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Archive for September, 2011

Earlier this week, the Department of the Environment, Community and Local Government released a report from the Housing Agency detailing the social housing list – households in need of a permanent home, which the State is obliged to provide. The report itself is here and it sets out in some detail the composition of the very large group of people judged to be in need of a State-provided home.

In total there are 98,318 households in need of a permanent home. I can’t find anywhere in the report how many people this represents – remember a household can be a single person or a couple with 15 children – but from Table 2 on page 4, I calculate the minimum number of people represented by the 98,318 households to be 176,147. It might also be worth saying that there is suspicion in some quarters that these figures collated by the Housing Agency contain some element of double-counting and further, there is concern that the bookkeeping which monitors those coming onto, and off of the housing list isn’t as robust as it needs to be. An audit of the figures by the Department of the Environment might be warranted.

Ireland famously has an overhang of vacant property after the construction boom during the 2000s. Over 300,000 dwellings are in fact vacant but vacancy arises for a large number of reasons including homes being used as holiday homes. It is estimated that the overhang of vacant properties – the number of vacant properties over the long term average – is over 100,000 of which 23-33,000 are on so-called Ghost Estates. So on the face of it, the country has a surplus of housing and a sizeable housing list. It would be simplistic to suggest there is an opportunity to completely eliminate the housing list with existing resources as there can be issues with the location, size and type of housing (the latter is particularly important for those with disabilities); there are also issues with the lack of State finance and arguably there are too many State distortions preventing property reaching its true clearance price.

The Housing Agency’s report provides various analyses of those seeking permanent homes, and makes for interesting reading. In light of the news reported here this week of Westmeath County Council bulldozing and levelling an estate in the village of Ballynagore (also called Ballinagore), let’s take a look at the households in need of a permanent home in Westmeath (Westmeath excludes Athlone which is 32 kilometres from the village of Ballynagore where the houses were demolished, and Athlone has an additional 1,417 households in need of a home on top of the 1,285 households on the list in Westmeath county)

(click to enlarge)

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About a year ago on here there was an entry about the meeting on the night of 29th of September 2008/early morning of 30th September 2008, the meeting which give rise to Ireland – population 4.5m, GDP €160bn – guaranteeing the liabilities, all €440bn of them, in the Irish banking system. Subsequently that system imploded but was maintained in a quasi-stable state at huge cost to the nation. Although it may take years to assess the final bill and it may never be possible to assess the opportunity cost – what the nation could have done with the money instead of supporting a banking system – it seems that the final bill will conservatively be €50bn and may be in the €60-70bn range. Immediately prior to the banking guarantee, the country had a commendable 25% debt as a % of GDP, a primary budget surplus, nearly a decade of healthy economic growth, almost no real unemployment and we were held up as a model of economic competence.

Today the country has unemployment of 14.5%, the scourge of emigration has returned, we have a national debt heading towards 110% of GDP (130%+ of the more representative Irish GNP) of which 30-40% of GDP relates to the cost of dealing with the banking disaster, we have an annual deficit of €18bn and are only hoping to get it below 10% next year. There has been a reluctant collapse in asset values, particularly property and bank shares, most of the domestic banking system has been effectively nationalised. It would go too far to blame one meeting in September 2008 for the change in circumstances, but it seems that the meeting was a least pivotal – from it flowed the banking guarantee, the placing of unrealised banking losses on the shoulders of the nation, and the repayment of banking debt.

As for the meeting which started on 29th September, 2008 at around 8pm, the entry on here last year, compared it to the meeting portrayed in that HBO film, Conspiracy; the film which told the story of the infamous meeting in Nazi Germany in 1941 which was pivotal to the subsequent murder of Jews and others in concentration camps. When the Financial Times linked to the entry, there was localised outrage that the extermination of the Jews could be likened to the economic disaster in Ireland. For the first time in my life, I came across the term “Godwin’s Law” which refers to the phenomenon of ultimately comparing all misfortune to the World War 2 holocaust. Though to be honest I thought it should be renamed the “Lord Voldemort Law” from Harry Potter as the aim of the Law seemed to be to suppress any reference to that “which shall not be mentioned”. But this is a blog for adults, not children.

