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Archive for February 21st, 2013

CSOHousingJan2013

This morning, Ireland’s Central Statistics Office (CSO) has released its inflation figures for January 2013. The monthly headline Consumer Price Index (CPI) fell by 0.5% compared to December 2012, and is up just 1.2% year-on-year. January’s results mirror those of December, November, October and  September and continue a subdued trend seen in recent months compared with the 2%+ that pertained before January 2011.

Housing has stopped being the biggest driver of annual inflation, mostly because mortgage costs have been declining – by 9.6% in the past year, as ECB rate cuts and greater scrutiny of variable mortgage interest rates take effect. Just a few months ago, mortgage interest was rising by 20% per annum, and as mortgage interest costs account for over 5% of the basket which measures inflation, the impact on inflation was substantial.

Energy costs in homes on the other hand, which account for over  5% of the total basket examined by the CSO, have risen by 6% in the past 12 months, mostly driven by the 9% price hikes at the ESB, and in October 2012 at Bord Gais.

CSORentsJan2013

Elsewhere, private rents rose by 0.1% in the month of January 2013  – this after a 0.7% increase in December, 0.6% increase in November 2012, 0.7% monthly increase in October 2012 and a 0.9% increase in September 2012, a flat month in August and three months of declines in April-June followed by a small increase in July – and over the past year, such rents are up by 3.4% according to the CSO – there is some small rounding in the figures above which show 3.5%.

It seems that in our financial crisis, the big correction in rent took place in 2009 with a 19% maximum decline, compared to a decline of just 1.4% for all of 2010. Since the start of 2011 there has been a 6.8% increase (mostly recorded in February and October 2011 and February and September/October/November  2012).

Rent assistance levels have not been affected by the recent Budget 2013, neither the rates nor contribution have changed.

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Apologies for this media focused blogpost outside the weekend slots, but today, the British company which compiles and audits circulation figures for Irish newspapers has published its statistics for the six months ending 31st December 2012 – not available online yet without subscription. Below is the summary of the main national daily, evening and Sunday papers, courtesy of Ciaran Tannam. You can check individual titles for December 2012 on the ABC website here – just enter the title and click on the certificate.

ABCDec2012

The picture is universally abysmal and proprietors and journalists will today be contemplating the black-and-white evidence of the death-rattle of their produce. Because this is Ireland, and the climate induces us to suffer from Small Dog Syndrome, they might consider themselves unique but according to one US study some 150 newspapers folded worldwide in 2011. And Ireland just has too many titles for a market of just 4.6m in the Republic and 1.8m in Northern Ireland. Consolidation should have been taking place long ago, but egos and vanities are reality-resistant but in the long term, they’re not enough to be reality-proof.

The spiral of declining circulation-declining advertising-declining investment, continues and indeed appears to be accelerating in the instance of most titles.

It seems obvious that the Evening Echo and Evening Herald are toast, except for an online presence with enhanced listings. The Examiner is the weakest of the dailies and its most compatible bed-fellow is the Irish Times and a merger now seems an inevitability. There is no Sunday edition of the Irish Times, just a weekend edition sold on Saturdays, so there might be an opening for a quality new Sunday paper built around the core of the Sunday Business Post, which is already practically a fully-fledged Sunday read. The Independent and Sunday Independent seem destined for the bin unless there is investment to stem the loss of readers, and the as a keen reader of both, the deterioration in standards is noticeable.

The betting had been that both the Independent and Irish Times would place their content behind pay-walls in 2013; this, after coming to the conclusion that online advertising will never be sufficient to cover the cost of the production of online content and the loss of paid newspaper sales.

I wonder would anyone really care very much if either went behind a pay-wall. A chain is as strong as its weakest link, and a pay-wall protecting commoditized news is as strong as the outlets that will remain free.

We’d still have RTE, plus a smattering of radio stations whose websites carry news stories and of course, we’d still have the Irish Examiner and its sister, the Daily Business Post. We’d have the BBC, the Financial Times and for property, CoStar and Property Week. You’d also have blogs, Twitter and Facebook, and given the nature of the Internet, you have access to direct sources; after all, why bother reading a review of the CSO’s latest indices on property prices – unless the review is really good and places the figures in context and provides rich analysis – when you just have to click on the CSO website to look at the data yourself for free.

Lastly, you may be having some difficulty squaring the ABC sales figures issued today with the JNRS readership survey issued last week which claimed that readership of newspapers had increased strongly –  that survey is almost incredible.

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The NAMA chairman Frank Daly is just about now commencing his address to the Association of European Journalists at a Dublin venue. NAMA has issued a press release, which despite citing quite a few numbers, is actually largely substance-free.

