Archive for September 2nd, 2010

The Department of Finance has provided an update on the numbers of houses completed in 2010 together with recent statistics by year.

This morning the Irish Times published informed speculation that the forthcoming review of vacant housing will show between 80-100,000 vacant homes in the State, considerably down from the 300,000 headline at the start of this year. According to Prof. Rob Kitchin at NIRSA the review will not be comprehensive as “it only has reference to post-April 2007 housing estates where there is vacancy above 10%. It therefore a) excludes estates where vacancy is below 10%, b) excludes unoccupied/unfinished one-off housing, c) it assumes that estates started prior to April 2007 are both finished and have occupancy levels above 90%.” In a separate article in today’s IT Jack Fagan reports that NAMA will control 12,000 apartments in the Dublin area alone and speculates that there will be pressure on rents in coming months as supply is increased.

Of course we should have the CSO estimated population as at April 2010 released in the next month also. So perhaps we will shortly get a better handle on the demand:supply environment for Irish housing though it would seem that there is by any standard a substantial overhang and the evidence is pointing to modest population growth at best with a distinct possibility of a population decline.

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Lex and NAMA

The Financial Times’ influential Lex column today briefly addresses NAMA (there are only a further two paragraphs beyond those shown for free so don’t worry, you’re not missing much).

Like many others, the FT doesn’t know what to make of NAMA. There is no real metric by which its early performance can be measured. The people at NAMA would probably say that much has been achieved – people recruited, service providers engaged not to mention €27bn of loans that have been valued (and furthermore have had their values confirmed by the EU) and transferred to NAMA. And on the PR front, for what is a colossal undertaking no-one at NAMA seems to have put their foot in it, though John Mulcahy probably came closest a month or so ago when the Daily Mail wrote about yachts and Mr Mulcahy’s relationship with businessman and sometimes-developer, Paul Coulson. Yes the public have griped about lack of transparency, the professional fees gravy train, distortion of competition, the demolition of housing and NAMA being soft on developers. The business plan fiasco, NAMA’s poorer financial outlook and their abnegation of responsibility in respect of the draft Business Plan were all worrying but all in all, it would be fair to say that NAMA has survived. Lex attacks NAMA for being “slow, bureaucratic, initially indecisive, almost excessively transparent (every toxic loan is assessed individually)” – NAMA would probably blame the banks (and possibly the EU though at less than 3 months EU approval of the NAMA scheme was reasonably responsive)  and say that they are dealing with taxpayers’ money and therefore need to be diligent in how loans were valued.

But for all the process, as Lex notes, in response to the question about whether or not NAMA is working – nobody knows. Lex predict that by December 2010 when the loan transfers are complete there will be a reckoning. Based on what, one might ask – NAMA will probably only revalue its loans well into next year, NAMA is not likely to bring much property early to the market meaning its valuations won’t be intensely tested and pursuing developers for outstanding debts will drag out over many years. The external environment has not been kind to NAMA – Irish commercial and residential prices are already down 10% since 30th November, 2009, the date chosen by NAMA by reference to which it values loan assets – the UK has performed better with commercial up 10% though the steam seems to be running out of the recovery. Whether NAMA will be damned in the future for not re-basing its valuation date remains to be seen, though the EU may have something to say on the matter sooner.

And as Anglo’s recent accounts for the first half of 2010 have demonstrated, once NAMA completes its transfers there will still be €38bn of mostly property loans remaining with Anglo alone, with just under half impaired or past due at June 2010. Thankfully NAMA will take practically all of Irish Nationwide Building Society’s loanbook and the Educational Building Society is tiddly. That leaves Allied Irish Bank (AIB) and Bank of Ireland (BoI) – BoI has had the lowest haircuts and would appear relatively healthy but will question marks continue over AIB’s loanbook after NAMA has finished its work. These residual loans in the banks’ balance sheets would at this point be the only issue in principle with NAMA cleansing the banks’ of their toxicity which was intended to be the second step in restoring normal credit conditions (guarantee, NAMA, recapitalisation, restructure). Of course this issue could be addressed by extending NAMA’s scope (€150bn of loans instead of €80bn).

To conclude Lex opines that it is too early to write off NAMA and that the completion of the loan transfers can’t come soon enough. Perhaps, but with Anglo’s future under the spotlight one could additionally ask if its future transfers of loans to NAMA should continue as NAMA is paying in excess of their market value (the Long Term Economic Value premium).

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The Nationwide Building Society has this morning published its UK House Price data for August 2010. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £166,507 (compared with GBP £169,347 in July and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Interestingly the average house price at the end of August 2010 being GBP £166,507 (or €200,308  at GBP 1 = EUR 1.203) is very similar to the €201,364 which the Permanent TSB/ESRI said was the average nationally here at the end of June 2010.

With the latest release from Nationwide, UK house prices have risen by 2.3% since 30th November, 2009 the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued.

Recent forecasts for the UK housing market have not tended to be good. Whilst Capital Economics has produced yet another headline-grabbing prediction of a 25% decline in the next 2-3 years, most commentators are suggesting an easing of prices. The EU bank stress tests published at the end of July 2010 suggested a base case of no change in UK residential prices in 2010 which would mean an 2.7% fall in prices between now and the end of the year. The UK economy is showing surprising resilience – figures last Friday showed GDP grew by 1.2% in the second quarter and the British Chamber of Commerce yesterday forecast the economy would grow by 1.7% in 2010 and 2.2% in 2011. However savage cuts are in prospect for the UK’s public service and supply has been bolstered by the recent abolition of HIPS (akin to BER certs) and which cost about £300.

UPDATE: 2nd September, 2010. Meanwhile the University of Ulster has published a report on property prices in Northern Ireland which covers the second quarter of 2010. Overall average property prices have increased by 2.4% year on year though that is derived from strong increases in the price of detached houses and bungalows partly offset by declines in apartments, terraced and semi detached property. There was wide regional variation in price movements during the year – at one end of the spectrum prices in Belfast rose by 13% year on year whereas prices in Fermanagh/South Tyrone fell by 19.6%. The table below shows the price of different types of property in sterling, euros (at GBP 1 = EUR 1.203) and the change over the past year. As noted above, the average price of a home in the State was €201,840 at the end of June 2010 which suggests that prices in the North are very slightly below those in the State.

UPDATE: 8th September, 2010. The Halifax Building Society reports a modest rise in August 2010 though its year on year growth of 4.6% is broadly in line with the 3.9% equivalent at Nationwide. The Halifax is also a referenced source for UK house prices though its monthly figures tend to be released after Nationwide’s.

UPDATE: 20th September, 2010. Whilst not generally accepted as being as authoritaive as the Nationwide or Halifax, Rightmove today reports that prices have dropped for the third month continuing and that estate agents have record levels of unsold stock on their books. Whilst few are predicting large price drops, it would seem that most are predicting modest declines in coming months as the UK implements savage cuts to government spending.

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