As for the infamous meeting which started on 29th September, 2008 – and whose 3-year anniversary occurs today – as a nation there is still a sense of shock and incredulity that what seems like a snap decision was taken which exposed the nation to debts of nearly three times GDP. This entry pieces together most of what is now in the public domain on the context, course and content of the meeting. Alas, from this armchair perspective there is no smoking gun, just an everyday tale of professional politicians with a mediocre grasp of events, making mistakes, not asking the right questions and coming to the wrong conclusion (and by guaranteeing historical bond debt, it was the wrong conclusion). Outside the political circles, some may have suppressed or misrepresented information, but even there, there is evidence of denial and poor assessment of risk; but all of that and the wider context of the 29th/30th September 2008 meeting will be for another day…

27th Saturday, Minister Lenihan is at a Fianna Fail fundraising event inGowranPark in Kilkenny when he takes a call from President of the ECB, Jean-Claude Trichet who reportedly tells Minister Lenihan to expect an urgent call from CBI Governor, John Hurley later that day. Minister Lenihan takes initiative and rings John Hurley
28th Sunday morning, Minister for Finance Brian Lenihan meets with Central Bank ofIreland Governor, John Hurley at the Central Bank onDame Street,Dublin who advises Minister Lenihan that several banks inEurope are facing crisis including Fortis and DEPFA.Sunday Business Post publishes article by economist David McWilliams in which he advocates a guarantee, claiming banks face a liquidity problem, guarantee depositors/creditors but not shareholders.

Sunday, Green Party Minister for the Environment Heritage and Local Government, John Gormley claims to have met with Brian Lenihan to discuss the guarantee/nationalization. Minister Gormley claimed that the guarantee was discussed “on-and-off” for about a week. Minister Gormley claims that the option that he, Min Gormley, had gone for was the nationalization of Anglo and a Bill was drafted to effect that nationalization. Minister Gormley claimed on the Marian Finucane programme on RTE radio on 4th December, 2010 that there was a Cabinet meeting on the Sunday and the “arrangements” were made after going “through it in detail”

British Chancellor to the Exchequer, Alastair Darling says he spoke with Minister Lenihan who “assured him the Government would not give a blanket guarantee to the banks”

29th MondayEarly Monday” – meeting between Department of Finance, Financial Regulator, Central Bank and CEOs of AIB, Eugene Sheehy, BoI, Brian Goggin, EBS, Fergus Murphy and others. There were claims that banks were near “tipping points” (understood to be a reference to liquidity) and that there was speculation that one unnamed bank was at severe risk of going under. Nationalisation was discussed but dimissed.

Morning: Announcement of nationalization of Bradford and Bingley Building Society’s mortgages and loans and plans to sell off its deposit book toSantander

Announcement of nationalization of Fortis bank by Belgian and Luxembourgian governments and the German state/banking sector funding ofGermany’s Hypo Real Estate.

1pm, Anglo CEO and Chairman meet with Bank of Ireland CEO, Brian Goggin in 6th floor office of BoI HQ and ask BoI to take over Anglo. The response was “no”

After 1pm, Anglo CEO and Chairman contact AIB CEO Eugene Sheehy and ask same question and get same response

Mid-afternoon, Minister Lenihan leavesUpper Merrion Street to attend daughter’s birthday party in Castleknock,Dublin

5pm ISEQ closes down 13%, Bank of Ireland shares down 15%, AIB down 16%, ILP down 34% and Anglo down 45%. AIB and BoI CEOs call Brian Cowen’s office to state that the banks couldn’t sustain themselves for another day and needed a plan overnight.