We “learn”

(1) NAMA is to develop “significant new office accommodation” in Dublin’s docklands as part of its €2bn investment programme announced last May 2012. This is not new of course, and Minister for Finance Michael Noonan has been harping on about it for some time. The regular audience on here will be seeking actual addresses for development, development contracts, capital spend. But there is none of this in the update today. Environment minister Phil Hogan has recently designated part of Dublin docklands as a Strategic Development Zone and this might speed up planning applications and minimize objections from the precious souls at An Taisce. Frank says today “The SDZ designation will help to provide clarity on the planning objectives of the local authority and represents a significant step forward in terms of unlocking potential investment through NAMA and other sources, and delivering on the development potential of the area in response to the growth needs of the economy”

(2) NAMA is “evaluating” residential projects in Dublin. No kidding. We already know that NAMA is funding the residential development of the Cosgrave’s Dun Laoghaire Golf Club. There is also some construction work going on at Berndard McNamara’s Elm Park in Ballsbridge. House vacancy levels in some parts of Dublin indicate the need for new construction, though construction costs remain an issue. It seems that NAMA has been listening to the words of Property Industry Ireland and Frank says there may be need for an entity at a national level to take a central, co-ordinating, policy development role in relation to the residential property market, particularly in terms of identifying the areas where future housing shortages are likely to arise and how such shortages might be addressed.

(3) NAMA boasts that it “expects to realise about €750 million by reversing asset transfers by certain debtors and taking charges over previously unencumbered assets – up from a previous estimate of €500 million. Money realised from these sources will be used to pay down debts owed to the taxpayer.” This all sounds wonderful but what NAMA isn’t telling you how much of these transfers come as a condition of advancing more than €1bn to developers, and will these new advances mean developers have first dibs on sales proceeds.

(4) NAMA says it has sold €21m of homes with its 80:20 deferred payment initiative – commonly called the “negative equity mortgage”. NAMA doesn’t tell us now many homes that relates to, but it would be 100 homes at an average of €210,000 for example. NAMA has been slashing asking prices at some of its developments and had a cumulative total of 285 properties on the market with their negative equity product which guards against price declines of up to 20% over five years. NAMA says today that “further properties will be included in this initiative shortly”

(5) NAMA is procuring a “major research programme by the Economic and Social Research Institute (ESRI) to produce, for the first time, comprehensive information on the residential property market in Ireland – such as the key factors influencing the availability and cost of housing over the medium and long term. This project will benefit people buying houses, investors and the construction industry.” Remember that NAMA has previously given €24,000 to the University of Ulster for research on landbank and development issues in Northern Ireland.

(6) NAMA leaves the best till last. It has made available a €1bn credit line to IBRC, the broke bank put into liquidation by the Government two weeks ago. Apparently Minister Noonan is going to lay the Directions he gave NAMA in respect of the IBRC liquidation before the Oireachtas this week, and they will be closely scrutinized on here, and we may see what the Minister has been up to this time with using NAMA to bail him out (again). But the donation of €1bn was presumably at the behest of Minister Noonan and is to “meet their [IBRC] ongoing funding requirements” IBRC could have a big impact on NAMA’s operations and remember that in August 2013, all unsold loans will be transferred to NAMA. Frank says today “potentially, depending on the scale of loan transfers, the size of our balance sheet could increase by close to 50%”

There is a €35 fee for the event today and that includes a photo opportunity with Frank and the opportunity to ask him a question. The full press release is likely to be available online from NAMA’s PR people, Gordon MRM, here shortly.

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NAMA is presently offering for sale €1bn of your assets. It has package together two loan portfolios – one relating to the loans of developer David Courtney and that is called Project Aspen and contains €810m of loans and the other relating to the loans of developer Eamon Duignan and that is called Project Club and contains €230-330m of loans, depending on your source.

But make no mistake about it – despite the exotic sounding sale of loan portfolios with project names, these are €1bn of your assets which you have paid for.

Last week, NAMA came in for some criticism for not providing potential purchasers with up to date valuations of the loan portfolios. UK commercial property portal, CoStar reported that

“Failure to supply this information is considered something of a false economy by NAMA, as imposing this additional extra due diligence on prospective bidders is ultimately factored in as part of discounts tabled for the NPL which can result in a net lower offer.”

This week in the Dail, the Sinn Fein finance spokesperson challenged Minister for Finance Michael Noonan about the apparent failing.

Despite industry criticism, Minister Noonan falls back on the old reliable “the ultimate objective of maximising sales proceeds” without providing any defence to the specific criticism. NAMA’s conduct with the sale of these two loan portfolios will be closely followed on here.

The full parliamentary question and response are here:

Deputy Pearse Doherty: To ask the Minister for Finance the reason the National Asset Management Agency has not provided potential purchasers of its Project Aspen and Project Club loan portfolios with standard valuations; and if such an omission is considered to be detrimental to the prospects of NAMA maximizing income from the disposals.

Minister for Finance, Michael Noonan: NAMA advises that methodology and strategies applied in the case of any given loan sale is determined after consultation and discussion with the appointed loans sale advisor. The approach adopted in any particular case will be determined by the ultimate objective of maximising sales proceeds.

