NAMA borrowers transferring assets to spouses

An issue troubling several members of the Oireachtas Joint Committee on Finance and the Public Service when quizzing the NAMA CEO  was NAMA borrowers transferring assets to family members, spouses or related companies in order to avoid repayment to NAMA. The issue was particularly raised by Joan Burton who further asked about the definition of a family home (in particular whether a number or portfolio of homes, eg one in Dublin, one on the Continent and one in the Irish countryside could be considered as one home) and whether a so-called trophy home (eg one on Ailesbury Road in Dublin where asking prices in 2010 continue to be pitched at the €2000/psf plus mark) could be considered a family home worthy of special protection from creditors.

The NAMA CEO made reference to the Family Home Protection Act 1976 and opined that a change in the law might be helpful to NAMA in its efforts to recover loans. However he pointed to the fact that NAMA had powers to apply to the Court to have transactions set aside and that certain transactions which disposed of property which was of interest to NAMA might be considered fraud. Changing the law may at this stage be closing the stable doors two years after the horse has bolted and retroactive application of any law poses problems but that has never stopped determined governments who simply introduce defined and targeted taxes.

The Family Home Protection Act 1976 was designed to support married couples and their families by preventing the sale or mortgage of a property without both spouse’s consent. Same-sex and unmarried couples enjoy no protection under the Act.  The concern is that borrowers who default on loans will continue to own, control or access fantastic wealth, whilst the State (either through NAMA or a recapitalisation) picks up the debt – Joe Soap struggling to make ends meet living in modest accommodation pays for the debts run up by Joe Elite who continues to enjoy fantastic wealth.

As pointed out before on this blog (for example here), wealthy individuals frequently make use of lawful devices including trusts, offshore facilities and limited liability corporations to protect wealth and it may be an ugly and unpopular truth but at some point NAMA and government may need to abandon the “chasing them to the ends of the earth” rhetoric and write the debt off. That doesn’t mean NAMA should not make full use of all lawful means to recover the debt including, where appropriate, seeking to have transactions set aside. The government might consider balancing these ugly truths with a reform of the insolvency laws for average citizens eg simplifying bankruptcy arrangements and reducing the duration, burden and effect of bankruptcy – with negative equity affecting close to 200,000 households and a slow housing recovery and further wage reductions, unemployment and taxes in prospect this might be how a NAMA for the little people would work.

Kathleen Barrington at the Sunday Business Post published a report on this topic on Sunday 11^th, April 2010.

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A slight thaw in the Dublin property market?

Arguably NAMA’s lead-valuation expert, CB Richard Ellis, has today published its periodic report into the Dublin office market and notes that the vacancy rate has dropped marginally from 23.45% to 23% of stock over the quarter (not a colossal change though it is the first drop in over 2 years) and that rents for some prime locations and quality offices are creeping up marginally (though other locations and poorer quality accommodation are continuing to see falls).

Elsewhere in the Dublin residential market, an upbeat picture is painted for property sales in some parts of the county. Estate agents have reported renewed interest and a shortage in some subsectors. However despite the optimism imparted by the gloss, beneath lies the reality that potential sellers are not putting property on the market because of price falls (although not referred to, possibly because of negative equity issues) and some of the shortage is because buyers will not enter the market at existing asking prices. Also of note is that apartments appear to continue their fall from grace except in prime areas – again not cited in the report but privacy, management charges, lack of development control, neighbours and some poor quality construction may further reduce the appeal of apartments. As always the concern over the lack of a proper public register of sales makes any properly-objective assessment of the market impossible.

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NAMA establishes a Bulldozing Committee

NAMA through the Minister of State for Planning, is expected to announce today that a committee is being created to specifically examine incomplete housing estates around the country with the aim of determining what should happen with them according to a report in the Irish Times today. Whilst the NAMA CEO has said that demolition would not be the first consideration, it may be necessary to demolish property for a number of reasons including Health & Safety reasons.

The committee will complete its work by the end of the summer 2010. According to the report in the Irish Times “In “some extreme cases”, the Minister of State will tell planners attending the conference that for safety and other reasons, developers and or owners of sites “may have to be compelled to demolish partly completed but unstable or deteriorating developments.””

So it would appear that demolition is to be considered only in extreme cases. It is to be hoped that the “other reasons” (apart from safety) for demolition are debated.  There has always been the suspicion, confirmed by the EU in denying NAMA certain powers in its Decision of 26th February, 2010, that NAMA would seek to have an unfair or competition distorting  effect in the Irish economy and the suspicion is that NAMA would demolish dwellings to place a floor under property prices  to ensure property rises by a specific % over the lifetime of NAMA and that NAMA investments are protected.

NAMA is a major building block in restoring our economy but it is not the only building block and NAMA’s effect on the wider economy and  competition and competitiveness should be constantly monitored and overseen.

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