6.43pm, Second Secretary at the DoF, Kevin Cardiff receives report from Merrill Lynch

8pm – An Taoiseach meets with Minister Lenihan and shortly after they are joined by Attorney General, Paul Gallagher, Governor of the Central Bank, John Hurley, Director General of the Central Bank,Tony Grimes, the Financial Regulator Patrick Neary, and core finance people from Brian Lenihan’s team, An Taoiseach’s top advisor, Joe Lennon, economics advisor, Peter Clinch, and Government press spokesman Eoin O Neachtain. There are suggestions of contact with or input from economist David McWilliams, businessmen JP McManus and Dermot Desmond and  former Minister for Finance and EU Commissioner, Charlie McCreevy.

9pm Dow Jones closes down 7% (738 points – the biggest one day drop) following the rejection of the €700bn Troubled Asset Relief Program in the US House of Representatives

after 9pm” (9.30pm) AIB/BoI chairmen and CEOs (four individuals) meet with Brian Cowen and Brian Lenihan in Government Buildings onUpper Merrion Street. The delegation did not make “comment, reference or disclosure of the Anglo Irish approach earlier that day”. The delegation “urged Lenihan to nationalise Anglo and Michael Fingelton’s Irish Nationwide immediately” Brian Cowen is reported to have said “We’re not fucking nationalising Anglo” A plan was agreed that AIB and BoI would put up €10bn to keep it going until the following weekend, when it would more than likely be taken into state control and they would get their money back. A blanket guarantee of all deposits and debt totalling €440bn would be introduced.

 

30th TuesdayAt 12 midnight, Minister for Defence, Willie O’Dea said (This Week in Politics, 15th May, 2011)

“Well my role was simply to get a phone call at around  midnight on the Monday night [from a senior civil servant], there was a cabinet meeting the following morning, and I was told something in a very short space of time roughly what the magnitude of this crisis was and this was the decision. I was informed as opposed to being consulted”

after 1am” (2.45am) the Cabinet was presented with a fait accompli, being told the matter could not wait until the morning and that its consent was required immediately. The virtual Cabinet meeting (other than the Taoiseach and Minister Lenihan, the others Martin, Hanafin, Gormley, Ryan, Smith and others were involved via telephone)

2am, according to British Chancellor of the Exchequer, Alastair Darling, it was 2am that the decision to guarantee the banks was taken.

2.30am Financial Regulator, Patrick Neary rings EBS Chairman, Mark Moran who immediately rings EBS CEO, Fergus Murphy to inform him of new arrangements

3am Financial Regulator, Patrick Neary phones chairman of Irish Nationwide Building Society, Professor Michael Walsh to inform him of the new arrangements

6am, Alastair Darling first heard about the guarantee on BBC radio’s Today programme with John Humphrys.

6am Minister for Finance, Brian Lenihan telephones Jean Claude Juncker, chairman of the Eurogroup, FG leader Enda Kenny and Labour leader, Eamon Gilmore to inform them of events

Before Markets open – Department of Finance issues statement that it had decided to  “safeguard all deposits (retail, commercial, institutional and interbank), covered bonds, senior debt and dated subordinated debt (lower tier II)” at the six banks and “the guarantee will cover all existing aforementioned facilities with these institutions and any new such facilities issued from midnight on 29 September 2008, and will expire at midnight on 28 September 2010.”

7.30am INBS Chairman, Professor Michael Walsh telephones CEO, Michael Fingleton to inform him of new arrangements

Night/Early Morning – Minister Lenihan has said “I did not make any external telephone calls

on the night of 29 September and early morning of 30 September 2008 to seek advice in relation to the bank guarantee or other options for resolving the banking crisis. However, I did make telephone calls to the following people to advise them of the bank guarantee:

(a) Irish Ambassador to France, (b) Ms. Christine Lagarde, Minister for Finance, France – Brian Lenihan called her on her mobile phone and claimed that he had no choice and the Ms Lagarde’s reaction was “Oh my God” because of perceived competition issues with other European countries [RTE This Week 12th June, 2011]  (c) Irish Ambassador to UK (d) Mr. Alistair Darling, Chancellor of the Exchequer, UK[“a frank exchange”] (e) Monsieur Jean-Claude Trichet, President, European Central Bank”

