Irish residential property – the key facts

It looks as if the stress test results this afternoon will focus on the mortgage loan books of the four institutions being examined. Here is a note setting out the facts and estimates of our residential property. You might also be interested in a comparison between two distressed property markets: Ireland and the US state of Nevada – apparently BlackRock has chosen Nevada as a key comparator when estimating mortgage losses.

(1) Number of dwellings: 1,980,000

(2) Number of households: 1,630,000

(3) Vacant property units (including holiday/second homes): 350,000

(4) Vacant property units on “ghost estates” : 33,000

(5) Number of “ghost estates” : 2,800

(6) Overhang of supply of property units : 120-170,000

(7) Property units constructed in 2010 : 7,500

(8) Average property price (peak Feb 2007) : €313,998

(9) Average property price (today): €191,776

(10) Official drop from peak: 38.9%

(11) Central Bank stress test baseline drop from peak: 55%

(12) Central Bank stress test adverse drop from peak: 59%

(13) Other notable forecast/projected drop from peak: 80%

(14) Number of mortgages:  786,164 (comprising approximately 407,000 trackers, 113,000 fixed and 266,000 standard variable rate)

(15) Amount outstanding on mortgages: €99.08bn in February 2011 (down from €109.98bn in February 2010)

(16) Mortgages advanced in 2010: 27,666 with a value of €5.7bn

(17) Mortgages advanced in 2006 (peak): 203,953 with a value of €67.6bn

(18) Number of mortgages 90 days or more in arrears: 44,508 (compared to 28,603 at end of 2009)

(19) Repossessions : 374 (in 2010)

(20) Negative equity affecting number of households: 416,000

(21) Unemployment rate : 14.7% (approximately 300,000 from a workforce of 2.1m – in addition, approximately 150,000 are in receipt of work related benefits which makes our Live Register approximately 450,000)

(22) Official GDP outlook in 2011 : + 1.75%

(23) Population: 4,470,200

(24) Mortgage arrears policy: There is a code agreed between the Central Bank of Ireland and mortgage lenders which can forestall repossessions for several years.

(25) Bankruptcy regime: One of the harshest in the world where bankruptcy can last 12 years plus. Is due to be reformed as part of the IMF/EU bailout. The UK bankruptcy rate is 350 times that of Ireland, the US bankruptcy rate is over 1,000 times that of Ireland.

Sources (1) (2) (3) (6) DKM, NIRSA and UCD studies 2009/2010, an “overhang” is said to be the amount of vacant property above the average long-term vacancy level (4) (5) Department of Environment Heritage and Local Government review of incomplete estates October 2010 (7) Estimate by DKM Consultants in June 2010, note that official figures show completions of 14,000 by reference to connection to utilities which may suffer from time delays, DKM estimated real construction (8) (9) (10) Permanent TSB/ESRI house price series national prices. NAMA recently said that prices had dropped by 50% from peak at November 2009 (11) (12) Central Bank of Ireland Stress Test macroeconomic assumptions (13) Professor Morgan Kelly January 2009 (15) Central Bank of Ireland Loans to Irish Household Purpose and Maturity February 2011 (16) (17) Irish Banking Federation publication for Q4, 2010 (14) (18) (19) Central Bank of Ireland arrears/repossession publication for period ending 31 December, 2010 and partially excludes restructured mortgages and mortgages in receipt of social assistance. (20) The Economic Social Research Institute April 2010 projected that 53% of mortgage holders would be in negative equity of prices dropped 50% from peak. The figure shown is 53% of outstanding mortgages and assumes that the present drop is 50% (21) CSO unemployment estimate for March 2011 will equate to about 300,000 people from a workforce of 2,122,000 (22) Department of Finance Information Note on the Economic and Budgetary Outlook in November 2010, the official outlook for 2010 was a 0.3% increase in GDP, figures released last week showed that it was -1.0% (23) CSO estimate at April 2010 (24) Financial Regulator code (25) Various shown here

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A stressful day – running commentary

Today will be a momentous day in Ireland’s economic history. In addition to the stress tests, we could theoretically get the Nyberg report into our disastrous bank guarantee and NAMA’s full year accounts for 2010 are due to be presented to the Department of Finance  – I understand they have already arrived on Minister Noonan’s desk who might decide to publish them immediately. These publications would be side shows however and this entry is to track the main event, the publication of our stress tests, during the day. The central event is likely to take place at the Central Bank of Ireland at 4.30pm with the formal release of the stress test results, but the dramatic suspension of trading in AIB and Bank of Ireland shares last night seems to indicate that this day will not be as choreographed as some might hope, and this is Ireland where leaking is as common as rain. Here we go…

Firstly yesterday evening, Irish Life and Permanent had a low-key release of its annual report for 2010. Its loss for the year of €128m was down from the €313m loss reported in 2009 but there are those that claim that ILP has its head stuck in the sand ignoring the mortgage default storm that has been brewing for four years. The report may become the butt of many jokes if, as expected, it is confirmed today that the bancassurer needs €3bn to continue to operate.

