Archive for June 2nd, 2010

One of this aims of this blog is to try to highlight inconsistency between statements of supposed fact or intent by those with the power levers to try to extract us from the banking and property mess. In that vein, this entry looks at Brian Lenihan’s speech calling the bottom in September, 2009 in which he stated:

“The fall in property values has pushed up property yields. Yields are now above their long term average, and this suggests that values are bottoming out.”

This statement revealed a worrying ignorance of the property market, and given NAMA was a major plank in cleaning up the aftermath of the banking crisis through the management of property-backed loans, it prompted concern about Brian Lenihan being an amateur.

Yields are simply speaking annual rent divided by property value, and the idea is that if the yield is high that means you can go out and buy a property, rent it and you’ll get a good rate of return. In fact if the return from property is a lot better than you can get from your deposit account or other safe investments, then lots of people will go out and buy property. With more buyers in the market, the price of property will increase until yields come down to a level which places them at equilibrium with other investments. That’s the theory.

Except an idiot could have told Brian Lenihan that in a recession, the numerator in the yield calculation, the rent, it can fall and if it does then the yield falls and that makes property less attractive so you don’t get so many buyers and you don’t get increases in the price of property, in fact you may well get falls.

And today the Independent reports the findings of a survey by Retail Excellence Ireland and IBEC in which it was found that practically all retailers have sought rent reductions and given that only 1/3rd were refused, the conclusion is that 2/3rd of retailers have secured lower rents.

Lower rents = lower yields = lower commercial property prices ≠ “The Bottom”


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When it’s being acquired to build our national infrastructure. The Independent reported yesterday that 500 acres had been acquired by Galway Country Council as part of the development of the Gort-Crusheen bypass at a cost of €37.7m – equivalent to €75,000 per acre. Coming on the heels of last week’s report that agricultural land had crashed from a peak of €20,000 per acre in 2007 to €6-10,000 per acre today, the Independent reports that the purchase has created six millionaires.

If the Kenny Report from 1974 which was universally applauded by the main political parties, but never implemented when those same parties held the levers of power, had been implemented then the payments would have been 25% over the agricultural land value which would have seen an overall payment of between €3.75m and €6.25m and a saving to the taxpayer of well over €30m. And with respect to the government’s 80% windfall tax on development land – probably doesn’t apply as this was a compulsory purchase.

Of course if the Kenny Report had been implemented then we would already have an House Price Database.

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