Archive for March 18th, 2010

This question arises from the recent Regulation: NAMA (Determination of Long Term Economic Value of Property and Bank Assets) and how NAMA must value Long Term Economic Value, specifically in section 5

 (1) .. (b) the correlation, in the relevant period, as determined by NAMA in

accordance with paragraph (2)—

(i) between land prices and demographic variables relating to the


(ii) between land prices and interest rates in the State, and

(iii) between land prices and the State’s gross domestic product;

(2) In determining the correlation for the purposes of paragraph (1)(b),

NAMA shall have regard to such of the data and analyses as it considers appropriate

and which were available to NAMA on or after 21 December 2009 but

not later than 10 January 2010, and as are prepared by any or all of the following:

(a) Central Statistics Office;

(b) Economic and Social Research Institute; and

(c) Central Bank and Financial Services Authority of Ireland.

Let me start off by saying that I know of no reason why the CSO, ESRI and Central Bank and Regulator should not be nominated as providers of data and analysis. They are, I am sure, competent and professional both in terms of data collection and future projections. I am more concerned that data and analyses from other organizations (eg Revenue and Land Registry for actual commercial and residential property transaction values, PRTB for actual residential property rental prices, DKM Consultants/NIRSA/UCD for their academic work on vacant residential property, OECD/IMF for projections with respect to the Irish economy) are excluded. Surely NAMA should not be constrained in its procurement of data and analyses as it sees fit to discharge its duties. Specifically in relation to the nominated organizations:

CSO – The latest CSO population (demographic) projections are contained in the Regional Population Projections was published in December 2008, 5 months before it was revealed that Ireland had suffered net outward migration in year ended April 2009, the first net outward migration for 14 years (-8000), this coming after an unprecedented 13 years of net inward migration of 450,000. The immediate reason this is relevant and worrying is that the CSO produced population projections in December 2008 (and this is the latest we have)  which assumed levels of migration at three different levels but the minimum level was 0, not a negative outflow, the maximum level was a net inflow of 600,000 by 2026 compared with 2006. If NAMA is required to rely on population projections which at best provide for no net migration or at worst 600,000 net migrants (who at 2.7 people per dwelling will require over 200,000 new dwellings) then will NAMA make unreliable assumptions about property requirements and pricing if migration is in fact negative.

The following is the recent history with the State’s migration.

  Emigrants Immigrants Net Inflow/(Outflow)
1990 n/a n/a n/a
1991 n/a n/a n/a
1992 33.4 40.7 7.3
1993 35.1 34.7 -0.4
1994 34.8 30.1 -4.7
1995 33.1 31.2 -1.9
1996 31.2 39.2 8
1997 25.3 44.5 19.2
1998 28.6 46 17.4
1999 31.5 48.9 17.4
2000 26.6 52.6 26
2001 26.2 59 32.8
2002 25.6 66.9 41.3
2003 29.3 60 30.7
2004 26.5 58.5 32
2005 29.4 84.6 55.2
2006 36 107.8 71.8
2007 42.2 109.5 67.3
2008 45.3 83.8 38.5
2009 65.1 57.3 -7.8
  605.2 1055.3 450.1


Is there any good reason to believe we might have negative net migration over the NAMA horizon of 10 years? In my opinion yes. Looking at the statistics above from the CSO’s database, it seems the bulk of our net migration came from 2004, almost 240,000 net. This migration was predominantly from EU Accession countries (140,000 net), see table below for EU-Accession countries only

  Emigrants Immigrants Net Inward/(Outward)
pre 2005 n/a n/a n/a
2005 0.8 33.7 32.9
2006 2.3 49.3 47
2007 7 52.1 45.1
2008 9 33.1 24.1
2009 22.9 13.1 -9.8
  42 181.3 139.3


As we can see the majority of net migrants (-8000 net total) last year were from Accession countries. And why not. Poland’s (and Poland was the most prominent Accession country from the point of view of Irish migration) economy is still growing though at a reduced pace, indeed there are signs that Poland is building a nice little property bubble of its own. Poles were originally not entitled to work in Schengen countries in the EU but that no longer applies. Poland has limited cultural, economic or language ties with Ireland and as the Polish economy modernizes towards its benchmark neighbour, Germany, it is my view that much of the Polish migration in the late mid noughties will reverse.

Arguably much of our inward migration in the past 15 years has been a result of our above average performing economy (from a GDP point of view). Whilst we will recover, will our recovery be above average? Difficult to tell but our British and European neighbours appear to be making better strides at recovery.

And what of emigration of indigenes? Again, difficult to tell, but anecdotally there has been significant emigration to the UK and Australia in the past year. It is my view that this will continue in the next 1-3 years.

However the bottom line is that population growth is a projection and at best an educated guess. My problem with the CSO projections however is that they do not UNDER ANY CIRCUMSTANCE examine negative migration. If 450,000 net migrants came here in the Boom, is it completely unrealistic that  we will have negative migration in the Bust?


The Quarterly Economics Survey in Summer 2009 estimated a total fall in residential property of 14% over the two years – 2009 AND 2010. The latest data available confirms that prices fell by 18.5% in 2009 alone with falls accelerating towards year end (December 2009 saw a fall of 3.6% in that month alone). Where does that leave the latest ESRI forecast? That there will be a recovery of some 4.5% in simple terms in residential property prices in 2010? That would place the ESRI at odds with most property pundits whose median estimate in January 2010 was that prices would drop by 10% in 2010. Whilst some pundits estimated a modest single digit percentage increase in 2010, others such as UCD’s Morgan Kelly predicted a further 50% fall. The monthly price index from ESRI/Permanent TSB was suspended in February 2010 due to the paucity of transactions and the index will henceforth be published on a quarterly basis, with the first report in April 2010.

Indeed if 10th January, 2010 is the cut-off for eligibility of ESRI data then presumably the 20th January, 2010 announcement by the ESRI that property had dropped in value by 3.6% in December 2009 alone cannot be used?

It makes me very uncomfortable that residential development NAMA loans may be valued by reference to ESRI data and analyses that predates 10th January, 2010. Being denied data which confirms a 3.6% fall in prices in December 2009 and what would likely be a forecast of a drop of 10% this year is very significant. A 13% drop in prices for NAMA assets would be over €4bn.

Central Bank and Financial Services Authority in Ireland

The Central Bank produces a quarterly bulletin which forecasts up to 2 years ahead. The January Report was issued on 29 January, 2010 and will therefore be excluded from considerations by NAMA. It predicts Government debt to rise to 77.9% of GDP this year compared with 73% last October. It now predicts oil to cost an average of $80.30 in 2010 compared with $73.00 in October. It now believes GNP fell by 11.3% in 2009 whereas in October it was predicting a 10.6% fall. I suppose the fact that statistics change (some for the good, some bad) is not so much a concern as the fact that NAMA cannot rely on uptodate statistics and analyses when plotting the macroeconomic environment in which its loans must perform. This seems ludicrous.


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