Up to 9am

(1) Anglo Irish Bank publishes its annual report with accompanying press statement. With an annual loss of €17.7bn (USD $ 25.1bn at this morning’s exchange rate of €1=USD $1.4181), it places Anglo at number 13 of global corporate losses in an informal list compiled on Wiki. Anglo has already received €29.3bn of support via cash from our pension reserve and promissory notes. It is not clear if Anglo will need further injections and the annual report seems to ignore the Fine Gael commitment to wind down both Anglo and fellow-zombie, Irish Nationwide Building Society, in 2011. There is, however, reference to a merger between the two in the first half of 2011.

(2) The Independent is reporting that the additional bailout will be €25bn (€15bn for AIB, €5bn for Bank of Ireland, €3bn for Irish Life and Permanent and “more than” €1bn for EBS). It claims EBS will be merged with AIB.

(3) Our friends from the IMF, ECB and EU are in Dublin today. After all they have collectively advanced us €14bn+ of €67.5bn external bailout – remember we’re contributing €17.5bn from our own national reserves to bring the overall total to €85n – and in the ECB’s case we had €117bn of its funds propping up our banks at the end of February 2011. So I’d guess these creditors might be a little nervous as the new coalition plans its next moves. Ideally the creditors would like us to comply with the bailout agreement. (CORRECTION 2nd April, 2011. It seems the reporting of the arrival of our creditors was not accurate, in any event they are now reported to visit for 10 days commencing 5th April, 2011)

(4) The Irish Times speculates that Minister for Finance, Michael Noonan may attempt to merge ILP into Bank of Ireland. The newspaper also claims that “EBS is expected to require about €1 billion” and that the banks in general will need a “further €18 billion to €23 billion”

This morning

Meeting of the newly formed Government Economic Taskforce (Taoiseach Enda Kenny, Tanaiste Eamon Gilmore, Minister for Finance, Michael Noonan and Minister for Public Expenditure and Reform, Brendan Howlin)

10.13am. The BBC is reporting the stress tests “are expected to show the banks need an extra 30bn euros”

10.22am. RTE is reporting “numbers of between €18bn to €25bn” though it is unclear if that is RTE’s estimation or Mike Aynsley, the CEO of Anglo (Anglo by the way, alongside INBS, is not subject to these stress tests). Perhaps stating the obvious RTE report “one EU source told RTÉ News that if there was to be any burden sharing by bondholders it would have to be voluntary, and would require the consent of the so-called troika of the ECB, the European Commission and the IMF”

1pm. Well this is disappointing. The morning is gone and there are no new matters to report. It is interesting that the share prices of banks whose share trading is not suspended but which have substantial exposure to Irish property – mainly RBS (Ulster Bank is the local unit is up 0.3%), Lloyds (Bank of Scotland Ireland and Halifax were the local units before being closed last year with substantial legacy lending, up 0.5%), Belgium’s KBC (down 3.8%), Denmark’s Danske (National Irish Bank is the local unit, down 0.5%) and Holland’s Rabobank (ACC Bank is the local unit, the bank is private) – show a mixed picture this morning.

1.30pm Most of the bad news contained in the Anglo report and accounts published this morning was already anticipated following the release of unaudited year-end information earlier this year but it seems that Anglo CEO Mike Aynsley cost us more than €1m in 2010, being remuneration, pension, “other benefits” and expenses (most of the €46k referred to in the note below). The former government’s commitment to a €500k salary cap looks cynical in this context.

(Click to enlarge)

2.30pm For those advocating a burning of bondholders, you might get some comfort from comments today by retiring ECB board member, Axel Weber who is reported by Reuters to have said “that it was a big mistake for governments to make taxpayers liable for all bank risks” Also it understood that Minister for Finance, Michael Noonan’s presentation to the Dail later today (probably around 5pm but that it to be confirmed) will, according to government sources reported by the Irish Times, include a “watershed” argument for an EU-wide solution to pass losses onto bondholders.

