nice people who agreed a €2.1m tax settlement with Deputy Mick Wallace that might be paid off, at Mick’s discretion it should be said, over the next 50 years – collect the tax and it may form part of your tax code if you’re on PAYE; the Government has been seriously rattled by the resistance to the €100 household charge in 2012 and at this late stage of the year, there still appears to be widespread non-compliance.

There are various groups of opponents to the new property tax ranging from those objecting to any form of property tax at all, to those advocating different means of levying the tax and the account that should be taken of factors such as location and size of the property and site to the income of the householder.  Given the bluntness that has characterized this Government’s term in office, you can probably expect a bald 0.25% charge in 2013 based on a band of values assessed by your local authority working off your registration information provided when you paid the 2012 household charge.

In terms of alternatives, we have Property Industry Ireland who submitted its lightweight pre-budget document on 1st October 2012 which simply called for general clarity and also a reform to property taxation, particularly with commercial rates. Last week, upmarket estate agents Lisney produced its own pre-budget submission and called for a flat rate based on bands of values but then adjusted for size. Lisney also wants to see residential stamp duty reduced or abolished.  The Society of Chartered Suveyors in Ireland has produced its pre-budget submission and a separate submission on property tax where the Society appears to advocate a flat tax in the short-term though it is unclear precisely what its preferred option is for a permanent property tax.  An updated submission from the Society was made in September 2012, but it again refrains from recommending a prescriptive method, save to say values should be self-assessed. The Dublin Chamber of Commerce is advocating a rate set by the 34 local authorities which will obviously benefit Dublin households where the concentration of population will lead to lower average household bills.  For all the submissions, it is likely to be a simple national tax at 0.25% of the upper band value as calculated for your home by your local authority and payable from July 2013.

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