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We found out last week that NAMA is now offering so-called “staple finance” or “vendor finance” to potential purchasers of its loans. This is in addition to the previous arrangement whereby such finance was only available to purchasers of property. Word on the street is, that, despite NAMA announcing a €2bn staple finance package in May 2012 – and that €2bn announcement came after NAMA first revealed its staple finance scheme in 2011 – precious few buyers have opted for NAMA finance because the associated asset, be it a loan or property, is too expensive.

Back in 2012, we were having a right old laugh at NAMA’s paltry success in selling property with staple finance, with the office building at One Warrington Place and a residence in south Dublin being the only two sales where staple finance was believed to have featured.

So, nearly two years after NAMA first announced it was offering staple finance, how many sales have been subject to such financing, and nearly a year after announcing a €2bn staple finance package, how much has in fact been advanced?

On Tuesday in the Dail, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan these questions. In a variation of “get lost, I’m not telling you”, Minister Noonan Zen-like responded “details sought by the Deputy relate to the commercial dealings of NAMA and publication or otherwise of this information is a matter for NAMA in the context of commercial objectives and in the context of how it can best meet those objectives” Now that’s a headscratcher but it really does boil down to “get lost, I’m not telling you”

Word on the street is that there are been very few sales with vendor finance, which begs the question why NAMA isn’t selling more property. Is it holding out for top-tier prices, so high that even cheap financing won’t tempt punters to bite?

The full parliamentary question and response are here:

Deputy Pearse Doherty: To ask the Minister for Finance if he will confirm the number of completed transactions where the National Asset Management Agency has provided so-called vendor finance; the total value of such finance provided and the total amount of such finance presently outstanding..

Minister for Finance, Michael Noonan: I am advised by NAMA that it envisages that it will make up to €2 billion in vendor finance available, mainly in Ireland, on commercial terms to purchasers of commercial properties securing its loans.  The further details sought by the Deputy relate to the commercial dealings of NAMA and publication or otherwise of this information is a matter for NAMA in the context of commercial objectives and in the context of how it can best meet those objectives.

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It seems utterly ludicrous and is certainly inconsistent, that Irish Bank Resolution Corporation is presently gearing up to sell €16bn of loans to the highest bidder, and in some cases, the sales will be to the original borrower who will walk away with a hefty discount, whilst at the same time, NAMA is proscribed by the NAMA Act from doing the exact same thing – selling loans and properties back to the original debtors if they are in default.

Minister for Finance, Michael Noonan has previously refused to estimate the loss to IBRC if it were to adopt the NAMA-style proscription and NAMA is unable to estimate the lost profit it is foregoing with the proscription on the flimsy pretext that, because NAMA will not deal with defaulting debtors, it has no idea what they would offer and consequently can’t quantify the loss!

Seriously, this is the finance minister of the State who is the 100% shareholder in IBRC and who controls NAMA.

The long standing position on here is that the loss of not dealing with defaulting debtors be estimated, and then if it is judged substantial, to remove the proscription. There is no point in cutting off your nose to spite your face.

This week, we learned in the Dail that the proscription at NAMA is pretty lightweight. We learned that although NAMA is proscribed from selling a property to the defaulting debtor – let’s call him “D” – NAMA can sell to anyone else – let’s call them “A”. But there is no restriction on “A” selling to “D”. So NAMA, which we own might lose out on a profit, but “A” which we don’t own won’t. You couldn’t make this stuff up!

It is understood from some buyers of NAMA assets that there is no explicit restriction on the further sale of the asset by the direct buyer from NAMA, but some direct buyers of NAMA assets believe there to be a “nod and a wink” position at NAMA, and should the direct buyers then sell on to defaulting borrowers, that NAMA will look unfavourably on this, and the direct buyer might find themselves cold-shouldered by NAMA in future. So although what Minister Noonan says below is true, the practical position is some direct buyers are concerned at retribution from NAMA if they do sell on to debtors.

It is long past time to stop this nonsense. It is either in our interests as a State that there be a proscription or that there isn’t. It is ludicrous to have a proscription at NAMA but at IBRC to have assets sold to the highest bidder, regardless of who they are. We need to quantify the lost profits at NAMA from this proscription, and debate whether the financial loss is worth the political benefit.

This is the full text of the parliamentary question posed by the Sinn Fein finance spokesperson Pearse Doherty together with the response from Minister for Finance, Michael Noonan:

Deputy Pearse Doherty: To ask the Minister for Finance if he will set out the safeguards that the National Asset Management Agency has in place to prevent loans which it sells to third parties being re-sold to the original debtors who might be in default of loans to NAMA..

Minister for Finance, Michael Noonan :   I am advised by NAMA that when it approves the sale of any loan or approves the sale of any secured property by a debtor or receiver, it requires a confirmation that the purchaser is not connected to the relevant debtor.  NAMA advises that the term ‘connected’ is widely defined to cover anyone acting on the debtor’s behalf. This is to ensure that the transaction can be truly considered to be at arm’s length.

Having ensured, as far as possible, that such primary sales are not made to the relevant debtors or to connected parties, NAMA advises that it has no legal right to intervene in any further future sales of the loan or property in question.

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