3pm. It is difficult to tell from the performance of the euro on foreign exchange markets, how markets are anticipating the results of the stress tests. The euro has been up nearly a cent against the dollar as Eurostat released inflation information for March 2011 showing Euro-area inflation at 2.6% which virtually assures an increase in interest rates by the ECB in April, the present main rate being 1%. Curiously interest rate assumptions were missing from the macroeconomic data released by the CBI on 16th March, 2011 in the context of these stress tests.

4pm. Just 30 minutes to go before the main event starts with Central Bank governor, Professor Patrick Honohan presenting the results of the stress tests (technically referred to as the Prudential Capital Assessment Review – PCAR and Prudential Liquidity Assessment Review – PLAR). Meantime this may help you with an gaining an overview of the main banks servicing the domestic Irish economy. Bank of Ireland is presently 36.5% owned by the State, AIB is technically 49.9% owned by the State but is de facto 94%-owned when it converts some Convertible Non Voting shares to ordinary shares. The State presently has no shareholding whatsoever in Irish Life and Permanent (the bancassurer whose bank is called Permanent TSB). Bank of Scotland (Ireland) withdrew from Ireland last year but it has a workout vehicle called Certus which is presently managing a €30bn legacy loanbook.

4.10pm Thanks to Lorcan Roche-Kelly and his blog cornerturned which provides details of the ministerial statement “Irish Minister for Finance, Michael Noonan will be making a statement to the Dáil from 16:45 which can be watched here. – requires windows media player, alternatively, this link is to the Flash player“. I guess that CBI governor Honohan’s presentation will be quite brief without questions and answers.

4.20pm Apparently there’s quite an army of media folks congregating on the Central Bank headquarters on Dame Street in central Dublin. With Minister for Finance, Michael Noonan scheduled to make a statement at 4.45pm to the Dail, Professor Honohan will have to be quick to avoid a clash.

4.30pm

The Central Bank of Ireland governor, Patrick Honohan will present the results of the stress tests, produced by BlackRock Solutions and associated matters including Barclays Capital’s work on restructuring the banking sector. There will be live video coverage via the Central Bank’s website here and the statements will be available here.

4.30pm CBI governor speech is here (PDF). Governor stresses the capital requirements are based on an adverse scenario. Press release from the CBI is here. And here it is, the results of the €20m stress test exercise. The capital requirement is €24bn and here are the projected losses. The full €20m stress test report is here.

After 4.30pm

Minister for Finance, Michael Noonan is to speak for 20 minutes in the Dail on the subject of the stress tests and banking sector restructuring

5pm Minister for Finance, Michael Noonan saying there will be two “pillar” banks – Bank of Ireland will be No 1 and AIB/EBS will be No 2 . Not clear where Irish Life and Permanent will sit, presumably with Bank of Ireland. Former Minister Lenihan, in response, says that ILP’s future is uncertain as to where it will fit. No mention at all today of €60bn medium term ECB liquidity facility.

5.30pm. The speeches in the Dail raise the concern that the ECB’s support of Irish banks has not been mentioned today. Nor has there been any reference to a €60bn medium term liquidity facility. ILP’s future is uncertain because it has not been clarified today. Additional financial needs for Anglo and INBS have not been discussed.

5.45pm.  What the domestic Irish banking sector looks like after today’s announcements (see below). Separately the Irish Times has made available the audio recording of the CBI governor’s press conference. There has been a massive cock up today in that (1) the CBI video feed failed and (2) the CBI press conference clashed with Minister Noonan’s speech in the Dail.

6pm The Irish Times has made available a transcript of Minister for Finance, Michael Noonan’s speech in the Dail. It is a little concerning that so little information was imparted and ILP’s position seems distinctly uncertain. And no mention of the ECB.

6.15pm Statements from AIB and Irish Life and Permanent – nothing yet from Bank of Ireland and EBS.

8pm Joint statement from the EU/IMF/ECB available here from the IMF website. No word on a medium term liquidity facility from the ECB but the statement concludes “The staff of the EC, ECB and IMF look forward to discussing progress with implementing the measures announced today, together with a broader range of economic issues, during the program review mission starting next week”

9pm The Department of Finance has produced a presentation on today’s announcements. Its author is John Moran who has recently moved to the Department from the CBI. It has a pretty chart of the €24bn requirements announced today.