Pointedly he did not contact the German Chancellor, Angela Merkel or Finance Minister, Peer Steinbruck

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Yesterday Northern Irish auctioneers Osborne King held a pretty successful auction of some 27 properties in Belfast, an auction which shared many of the characteristics of the three recent Allsop Space auctions on this side of the border – the properties were mostly foreclosed or sold on the instruction of the mortgage lender, the concept of a maximum reserve was adopted to represent a price above which the property would definitely be sold. In summary, of the 27 properties advertised in the Osborne King catalogue, 4 were pre-sold above the maximum reserve before the auction, and of the remaining 23 properties, all but 2 were sold, giving a 91.3% success rate. The auction raised GBP 2.09m (€2.4m) and on average prices achieved were 15% over maximum reserves. Here are the results:

A report from an attendee at the auction said that buyers were a mixture of ordinary folks and professional investors. Developer and Kentucky Fried Chicken entrepreneur Michael Herbert was reportedly there with his wife Lesley and was reported to have made a few bids but didn’t buy anything.

Lot1 is said to have been bought by what was described as the classic developer – stripey pink shirt, tan, big watch. There were plenty of bankers, solicitors and other property professionals along to gawk. The auction was reportedly well-run by Osborne King and they even laid on some nice pastries.

In terms of falls from peak, one of the biggest drops was seen with Lot10 – development land at 112 Comber Road, Ballygowan – which was seemingly originally bought by a developer from Newtownards for £1.7m in 2007. Yesterday it sold to “two lads” for £94k, a 94% haircut. Seems like Northern Ireland has experienced the same collapse in development land values as the Republic, with the latest from Savills being that development land has dropped by 75-90%+ on this side of the border. I’m not even going to attempt an analysis of sold prices here versus prices at the peak in Northern Ireland. As reported on here recently, residential property is down 45% from peak in nominal terms in Northern Ireland, compared with 43% in the Republic as measured by the CSO. In real terms, that is to say accounting for inflation which has been 14% in the UK since 2007 and practically zero in the Republic, then the fall in the Republic is 43% and 52% in Northern Ireland. Sobering.

The two lots that didn’t sell at the auction yesterday were both pubs. According to a recent report by the BBC, “the licensed trade in NI has been badly hit in the recession with a significant number of pubs closing”. Though having said that, some pub chains are generating profits. A NAMA-related pub was destroyed by fire in Coleraine, CountyAntrim two weeks ago.

So overall the auction appears to have been a solid success for Osborne King, and no doubt yesterday’s auction will have improved their prospects for attracting future business, particularly from banks and receivers. The recent Allsop Space auction had a 85% success rate, though that was down from the first two auctions which had 95%+ success rates. Also each of the Allsop Space auctions has seen an average of about 75 lots come under the hammer. And Osborne King might have some way to go to match Allsop Space’s live coverage of auctions with live internet bidding and results.

Lastly, and separately, Wilson Auctions held a major auction last week in Mallusk, just outside Belfast in which 60+ properties came under the hammer. The auction catalogue is here, the results are not yet posted online by Wilsons but this forum appears to have a record of the day’s prices, though you should probably treat these with caution.

UPDATE: 30th September, 2011. The BBC reports on yesterday’s auction.

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Judging by the hoopla that surrounded the off-market sale of the Montevetro building in Dublin to Google by a NAMA developer at the start of this year – which until this morning was the only confirmed sale publicised by the agency – we may never hear the end of the sale announced just now by NAMA of €800m of loans attached to the Maybourne hotel group. It has just been announced that NAMA has recouped 100% of the face value of the loans (which include interest) in its “successful” sale of the loans to a company controlled by the Barclay twins, two 76-year old Scottish brothers who own Britain’s Daily Telegraph and the 5-star Ritz hotel, about a kilometre distant from the three prized hotels which comprise the main assets of the Maybourne Group, the Berkeley in London’s Knightsbridge and Claridges and the Connaught, both in London’s Mayfair.

