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Archive for July 5th, 2011

UPDATE: 7th July, 2011. For the results of the 2nd auction and flash analysis see here.

Where: The Shelbourne Hotel, 17 St Stephen’s Green, Dublin
When: Thursday 7th July, 2011 starting at 10.45am with auctioneer’s announcements andLot 1 will be auctioned not before 11am, my personal view is the auction will finish 4-5pm.
Catalogue: Available online here or as a PDF available here. 87 lots with maximum reserves of €13.6m
Live video streaming from the auction from 10.45am : here (or try this link if you’re experiencing problems)
Live bidding  from 11am : here
Results from 11am : here

Space, the small, but growing Dublin estate agency and property services company, that has teamed up with British auctioneering giant, Allsop, has already pencilled in two more dates in 2011 for auctions – 23rd September and 30th November. And Allsop has previously indicated there might be four more auctions in 2012. But that’s for another day, all Irish property eyes will be focussed on the 2nd Allsop/Space auction on Thursday when 87 lots are up for grabs, representing a mixture of residential and commercial property throughout the country. The auction starts at 10.45am, an hour earlier than the first auction.

According to Space, approximately 100,000 people have read the catalogue online, from 130 countries worldwide (with an average of over 7 minutes spent on the site per visit). The majority of overseas visitors have been from the UK, with France, USA and Australia next. Over 1,000 people have viewed the properties in person, and over 1,300 Sale Contracts have been downloaded from the Allsop/Space website. As previously noted on here before the first Allsop/Space auction, there is strong attention being focused on a comparatively small auction of properties. That’s partly because Ireland has a dysfunctional property market where price discovery is largely absent as a result of repeated political failure to implement an open House Price Database but mostly by the fact that property has not reached its clearing price as a result of artificial support by the State (NAMA, foreclosure codes of practice), banks (which have largely been sitting on property waiting for a recovery and not wanting to crystallize losses) and sellers (who might simply not be able to sell because between 10-20% are in negative equity). Buyers are also deprived of normal levels of credit. So an auction which will see almost all lots sold will attract intense attention – I see that economist Ronan Lyons has credited the substantial fall in asking prices on DAFT.ie in quarter two of 2011 partly to the transparency of the first Allsop/Space auction where prices appeared to be some 60% down from peak.

Again according to Space, the vast majority of sellers on Thursday will be receivers and liquidators appointed by a number of different lenders. There are some private sellers also. Maximum reserves are shown for each lot which means that the lot is guaranteed to sell if that maximum reserve is met. However the real reserve is equal to, or less than, the maximum reserve which means that properties may sell for less than the maximum reserve. In terms of the sellers, it seems likely that Bank of Scotland (Ireland, BOS(I)) will again prominently feature but it will be fronted by receivers and liquidators. BOS(I) was a major lender to the Irish property sector in the 2000s and when the bank exited the Irish market last year it left a reported €30bn (yes, billion) of property and other loans in a newly-formed  asset management company, Certus which is now running-off the loans. I have seen claims that reserves on BOS(I) property at auction might be as low as 80% off peak values, but these claims have not been verified. To my eye, the maximum reserves for this forthcoming auction look firmer than those in April but there might be little if any change to the level of real reserves.

Remember in April that five lots out of 84 did not sell during the auction but subsequently only one property remained unsold. Of the properties sold on the day in April the average sale price was 23% over the maximum reserve. My tuppence worth prediction is that 80-85 lots will sell on Thursday and that the average sale price will be 10-15% over the maximum reserve.

Lastly, Space has not responded to a query about how it might accommodate an overflow of crowds on Thursday – you might recall the chaotic scenes on the sidewalk outside the Shelbourne in April when people were unable to get admittance and bids were being taken outside the auction room. I think there is less frenzy surrounding this auction, but it seems that there is just as much professional interest so I would expect a full auction room and perhaps some overflow issues at the start of auction. Perhaps better that, than the scene at the GMAC auction in Corktwo weeks ago as photographed by Carol Tallon of Buyers Broker Limited.

You might also be interested in a review of the first Allsop/Space auction in April, available here.