10pm Almost as a postscript to today’s announcements, there was a routine press conference at the IMF in Washington today where the following exchange took place with the IMF’s Director of the External Relations Department, Caroline Atkinson. It seems to betoken an openness on the IMF’s part for burden-sharing but there seems to be a reluctance to publicly state that out of courtesy to the EU/ECB.  Well, it has been a bit of an anti-climax as a day and save for a €20m stress test which has produced a figure which excludes Anglo/INBS (there will be an entry tomorrow which will try to assess additional funding requirements at these two institutions based on the stress test results today) and Minister Noonan’s announcement this evening was pretty uninspiring. I leave you with the IMF news conference exchange.

CAROLINE ATKINSON (IMF): I have another question online: What is the IMF’s feeling on the stress tests in Ireland and their utility in restoring confidence? I am just going to put that off -– we are expecting announcements, as you all know, from Ireland on their stress tests later today so I don’t want to anticipate those announcements now.

QUESTION: Aside from these stress tests, does the IMF still believe that Ireland should restructure unguaranteed bank bonds?

MS. ATKINSON: That is like, have you stopped beating your wife.

QUESTION: But it has been a position that the IMF officials have taken before, so I’m wondering if it’s continuing to take that position now?

MS. ATKINSON: As you know, there will be a mission to Ireland in the first part of April so beginning very shortly, which will be our first detailed discussion with the new authorities on the program in the next review. I do not want to anticipate the discussions that will take place there

General
You might also be interested in these recent entries

(1) A stress test for BlackRock ® – examines the controversial company which is producing today’s stress tests.

(2) Seven reasons why the bank stress tests might be little more credible than last year’s – not only will the stress tests ignore Anglo Irish Bank and Irish Nationwide Building Society but there might be other reasons why today’s estimates of the final cost of rescuing our banking sector won’t be final

(3) What are our options once the stress tests results are published?

(4) Viva Las Vegas – a comparison between Ireland and the US state of Nevada’s housing markets, negative equity, repossessions (Nevada is reportedly one of the key comparators used by BlackRock in projecting mortgage losses)

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UK House Prices leap 2.2% month on month (increase of 0.5% seasonally adjusted)

The Nationwide Building Society has this morning published its UK House Price data for March 2011. There is also a new quarterly report for Q1, 2011 which sets out in some detail prices by UK region. 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 £164,751 (compared with GBP £161,183 in February 2011 and GBP £162,764 at the end of November 2009 – 30^th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 11.4% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of March 2011 being GBP £164,751 (or €187,503  at GBP 1 = EUR 1.1381) is 2.2% below the €191,776 which the Permanent TSB/ESRI said was the average nationally here at the end of December 2010.

With the latest release from Nationwide, UK house prices have risen by 1.2% since 30^th 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. The NWL Index has risen by 1 to 894 (because only an estimated of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK) meaning that average prices of NAMA property must increase by a weighted average of 11.8% for NAMA to breakeven on a gross basis.

The quarterly report from Nationwide shows that London and the south-East are still performing best and have risen by over 2% in the past year. Northern Ireland is in a league of its own having dropped most in the UK by 10.8% in the last year (coincidentally exactly the % drop in the Republic according to the ESRI/PTSB).

The short-term outlook for UK residential remains bumpy. Interest rates may need to rise to contain inflation that is beginning to take hold –  4% in January 2011, 4.4% in February 2011 – both on an annual basis. The UK target is 2% so the base rate which has been at 0.5% since February, 2009 may need be raised. Last Wednesday’s Budget 2011 estimated growth in GDP of 1.7% and 2.5% in 2011 and 2012 and inflation of 4-5% this year falling to 2.5% in 2012.  Net debt will be 60% of GDP this year rising to 71% in 2012. Scary for the UK but paradise compared to the 100%+ in Ireland. The UK is also struggling with a deficit that was 11% last year (compared with 12% in basket-case Ireland) but there are swingeing cuts to public services in prospect to bring the deficit down to 4% by 2014/5. London saw its largest protest marches last weekend since the 2003 protests on the eve of the Iraq war – students, the public sector and recipients of state services are not happy. What all of this means for property prices is uncertain of course but the betting is that prices will come under modest pressure and may fall this by less than 5% in 2011 – the Office for Budgetary Responsibility was saying 2.7% late last year but finances have deteriorated since then. The UK has plenty of micro-markets and the betting would be that London and the south-East will fare better than the North of England and elsewhere, Northern Ireland in particular.

