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Archive for October 26th, 2010

The Construction Industry Federation (CIF) has made its pre-Budget submission and is suitably self-interested as you would expect from any special interest group. And nothing in itself wrong with that – construction still accounts for 7% of all employment in the State (nearly 12% of all male employment) and the sector has traditionally been a solid contributor to the national economy. The key proposal in the submission calls for the abolition of stamp duty on residential and commercial transactions because, according to the Independent, “persisting with a high transaction tax when there are no transactions makes no sense, either from the economy’s or the Exchequer’s perspective”. An entry on here last week examined recent years’ receipts and the tax will contribute an estimated €210m to State coffers this year.

But you have to wonder whether a 6% commercial rate stamp duty for most transactions or a 7% residential rate on transactions over €125,000 will deter many buyers. After all 58% of mortgages granted in Ireland by Irish Banking Federation members in the first half of 2010 were to First Time Buyers who are largely exempt from  stamp duty for most purchases at an entry level. It is not clear how many vacant new homes are less than 125m2 but again these will generally be stamp duty exempt. CIF say that there are “no transactions” which is of course untrue. Stamp duty receipts are on track to generate €210m this year which is considerably down from peaks of €3bn in 2006. Of course the cheaper property becomes the more likely there are to be transactions and the abolition of the tax might help. But you would have to ask whether it is stamp duty or the wider economic catastrophe (credit drought, falling property values, unemployment, negative or low growth, the shadow of the IMF) that is stopping transactions at present – the opinion on here is that is the latter. And for what it’s worth if stamp duty were to be extended (and not abolished) there is evidence that it may increase takings into State coffers because First Time Buyers who make up the most significant cohort of mortgage-based purchases would be captured.

It is bewildering why the CIF pre-Budget statement didn’t concentrate on the State’s failure to spend its existing capital budget on projects this year which would have long term value. There may be more than ministerial dithering in spending the capital budget this year (like we simply mightn’t be able to afford it) but public pronouncements from ministers indicate delays as opposed to cut-backs. Not only are these delays costing jobs but they are preventing the creation of infrastructure, such as schools, which has long term economic benefits.

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First reported on here more than a month ago and apparently confirmed in the Independent today, NAMA seems to be close to concluding its first sale of UK property securing a loan from Anglo to Derek Quinlan. What does emerge as new information from the Independent story is that the loan for the property, likely to be a car park just off South Audley Street in the heart of London’s Mayfair (and a stone’s throw from the present site of the US embassy though I wouldn’t recommend testing that distance with that building prickly with heavily-armed guards), seems to have been valued by Anglo at €40m (I think Laura at the Independent is mixing up currencies by the way and think that all the figures in the article should be shown in GBP £) and by NAMA at €80m. Yet it seems to have secured a sale price of €180m (again using Laura’s currency).

So great news at NAMA. But why did both NAMA and Anglo valuers get the valuation so “wrong”? Laura suggests that a mystery Middle Eastern buyer who owned adjoining buildings was willing to pay a premium for the property. The truth might be less exotic. The value of the building shot up in February 2010 when the City of Westminster Planning Department gave permission to Derek Quinlan’s company to develop the building into luxury flats which might ultimately fetch GBP £300m according to Property Week. Whilst it is true that there are plans to develop adjoining buildings those plans would have been known at the start of this year.  Of course the valuation date for the property under NAMA’s processes was 30th November, 2009 but even at that stage the valuers should have had a good idea of the probability of obtaining planning permission and certainly by May 2010 when Anglo’s first tranche was transferred to NAMA the valuers should have had a better indication of value because Derek Quinlan was reported in May to have placed the property on the market for GBP £180m!

So did Anglo’s valuers cock up the valuation? Did Anglo refer the valuation to an appeal, and if so what is the status of the appeal? The valuers at Anglo might consider themselves lucky because both Anglo and NAMA are effectively 100% State-owned  – if this had been a Bank of Ireland loan there might have been a huge professional indemnity claim winging its way to the courts. And although NAMA seems to have come out on top with respect to this transaction, are lax valuation standards causing other properties to be over-valued? It should be emphasised that the Independent does not in fact identify the property and there is an assumption on my part that it is the same building as identified on here in September 2010 – change Laura’s currency in the Independent article from € to GBP £ and many of the figures fit with my understanding a month ago.

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The Irish Times is reporting today that NAMA is trying to engage insolvency practitioners (IPs) to work on what is likely to be a large caseload of companies and individuals whose loans are being transferred to the agency. The agency was astounded to find some IPs charging €800 per hour (that’s €32,000 for a 40-hour week and given the likely caseloads I would not be surprised to see weekly worked hours extend far beyond that). NAMA was “astounded” at that rate and has settled at rates “starting from €180 per hour” (that’s €7,200 for a 40-hour week).

Some observers might be perplexed at IPs naming their own price. They might think it usual for the employer to set an appropriate price for a job and proceed in that manner. And for an area of expertise that NAMA is likely to need call on very soon and on a large scale it is a little worrying that NAMA should be “astounded” at some rates – shouldn’t someone at NAMA understand the skills they are engaging (and remember that NAMA can make use of the knowledge of the Comptroller and Auditor General) and the general levels of pay?

And as for an IP – if it is a single person whose “talent” consists of knowing a wide (but not that wide) area of law and understanding the insolvency process – charging €800 per hour, perhaps Wayne’s agent has undervalued the Manchester United star, who on occasion does show genius on the pitch, at only €283,000 per week.

 

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