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It was just last week when Eurostat, the EU’s statistical agency, released figures which showed on a typical basket of consumer items, inIreland we are paying 18% more than the EU average. By itself that doesn’t mean a great deal, but when you consider that by reference to per capita GNP we are just 103% of the EU average, you might conclude that in Ireland our prices are just out of line and that we, as consumers, are being scalped.

And anyone that uses products and services across the EU can’t fail to notice that Ireland is very expensive, and my own view on my own basket, is that we are typically 30-60% more expensive than our nearest neighbours, the UK. So I am probably prejudiced towards what appears to be a lack of competition in this country.

But one area of concern for competition that has grabbed our senior politicians is competition in the banking sector. Remember that we are pouring €13.3bn into AIB, a so-called “pillar bank” before the end of this month. There might be a couple of billion saved from that bill if the present subordinated bond buybacks are successful, but we will still be putting in more than €10bn. And why are we keeping AIB? “For competition” is the stock response. Never mind the fact that we can get by with one Post Office in most areas, never mind the fact that for 70 years after the foundation of the State, the presence of the duopoly of Bank of Ireland and AIB (in several guises) didn’t deliver any noticeable competition and it wasn’t until the foreign banks entered our market in the 1990s that competition for deposits and loans really took off and of course never mind the fact that we still have four foreign banks active in the Irish market as well as a credit union sector as well as the Post Office. But competition is the reason given for preserving AIB, so it must be an important principle.

Which makes the subject of this entry quite confusing. It was 15th July 2010, almost a year ago, that the European Commission issued its decision on the restructuring of Ireland’s biggest bank, Bank of Ireland. Actually what it publicly issued back then was a press statement, the decision itself remained private to affected parties for seven months and was only published on 3rd February, 2011. And competition in the banking sector was at the fore of the agreement to restructure Bank of Ireland which is in receipt of State-aid through the State-guarantee and other funding. And a specific area of concern was that Irish banks would start scalping their mortgage customers, particularly those on Standard Variable Rates (SVR), and start increasing interest rates in an uncompetitive manner. So the European Commission wanted to ensure that Irish mortgage consumers could switch mortgages if one bank was becoming uncompetitive. And to this end, the Commission provided its approval of the Bank of Ireland restructuring plan, in part on the basis that “the NCA will redevelop the banking cost comparisons on its “itsyourmoney.ie” website to provide more and better information on available banking products. A mortgage rate comparison will be added. The site will be more interactive and will allow users to link to switching tips and to providers’ websites for follow-up” The implementation date was Q4, 2010 that is six months after the decision was issued last 15th July 2010. The NCA is the National Consumer Agency, a state company established under the Department of Enterprise. The chief executive since 2007 has been Ann Fitzgerald (pictured here – EDIT: please contact the blog if the picture is taken down)

And yet here we are in Q3, 2011 and as of this morning, still no mortgage comparison functionality on the “itsyourmoney.ie” website. When contacted about the slippage in February the agency said that there had been a procurement process which complied with EU public procurement guidelines which had culminated in the identification of a preferred vendor in December 2010. Development work on the new comparison tools was underway, with delivery scheduled to take place on a phased basis commencing in Q2 2011. When contacted today the agency said that a number of other modules eg student travel loans were to be launched by end Q3, 2011 and the mortgage comparison tool was to be launched the other modules were completed. Elsewhere it indicates that may be a matter of weeks. Regardless, we still don’t have a much needed mortgage comparison facility over six months after the European Commission said we should. And meantime we have had quite a few SVR interest rate increases and on Thursday this week, the ECB is likely to raise interest rates by 0.25-0.5%, the second increase this year.

It was May 2008 when then-Taoiseach Brian Cowen referred to the NCA as “fuckers” in the Dail when he told his Tanaiste Mary Coughlan “bring in those people and get a handle on it. You know all those fuckers” It was two months ago when Minister for Health James Reilly removed the entire board of the (Health Service Executive) HSE. Is it time for Minister for Jobs, Enterprise and Innovation, Richard Bruton to do the same with the board of the NCA (listed here)? Because (1) our consumer costs inIreland appear out of line with our incomes and withEurope and (2) it doesn’t seem able to deliver on requirements from the European Commission.