 

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Stress test results – Central Bank issues arrangements for tomorrow’s announcements

With EBS state-owned, Irish Life and Permanent having suspended dealings in its shares until Friday, Allied Irish Banks effectively 90%+ state-owned and Bank of Ireland 36.5% state-owned but with the prospect of majority state control all but certain, you might wonder why the Central Bank of Ireland has chosen a time after the markets close tomorrow to make its announcements with respect to the results of the stress tests. But choose it has, and here are the arrangements for publishing the eagerly awaited results of the stress tests

“The Central Bank of Ireland will publish the Financial Measures Programme report, which details the outcome of the 2011 review of the Prudential Capital Assessment Review (PCAR) and Prudential Liquidity Assessment Review (PLAR) for AIB, Bank of Ireland, EBS and Irish Life & Permanent, at a press conference on Thursday, 31 March at 4.30pm”

The press conference will be available to view live online here from 4.30pm.

The Financial Measures Programme report will be published here at 4.30pm.

UPDATE 30th March, 2011. RTE is reporting that share dealing in both AIB and Bank of Ireland will be suspended from 6.30am tomorrow. These two banks join Irish Life and Permanent in suspending trading. The decision was taken by the CBI apparently in conjunction with the Irish Stock Exchange to preserve  “the integrity of market trading in the financial sector” Presumably trading will recommence on Friday 1st April, 2011. Mind you, makes you wonder why the Central Bank needs wait until the markets close at 4.30pm to make its announcements ….

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Egg on Enda Kenny’s face as EBS sale cancelled

On the general election campaign trail last month, Enda Kenny, injudiciously in my opinion, referred to the Cardinal Consortium as the preferred choice as buyers of state-owned EBS, but today the National Treasury Management Agency has issued a statement that the sale of EBS, which has been ongoing for nearly a year, has been cancelled because “the bid [by Cardinal] was not sufficiently commercially attractive to the State”

It was September 2010 when CNBC prematurely announced that the Cardinal Consortium which comprises Dublin’s Cardinal Asset Management , Wilbur Ross and the Carlyle group had won the battle to buy Irish state-owned Educational Building Society (EBS). As it happened, the bidding battle had some way to go and at that time there were still four bidders which were Cardinal, JC Flowers, Doughty Henson and Irish Life and Permanent (ILP). The bidders were whittled down to just two in October 2010 with Cardinal and ILP remaining in the race. Cardinal was touted by Enda Kenny as the preferred bidder. This morning ILP suspended its shares on the Irish Stock Exchange following rumours that that it will be imminently nationalized following publication of the bank stress tests tomorrow.

The cancellation of the EBS sale is perhaps not a surprising development. The Carlyle group is known for its tough negotiating character. Tomorrow we are likely to find out that EBS needs more capital than previous forecast, because of more severe losses on its mortgage loans. So perhaps Cardinal was felt to be playing hardball.

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The government says it will not put “one red cent” more into the banks until we know the size of the overall requirement. So what will happen tomorrow?

The expression “one red cent” is gaining a lot of currency here in recent times. The origin of the expression is said to be the copper-ish red colour of the lowest unit of currency, the cent, in the US in the early 19th century and is used to betoken the smallest sum of money possible – to not pay “one red cent” means to pay nothing. Not only did Denis O’Brien unconvincingly – in the sense that most respondents to an opinion poll published in last weekend’s Irish Independent, didn’t believe him – claim that he had not paid former Minister Michael Lowry a “red cent” in return for favours in awarding a mobile telephone licence in 1995, but it was only a month ago when then-Opposition parties were eager to tell us that they would not be putting “another red cent” into Irish banks until the results of the stress tests became known in March.

Well, here we are one month later, and the stress test results will be published tomorrow but as this is Ireland, we seem to have had a healthy dose of leaks already which has caused Irish Life and Permanent to suspend trading of its shares until 1st April and the consensus is that the stress tests will indicate that a further €20bn will be needed by the banks to meet stringent capital requirements. This is €15bn less than the €35bn allotted to resolving our banking difficulties in the EU/IMF bailout, though it’s not clear which contributor to the bailout – EFSF/EFSM/IMF/domestic resources – will see a reduction in their contribution. However if the additional cost of capitalising the banks is put at €20bn then that will still mean that the cumulative bank bill will rise to €66-71bn. The table below is from the Department of Finance last September 2010 and shows the commitments at that time.

Anglo was to have cost us €29-34bn and unless we get an update on Anglo’s needs tomorrow (remember the stress tests didn’t touch Anglo or INBS) then we will probably have a range of values tomorrow also.

So what next? Will the stress tests be debated in the Dail and will options be explored including default? Will the Coalition simply stump up the €20bn without debate? Is it imperative that we act on the results of the stress tests immediately or have we the freedom to ponder our options over the coming weeks? Is now the time to re-open the “burning the bondholders” debate

– remember this was the bondholder position in Irish banks in February 2011, although there has been a massive redemption of bonds since the guarantee in September, 2008 there are still substantial sums that can, theoretically, be burned. Here are a few scenarios for the next few days.