According to RTE, NAMA acquired the loans attached to the Maybourne Group “at a discount”. RTE doesn’t disclose its source but in its management reports NAMA has confirmed that a small number of loans were acquired with discounts of 0-10% which leaves open the possibility that NAMA acquired some loans without discounts. NAMA hasn’t revealed its profit on the loans, and judging by past history with the Montevetro transaction, the agency will remain tight-lipped about the profit or loss. Don’t worry though about the profit or loss; just feel the revenue – €800m!

So, NAMA sold some loans. What else is of interest? The transaction again underlines the strength of the property market in prime centralLondonwhich is good news because NAMA is understood to have quite a few loans secured by property there. And whilst it is not yet clear how the Barclays are financing the transaction, the presence of €800m is indeed good news for property generally in central London – although the UK hasn’t suffered the same credit drought as Ireland, the streets aren’t lined with bankers distributing money either. Lastly, in terms of NAMA, it is not yet clear if today’s announcement scuppers previous reporting of sales of loans in the Maybourne Group to Malaysian sovereign wealth fund, 1MDB and to Robert Tchenguiz.

Beyond NAMA, it will be interesting to see how control of the Maybourne Group will change with the transaction. Remember Paddy McKillen was the biggest shareholder in the group, and he won’t want to relinquish that control without seeing value for his investment. Dramas in the boardroom can’t be ruled out.

This post may be updated with any further news on this transaction, and what it means for NAMA and for Paddy McKillen.

UPDATE: 29th September, 2011. NAMA’ s press release announcing the disposal is available from the agency here.

UPDATE (1): 30th September, 2011. Some interesting news and claims in today’s reporting of the transaction. The BBC is claiming that by controlling the loans, the Barclay twins “have acquired the hotels”. Of more significance but probably related to the BBC report is the Belfast Telegraph’s reportingof Paddy McKillen’s response to NAMA’s announcement : “He is investigating the deal and is concerned about how the sale may affect his shareholding” said Paddy’s spokeswoman who hasn’t yet responded to a request for comment from here.  The paper also says  that Paddy  “was considering mounting a legal action to scupper the deal, claiming he wasn’t consulted”
UPDATE (2): 30th September, 2011. For a superbly detailed report of yesterday’s transactions and what it means for Maybourne’s debt and equity, I’d recommend a read of Mike Phillips report in today’s Property Week.

UPDATE: 1st October, 2011. Well this is beginning to have the makings of an entertaining spectacle: Paddy McKillen has, according to the Irish Independent today, “insisted he remains the largest shareholder in the group” and there are “suggestions” Paddy should have been given a right of first refusal in the sale of the loans and/or the sale of other shareholdings, notably Derek Quinlan’s. NAMA for its part is reported to be claiming that the sale of the loans is “closed”, that is to say, finalised, done-and-dusted. With Property Week yesterday claiming the Barclays controlled 64% of Maybourne’s equity and Paddy now apparently claiming to be the largest shareholder, it looks as if the drama predicted here on Thursday may unfold sooner rather than later.

UPDATE (1): 4th October, 2011. Simon Carswell pens a piece in today’s Irish Times which focusses on the judgment against Derek Quinlan in respect of a loan for a yacht but almost as a footnote mentions the Maybourne transactions and claims “Mr Quinlan still owns 35 per cent of the hotel group but the debt on his shareholding is now owned by the Barclay brothers”

UPDATE (2): 4th October, 2011. The Irish Times Cantillon column probes the shareholding arrangements in more detail and seems to conclude that the Barclays “effectively” now control 63 per cent of the company, but the column poses questions as to what has in fact happened with Derek Quinlan’s shareholding.

UPDATE: 12th October, 2011. Neil Callanan who used write for Ireland’s Sunday Tribune before it folded at the start of this year is now writing for Bloomberg and reports that Paddy McKillen has opened an action in London’s High Court, apparently to protect his shareholding but it is not quite clear what this entails. The case title is: “McKillen v. Barclay & Ors.” and the case number is HC11C03437 in the High Court of Justice, Chancery Division (London).