UPDATE: 5th July, 2011. “God is very quick these days”  said Blackadder famously after “Now, I’m not a religious man, as you know, but henceforth I shall nightly pray to the God that killed Cain and squashed Samson that He comes out of retirement and gets back into practice on the pair of you” and then receiving a telephone call asking for two volunteers for a mission. Well it seems that Richard Bruton has decided to get rid of the board of the NCA today. In a press release he states that the NCA will be merged with the Competition Authority and the removal of the NCA board will save €170,000 per annum. That’s all very well and as noted here last week we have a plethora of consumer organisations that seem to be making little impact on prices, so the hope is that this announcement is not focussing on saving administration costs but that it results in real progress in re-basing prices in our economy.

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If I were to characterize the public mood now towards future Government intentions to balance the budget and eliminate the deficit, I would say there was trepidation. On the 100-day anniversary of taking office the Taoiseach Enda Kenny standing alongside his coalition partner, Tanaiste Eamon Gilmore ruled out increases to income tax or reductions to welfare in Budget 2012, which is now just five months away. And yet we knew that we had to make additional cuts or raise taxes totaling €3.6bn in 2012 – that’s over €2,000 per Irish household. Despite Enda Kenny’s sugary words we want to know where the austerity axe WILL fall, not where it WON’T fall. There seemed to be a lack of honesty.

Yesterday, Minister for Finance, Michael Noonan was probably the first senior minister to broach the truth. Speaking to RTE following the publication of the June 2011 Exchequer Statement, he indicated that the adjustment needed in 2012 would be in the order of €4bn, up from €3.6bn “The job isn’t even half done yet. Next year, even though the overall figures are about two-thirds of this year’s adjustment, it may be more difficult to achieve … A lot of the low hanging fruit has been picked.” He apparently didn’t provide a reason for the greater austerity, but the most likely reason is a downward revision to economic growth in 2012 which will mean less taxes, more unemployment, more welfare.

But Minister Noonan’s options for further austerity are limited. Given that consumer spending and credit availability continue to be issues, he will probably not be able to touch VAT or stamp duty. Our corporation tax arrangements are being defended in Europeto the last. So that really leaves stealth taxes and cuts to the public sector.

Stealth taxes include property, water and community charges and to date there has been (perhaps deliberate) confusion over plans – will there be a flat tax on property or water in 2012, no water charges without meters, a free allowance of water, site valuation taxes – will the household cost be €200 per annum or €1,000? Cuts to the public sector must still be delivered in the context of the Croke Park Agreement and progress here to date has been glacial. Changes to senior salaries in the public sector are unlikely to yield any major savings in the context of a €4bn hole – 500 staff taking a €50,000 cut would amount to savings of €25m per annum – from the point of view of fairness it’s significant, financially it’s just a token.

The present plan agreed with our bailout partners is to reach fiscal near-balance in 2015. Some economists have argued in favour of a shorter period in which to balance the budget, Morgan Kelly probably being at the extreme, and Colm McCarthy being examples. Others have suggested a longer timeframe than even 2015, eg Sinn Fein. Enda Kenny famously said that he didn’t want to administer a “lethal injection” to the Irish economy by a shorter or immediate balancing of the budget. But the moment of truth is fast approaching, and the truth is that between now and 2015 we will have 13% compound growth in GDP and we will have some emigration (though the Census last week has thrown confusion on present migration patterns) and both of these should cushion further austerity but it will be a pretty flat cushion and the signs are that GDP growth will come under pressure and emigration mightn’t take as much strain off the dole queues as previously expected.

The view on here tends towards a shorter balancing of the budget BUT to accompany changes with better competition oversight to ensure prices in the economy reflect present circumstances – given that our costs are 118% of the EU average and our incomes just 102%, there is plainly scope to have a lower cost economy – and a proper personal bankruptcy regime to deal with legacy debt. But perhaps the greatest gift that a dose of truthfulness might bestow is to expose the massive continuing cost of funding our banks, remember that some €7bn of bonds will be repaid in Irish banks this year and €20bn in 2012 which dwarves the fiscal adjustment in 2012, be it €3.6bn or €4bn. Given the continuing stance of the ECB and the likelihood there will be no short-term resolution of Greek debt that might benefit Ireland, and given the approaching self-declared deadline for recapitalizing the banks, perhaps now is the time for a dose of comprehensive truth of what austerity will mean for the next four years. Immediate balancing of the budget might or might not be lethal but a dose of the truth can only make us stronger.

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