(1) The government tells our bailout partners, particularly the ECB, that when we accepted the bailout in November 2010, the understanding was that the maximum additional sum required for the banks would be €10bn – after all, that is what one of the key negotiators, Central Bank of Ireland, Patrick Honohan was saying – and now that it is €10bn more, this is an appropriate time to discuss burden sharing. Might the ECB be supportive of burning the €16bn of unsecured unguaranteed senior bonds, maybe by paying them 50c in the euro.

(2) The government accepts the €20bn additional cost for bailing out the banks, but requires the ECB “medium term” facility to be set at €190bn, not €60bn. In that way, Irish banks will have a strategic certainty which they presently don’t have – the ECB, which is providing exceptional liquidity support, might unilaterally pull the plug. No country should allow its banking system to operate on this hand-to-mouth basis, especially since the “hand” is the ECB and beyond the nation’s control.

(3) The government accepts the €20bn additional cost for bailing out the banks but requires the EU to provide its element of the bailout at a cost interest rate, that is 2.8%. The 3% saving would amount to some €10bn in interest savings over 10 years. Given the Irish nation is taking on 100% of the banks’ liabilities, including those to shaky banks in Germany, France and the UK, then the least that can be done is to provide these funds at cost.

(4) The government accepts the €20bn additional cost and seeks a stimulus grant from the EU to allow our economy to grow so that the debt can be repaid and we don’t default. The stimulus might be used to fund capital programmes in broadband and communications, energy, transport, education, health, security including prisons. It happened before in the 1990s. Surely we now need it more than ever.

(5) The government accepts the €20bn additional cost but seeks an extension of the term over which the EU loans can be repaid. If the EU element of the bailout has to be repaid by 2018 and repayments start in 2015 then that means we need find €10bn per annum which might still be costly to secure from the market.

(6) The government chooses the nuclear option and takes the position that not only is the additional €20bn not sustainable but the €35bn of promissory notes already created last year for Anglo and INBS will not be honoured. The government disowns the guarantee, perhaps justifying itself on the basis that the guarantee was founded on incorrect information. A bank resolution process is put in place which protects depositors to €100,000 or €20,000 and beyond that, the banks are wound down as would normal commercial companies. No-one realistically believes the nuclear option will be pursued but it should surely be made clear that it is an option.

I have a feeling that tomorrow’s stress test results will be a bit of an anti-climax but regardless we are likely to have an official point estimate of the “final” cost of rescuing the banking system and the moment of truth will have arrived for our new government. There will be coverage here tomorrow.

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NAMA reported to have sold London development site and netted €17m

Well I’m confused. The Irish Independent reports today that NAMA “looks set to secure about €17m” from the sale of a 1.5 acre parcel of land near to Waterloo rail station in south London (pictured here). The Independent says the property is expected to sell to close to its asking price of GBP 17m – maybe NAMA is going to “net” part of the sale price, maybe the Independent has mixed up its currencies between sterling and euros. The Independent doesn’t name the developer but does say that the sale has been managed by British property consultants, Edward Symmons acting as receivers, and the sale is to a hotel development and management company, Shiva Hotels (other news sources claim the purchaser is a consortium which comprises Rising Star and Shiva). Of course in the UK, they have administrators, not receivers, but that’s possibly splitting hairs.

What’s confusing is I can’t find any record of the property on the Edward Symmons website, which shows property for sale. Even if the property sale has just completed, I would still expect to see a record for it, perhaps with an “under offer” or “sale complete” sign.

The 1.5 acre site has planning permission to develop a 300-bedroom hotel which is expected to operate under the budget Hampton by Hilton hotel brand. The site is presently occupied by a derelict office building, called Partnership House. CB Richard Ellis were offering a 0.55 acre site for sale at 157-183 Waterloo Road but it is not clear when the brochure was dated and if it is current, though the Independent today makes reference to CBRE as the “property’s agents” – I could not find any record of this property on the CBRE UK website.

So for the moment, the developer remains a mystery, NAMA’s involvement is a bit of a mystery and the €17m is a mystery also. But possibly of most concern is that a property in which NAMA is said to have an interest and which has sold doesn’t appear to be offered for sale by the firms associated with the property.