UPDATE (1): 13th October, 2011. EDIT. The Irish Independent has two Paddy-positive articles in which the Maybourne sale by NAMA is questioned. The first has Paddy criticising NAMA’s abilities to maximise returns and the second just questions why NAMA sold the loans now. Meanwhile Britain’s Legal Week demonstrates how much of a jamboreee this transaction was for the lawyers. It says “Hogan Lovells, which was appointed to NAMA’s inaugural legal panel last year, advised the body through a London-based team led by restructuring partner Paul McLoughlin, who was assisted by senior associate Stuart Tait. The firm, which worked alongside Ireland’s Maples and Calder, initially advised NAMA in April on a restructuring of AIB and Bank of Ireland’s debt initially provided to Maybourne, which transferred to NAMA”

UPDATE (2): 13th October, 2011. The Irish Times reports that Paddy is considering suing NAMA in the Irish courts. “Mr McKillen is examining the possibility of taking an action against NAMA in the Irish courts as he believes the agency did not follow fair procedures selling the group’s debt to the two brothers.” There also seems to be a claim that Paddy was given just 57 minutes notice of the sale, though it is not at all clear if he was entitled to any notice whatsoever.

UPDATE (3): 13th October, 2011. It is hard to know if a feature article in the Independent today on Paddy’s Maybourne stake-holding is a business story or a human interest story. It opens with some cutesy tale of Paddy being turfed out of his accommodation at Claridge’s because the hotel needed the room, presumably for paying customers. Paddy describes NAMA as a bunch of “corporate terrorists” who are motivated by “vengeance” and Paddy was “shocked” (absolutely shocked) to only receive 57 minutes notice of NAMA’s sale of the loans in his Maybourne group. There is a continuation of a theme that NAMA is not acting in the interests of the Irish tax-payer but there is sweet little evidence to support that claim. Paddy may attempt to take legal action against NAMA in the Irish courts but apparently “you can’t put toothpaste back in the tube” and NAMA has apparently cashed the €800m cheque.  Putting the cutesy stuff to one side, it does seem as if Paddy who was at the forefront of the Maybourne venture is seeking to maximise value from his investment, and given London’s recovery from the financial crisis, it must be galling to have control of the group wrested from you possibly on the cusp of the return to the good times. That said, there is no suggestion that there was a better offer available to NAMA who can’t simply sit on assets and await an uncertain recovery, and risk a possible decline in values.

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Yesterday (very late in the day), NAMA posted a tender for advisers to assist the agency with the disposal of its USand European (including the UK, but excluding Ireland) loan portfolios. The notice is here but you will have to register with the Irish government procurement service to access the full text (registration is free). The panel being advertised for, will consist of 10 members, four in the US and six in Europe. The contract length is three years.

This morning, the NAMA CEO Brendan McDonagh gave a speech at the Corporate Restructuring Summit organised by Irish publication, Business and Finance, at the National Convention Centre in Dublin where he spoke in more detail about the agency’s latest move. Brendan said “from these panels we will appoint advisors to design and sell individual loans and whole debtor connection loans”; in the press release from NAMA announcing the speech it is stated that there is €600m of US loans and €30bn of European loans that will be up for grabs – these are face values of the loans at the originating banks, NAMA paid far less for them but the betting is that the discount or haircut applied to loans on foreign property was far less than those for Ireland. So my view is that these loans are worth about 50% or possibly a bit more than their face value which would represent 50% of NAMA’s total purchases (by reference to the NAMA purchase price).

So from all of the above, you might conclude that NAMA intends disposing of 50% of its assets (by reference to the NAMA purchase price) within the next three years. Which does have a feel of realism about it, when you consider the commitment given by Fine Gael in the recent general election when it saidwe will force NAMA to outsource management of at least 70% of its assets to 3-4 competing private asset management companies”. Of course what is being advertised for now is not an asset management service but a disposal advice service but that converges with the Fine Gael strategy of shifting the risk for the agency off the State’s books.

