Archive for March 4th, 2010

University College Dublin and Dublin Institute of Technology today released their hotly-anticipated report into vacant property which appears to be broadly in line with the NIRSA report in January 2010. The report appears to conclude that 170,000-odd properties (1/2 the overall total of 345,000 vacant) should be on the market today and given the overall numbers on DAFT.ie  and Myhome.ie, there would appear to be significant hoarding by sellers and developers. Dr Brendan Williams, the report’s lead-author says “”Suppliers and vendors were unwilling in the short term to adjust prices, but such shifts become inevitable,” The tenor of the report emerging from the media indicates a further  correction to property prices.

The online version of the report is scheduled to be available through a link here from 10am on Friday morning.


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This was the judgement of the Supreme Court today when characterising a John J Fleming company which examiners wanted to be held moribund for 10 years  “in the hope that the property market would improve”. This was rejected by the Supreme Court who referred to the argument as “an aspiration based on hope”.

Whilst it is not immediately apparent in the NAMA business plan the relevance of the oft-quoted assumption that the property market would increase by 10% in 10 years,  the Supreme Court’s judgement in the Fleming case must give NAMA notice that all assumptions must be robust and not founded in hope alone.

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Remember the NAMA estimates in September, 2009 – Original Asset values of €88bn; Original Loans of €68bn plus Rolled-up Interest of €9bn giving €77bn of loans; a 30% haircut or discount to the €77bn giving a consideration to be paid by NAMA of €54bn; which comprised the existing market value of €47bn and something called the Long Term Economic Value of €7bn? Remember all that?

Many people asked what was meant by Long Term Economic Value and they will have found an explanation in the NAMA Bill, section 79 (2) (c) which states “a reference to the long-term economic value of property is the reference to a value, as determined by NAMA in accordance with this Part, that it can reasonably be expected to attain in a stable financial system when the crisis conditions prevailing at the passing of this Act are ameliorated and in which a future price or yield of the property is consistent with reasonable expectations having regard to the long-term historical average”

Simply put, the current crisis is so bad that values have crashed well below their long-term average. So a plot of development land for example might have had a value in September 2009 of €47m but according to long-term averages it should have had a value of €54m.

What has happened since September 2009? The Sunday Business Post last Sunday stated that instead of a drop in values of 47% as suggested by Mr Lenihan, values had in fact dropped by 55% which would mean the €88bn of assets were now worth €39.6bn. HOWEVER, the long-term economic value will still be €54bn (if that example of a development plot had a long-term economic value of €54m last September, why should that have changed in the last 5 months?). This means that we must now pay the banks a Long Term Economic Value of €14.4bn (€54bn less €39.6bn) and not €7bn.

No wonder Mr Lenihan didn’t want to turn on his calculator to re-run the numbers. Is Mr Lenihan concerned that the revelation of this information would cause such uproar that citizens would at last grab their frying pans and pots as they did in Iceland and force the government to stop the NAMA project now?

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