UPDATE 30th March, 2011: The building was owned by developers CPSL Limited before that company was placed in administration in 2009 with property consultants Edward Symmons being appointed Law of Property Act (LPA) administrators then. The loan securing the building was from Anglo Irish Bank and presumably on that basis was absorbed into NAMA . The site finally obtained planning permission for redevelopment as an hotel in 2009 from Lambeth Council in London, having had a previous application in 2008 rejected.  Former residents of the building include the Church Mission Society which had occupied part of the building since 1966 and was responsible for the motto carved into the front annex of the building on Waterloo Road : “Go forth to every part of the world and proclaim the good news to the whole creation” – seems like NAMA is doing just that!

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A return to the mystery on Baker Street as Northern Irish property company confirms loans have transferred to NAMA

With a group structure that extends to 70 companies and turnover of more than GBP £200m, McAleer and Rushe (M&R), which was founded in 1967, is one of Northern Ireland’s biggest property companies. Its development interests are mostly in the UK though it has some developments in Northern Ireland and the Republic – in the case of the latter, it has been involved in the development of a hotel at Newtown Road in Waterford and the retail park at Trim Road in Navan but the Republic represented just GBP £0.5m of the groups GBP £62m turnover last year. The BBC today reported on its accounts for the year ended March 2010 which were submitted to Companies House last week. The accompanying report confirms that some of the company’s loans are now in NAMA.

The report and accounts show that the year ending 31st March 2010 was a pretty lousy year in which the company made a loss of GBP £11m on turnover of GBP £62m, the turnover was down 45% from the previous year and even extracting out the exceptional costs of GBP £7m, the company was still in the red. Given the claim on the M&R website of annual turnover of GBP £200m, it would seem that these consolidated accounts don’t include all companies in the group. But the company has net assets of GBP £5m, which is no small feat for a property company these days. That said, the auditors did comment on the difficulties in establishing the reliability of the value placed on property assets. The company has paid down GBP £9m in debt last year which meant that at the end of March 2010, net debt was at GBP £58m. The company employed 106 people in March 2010. The highest paid director is recorded as having received GBP £407,993 in that year, up from GBP £287,860 the previous year. NAMA might not be impressed. The company is surprisingly upbeat in respect of its prospects for the construction side of its business and its website reveals a healthy stock of projects under construction. M&R says that it is developing the Favour Royal Hotel and Golf Resort in County Tyrone with fellow Northern Irish property company, Jermon Developments which is presently in administration owing GBP £100m to Anglo and Bank of Ireland.

With respect to the company’s loans, it says that it had, in March 2010, GBP £51m of term loans and a further GBP £10m of overdrafts. All of the loans are said by the company to be repayable on demand which would generally imply there had been a breach of covenant, possibly loan to value covenants. It is not clear what loans have gone to NAMA but the company does say, as at 21st March 2011 (that is, just last week) that it has submitted a business plan to NAMA and is waiting for NAMA to express its views on the plan.

Last year, there was an entry on here that dealt with the disposal by McAleer and Rushe of a property at 2-14 Baker Street in London which was subject to a loan from Bank of Ireland (one of the five Irish financial institutions which is transferring land and development loans to NAMA). The property was reportedly bought for GBP £57m in 2005 and was sold last year for GBP £29m, on the face of it making a nice tidy loss of ~GBP 28m. The question posed on here in the entry titled “Mystery on Baker Street” was what marketing of this property had taken place to ensure the sale price was maximised, because on the face of it, a NAMA-bound loan was being sold at a loss.

This issue is related to the unsubstantiated allegations made by outgoing Fianna Fail senator Mark Daly who has claimed that loans have been sold at below their market value. In the M&R sale of Baker Street, the buyer was property colossus British Land which is unconnected to M&R, but surely there are questions to be asked about the marketing of the loan/property to ensure the sale price was maximised. NAMA claimed to have overseen the sale of €2.7bn of loans in 2010. It may well be time for an investigation into the sale of these assets to ensure that values were maximised in NAMA’s favour. It is worthwhile repeating that although NAMA has a code of practice for the disposal of loans and assets once NAMA takes them over, there was no such code in existence at the banks last year.

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Irish house prices – the story so far and the near term outlook

Looking at the Knight Frank publication yesterday of their Global House Price Index, we see that Ireland was yet again a world leader in 2010 with an annual decline in house prices of 10.8%. You might think that the worst is over here, but that may not be the case. Although none of us has a crystal ball, the Central Bank of Ireland (CBI) produced a baseline scenario for property prices just two weeks ago in which it indicated a drop of 55% from peak prices before we begin to recover – this was the CBI’s baseline scenario, its adverse scenario, which is intended to model the worst possible anticipated outcome, shows a drop of 60% from peak. If the CBI is correct in its baseline scenario then by reference to what is the most reputable actual house price series in the country, the ESRI/Permanent TSB index, that means that prices nationally have an average  further 26% to fall from the end of 2010 with a modest annual recovery from 2012 onwards.

