Archive for January 5th, 2011

One of the predictions on here for 2011 was that bulldozers would finally start demolishing some of the rotting fruit of the housing boom and that the images would be iconic. Demolition is one of NAMA’s six strategies (alongside selling, leasing, managing, mothballing, developing) and NAMA has already specifically signalled that in some cases demolition will be the approach adopted. And after demolition, land may be returned to agricultural use. That being the case, the latest information on agricultural land prices will be relevant to the agency. Of course in addition to property earmarked for demolition, NAMA controls land banks without any development that can more easily be returned to agricultural use.

In August 2010, Knight Frank was reporting that agricultural prices were stabilising and indeed rising very slightly. The Independent today reports that prices declined in the latter part of 2010 and according to their survey of prices achieved published in the Farmers Journal and Farming Independent in 2010, the average price for an acre in the country is €8,420 some 4.3% less than in 2009.  The area where the highest average price achieved was in County Dublin for which an average price of €14,767 an acre is reported. Elsewhere the Independent reports on the 10 “best” farm deals for 2010 and gives some regional perspectives from local auctioneers. There is also a bit of a moan that prospective farmers can’t get credit, though that being the case you would have to ask why they don’t refer their application to the Credit Review Office which seems mightily underworked.

Of course NAMA can always hope that its land will be compulsorily purchased for infrastructure purposes where prices appear to be in the €75-127,000 per acre range, based on transactions in Limerick and Galway last year.



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Just a short entry to draw attention to the fact that our friends at the European Financial Stability Fund (EFSF) appear to sold €5bn of one-year bonds at a yield of 2.5% – there seems to be some confusion at present with the Irish Times saying the sale was by the European Financial Stability Mechanism (EFSM) and Yahoo Finance say it was for the EFSF. The difference between the EFSF and EFSM?

(a) The EFSF is lending to us at 6.05% per annum, the EFSM is lending at 5.7% (according to the NTMA)

(b) The EFSF represents the 17 Euro countries, the EFSM comprises all EC member states (including the UK)

(c) The EFSF is contributing €22.5bn of the €85bn bailout, the EFSM is contributing €17.7bn and of course the IMF is contributing €22.5bn and there are bilateral loans with the UK, Denmark and Sweden of €4.8bn. And of course we are contributing €17.5bn from our own resources (NPRF and NTMA).

Although the 2.5% rate is a little higher than the German (1.77%) and French (2.08%) rates, it is considerably less than the 5.7-6.05% that will be charged to Ireland.

Penalising a member country for getting into financial difficulty is one thing (and there is a deterrent argument even if it does all seem cruel) but “helping” a member country’s citizens repay their banks’ lending from other EU country’s banks (and profligate lending at that during the property boom) and then making a substantial profit on that “help” just seems wrong and you would have thought politically unacceptable.


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This week sees a raft of statistics on asking prices of residential property in the State for the last three months of 2010 (DAFT.ie, Myhome.ie and Sherry Fitzgerald). By the end of January 2011, the only hedonic transaction price series (Permanent TSB/ESRI) will be published in respect of the last quarter – the PTSB now appears to control less than 5% of the mortgage market and the series excludes cash sales. And in July 2011, we will get average new and second-hand house prices for 2010 from the Department of the Environment, Housing and Local Government – this series is not hedonic and regards a €57m sale on Shrewsbury Road as one sale and a €50,000 sale in Ballyfermot and you get the average price by dividing €57.05m by 2! And whilst you could argue that an asking price index is valid because it compares apples with apples over different periods of time, you could also argue that in a bust property market, the difference between asking and settled prices will be greater than during a boom. Those of you looking out for the House Price Database promised in August 2010 by the outgoing Minister for Justice and Law Reform, Dermot Ahern, you’ll be disappointed by the fact that the Minister failed to introduce the necessary amendment to the Property Services (Regulation) Bill in the last Dail session – perhaps the Minister is more pre-occupied with how he will spend the estimated €308,000 he will receive in his first year after retiring as a TD.

So for what it’s worth, this is the summary of what each of the three just-published asking price series tells us – in summary the pace of decline picked up in Q4 2010.

Track is kept on here of pronouncements on future house prices and below is the latest position (no-one seems prepared to stick their heads above the parapets since October 2010). You can find the sources for the information in the comments available in the attached spreadsheet. You should note that these pronouncements can be predictions or projections (the difference? A projection is “if condition X comes about then prices will change by y%”).

And for the little it’s worth, the prediction on here is that prices will drop 5% in 2011 by reference to the very limited PTSB house price series. Again for the little it’s worth, the feeling here is that settled prices are down 50%+ whereas the PTSB say they’re down 36% from peak. The following will tend to depress prices

(a) Continuing difficulty in accessing credit for mortgages – 14,000 mortgages were approved in the first three quarters of 2010, down from nearly 80,000 in the same period in 2005. And remember our banks are required to undertake a massive “deleveraging” exercise in the next three years and stopping new lending will be in keeping with the plan.
(b) Increasing stamp duty to 1% for first time buyers and for property less than 125 m2
(c) NAMA’s plan to bring property on to the market at “teaser rates”
(d) Population which is stagnant and may even decline. Dublin’s population fell by 0.3% in the year to the end of April 2010. Net outward migration will offset natural population growth.
(e) Repossessions and foreclosures should increase this year and non-NAMA banks seem increasingly keen to dispose of property
(f) Flat or falling wage levels, higher taxes, anaemic economic growth, positive inflation
(g) An overhang in supply. Whether it’s 30,000 or 150,000, it’s substantial.
(h) Upward pressure on mortgage interest rates. Whilst ECB rates are unlikely to rise until 2012 (example of widespread opinion here) the fact remains that we are pumping EU/IMF money into the banks which is costing us 5.7-6% and the last major placing of debt by Bank of Ireland was at 5.9%. Deposit rates are at an elevated level in our banks. And our banks are under pressure to generate profits. All of this points to upwards pressure on variable mortgage rates.

The following will tend to boost prices

(a) Reducing stamp duty from 7/9% to 1% for movers
(b) A sharp decline in new home construction – in the first 10 months of 2010 (pg 11 of the December 2010 Department of Finance monthly review), a total of 11,974 dwellings were completed. The outlook for 2011 is for less construction.
(c) Wealth and income in some pockets of the economy – certain parts of our economy are doing well (and not just within the NAMA sphere of influence!).

UPDATE: 7th January, 2011. Again for the very little it’s worth, Paddy Power has issued its odds for house prices in 2011. A decline of 3-6% is odds on favourite at 6/4, followed by 6-9% at 2/1 and a decline of 9%+ at 3/1. Smaller declines and increases have higher odds and if you’re looking for a long shot they offer 12/1 at increases of 9% plus. The performance of the market is by reference to the now very limited PTSB house price series.

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