It might be worth pointing out that NAMA has recently said that it feels that prices have dropped by more than is claimed by the ESRI/PTSB – NAMA’s chairman, Frank Daly said that prices in November 2009 were already 50% off peak whereas the ESRI/PTSB was, at that point, claiming that prices were only 29% off. Estate agents and property professionals have also claimed that actual price declines have been greater than those shown in the ESRI/PTSB house price series. And if NAMA is correct, that may mean that prices may not have much further to fall by reference to the CBI’s baseline scenario, but it should also mean that prices are already 50%-plus off their peaks in 2007.

For what it is worth, below is the latest list of forecasts and projections. The list is available in this spreadsheet where you will find the source for the forecast/projection in the comments field.

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Lessons from the NAMA freak show

There was an entry on here last year which reflected on the phenomenon of foreign journalists arriving in plane loads into Dublin to witness the financial crisis at first hand. It seemed as if we were turning into a freak show for folks to point at, and it doesn’t feel very nice.

Britain’s Independent on Sunday yesterday carried a travel feature on Dublin which was really a NAMA feature. The writer, Sankha Guha describes a brief visit to Dublin. His local guide was our own Stewart Kelly, a sort of mini-me Jeremy Clarkson who produces the Carjam radio programme. The English journalist was shown some of the usual NAMA sights including Paddy Kelly’s Burlington Plaza (not subject to last Friday’s receiverships) and Elm Park (Bernard McNamara, David Courtney and Jerry O’Reilly, developers) and the family homes of some of the NAMA developers including what Sankha calls a “building of screeching vulgarity” referring to Johnny Ronan’s house on Burlington Road (pictured here during an Eirigi protest) – personally I thought that was unkind, the building could perhaps benefit from a larger setting but it seems harsh to describe it as “vulgar”. Shrewsbury Road was also on the sight-seeing tour where Sean Dunne and wife were said to have paid €58m for a 4,000 sq ft property sitting on a site with development potential.

This is the latest in a long line of journalistic articles showing poor Paddy down in the dumps. He concludes his piece by giving the price of a night’s stay in the 5-star Shelbourne Hotel (proprietor Sweeney, O’Reilly, Courtney, McNamara and others) at €198 per night for a double room on a bed-and-breakfast basis. And this leads me on to some lessons:

(1) There is intense interest in NAMA hotels from potential visitors. The perception is that NAMA hotels are distressed and will therefore slash prices to attract business. This is not really the case but that is the perception. Take Paddy Kelly’s hotels which were placed in receivership by NAMA last week. Although Paddy owns the freehold in the hotels, they are leased to hotel management companies like Marriot and Day’s Inn. And just because an hotel is in NAMA doesn’t mean the management companies will change their prices one whit – it is the freeholder that is under financial pressure, not the hotel management company. Of course there are hotels where the developer is also the operator and these hotels can be said to be under pressure to generate cash though NAMA says that it is Bank of Scotland (Ireland)/Certus hotels which are more likely to be discounting. So there may be a gap between perception and reality but there may well be an opportunity to market hotels as NAMA hotels because the perception is that they will be cheap. In truth, all hotels in Ireland have slashed room rates and there is, in my opinion, fantastic value for money regardless of the hotel’s NAMA status.

(2) There is also intense interest in Irish residential property from overseas. I know this because of the large volume of traffic on this blog which has been focused on the Space/Allsop auction in three weeks time. Again the perception is that there is fantastic value to be had with residential property. Irish natives, expats or émigrés are still interested in property, even if it is seen as an holiday home. And other nationalities have always seen the attraction of a holiday home in Ireland.

(3) Lastly there is of course interest in commercial property, but the savvy international investors have probably had field visits here already. NAMA said last week that “the only option is to sell the properties at whatever price purchasers are now willing to pay” and “this disposal process will commence very soon and we expect that it will provide significant momentum to the property market”. So those commercial investors that have expressed an interest in property here may see some real bargains in the near future.

So one real lesson to take away from the artificial freak show is that there is intense interest in property here and cheap hotel stays. If only we could marry up this interest to some marketing, then we might see some welcome transactions and perhaps some assistance for a recovery.

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