Elsewhere the speech itself borrows heavily from the one given in Galway yesterday to the social housing conference, but we also learned the following which I believe is new:

(1) The various restructuring options pursued by NAMA in respect of its developer debtors are set out, and these range from a full restructure where new loan agreements are set up which may include converting debt to interest-free loans (but before you succumb to another bout of outrage, with a back end fee of “up to 25%” payable to NAMA!), disposals of loans or property within 24 months and enforcement.

(2) Brendan gave a useful view on what international investors are seeking before investing inIreland(a) the stability of the legal and political system (b) the asset  (c) the investment opportunity  (d) taxation (e) entry and exit costs  (f) the economic prospects of the country where the asset is located

(3) Brendan said that NAMA hoped to offer the first staple finance – referred to as “stapled finance” or “vendor financing” by Brendan – property to the market “in the next week”; this is expected to be One Warrington Place, exclusively reported here on 19th September 2011. No chancers need apply as you’ll need to pony up 25-30% of the purchase price yourself and demonstrate an ability and commitment to repay the loan.

(4) NAMA may take “some limited loss leaders on individual assets to promote activity” but NAMA is determined not to sell property or loans at prices below what NAMA paid for them. Remember these were November 2009 prices and included an average of a 10% Long Term Economic Value uplift. How deep will the wine lake get? And you might be amused by Brendan’s word for potential buyers “if there is one key message I can ask you to take away from today it is: there is no point approaching us with an offer which is significantly below what we paid – it is a waste of your time and ours as it is unlikely to be entertained.” And by the way, NAMA resolutely refuses to divulge what it paid!

The NAMA CEO’s speech this morning is available here and the press release highlighting matters that NAMA wants to publicise is here.

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The Nationwide Building Society has this morning published its UK House Price data for September 2011. 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 £166,256 (compared with GBP £165,914 in August 2011 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). Prices in the UK are now 10.6% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of August 2011 being GBP £166,256 (or €191,294 at GBP 1 = EUR 1.1506) is 7.6% above the €177,812 implied by applying the CSO August 2011 index to the PTSB/ESRI peak prices.

With the latest release from Nationwide, UK house prices have risen by 2.15% 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. The NWL Index is now at 853 (because only an estimated 20% of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK, small changes in UK residential have a negligible impact on the index) meaning that average prices of NAMA property must increase by a weighted average of 17.3% for NAMA to breakeven on a gross basis.

The short-term outlook for UK residential, like the UK economy as a whole, remains bumpy. It seems as if UK interest rates will be held at historic lows for some time to come – the base rate which has been at 0.5% since February, 2009. Inflation remains above 4% per annum and is projected to finish 2011 at 4-5%. It’s worth pointing out that CPI inflation in the UK has increased by 14.1% (105.3 to 120.1) since October 2007 – the peak in house prices -  no doubt as a result in part to the GBP 200bn of quantitative easing applied in the UK.  Unemployment in the UK remains elevated (for it) at 7.9% – paradise compared with the 14.5% unemployment here. Mortgage lending in the UK picked up in July 2011, but a report by the Land Registry indicated a declining pattern of transactions over the past year.

This morning the Nationwide also released its quarterly house price series which shows prices by region with changes over various periods. This shows that the southeast (Outer Metropolitan), East Anglia and London were the top performers in the past year, but with increases of only 0.5-1.3%, when set against inflation of 4-5%, even these regions fell in real terms.

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Take a look at the graphic at the top of this page which represents a chart showing NAMA’s impact on property prices inIreland. What NAMA was supposed to do, and which it has done to date, has been to halt (or at least retard) a decline in property prices by removing certain property-backed loans from our banks, nurse the loans and then release the property over time to the market so as to avoid the worse depredations of fire sales and a chaotic property market swamped with over-supply, limited demand and little credit. There’s nothing sinister about this approach, and if this approach is adopted in a smart fashion for a limited period of time, then damage to the economy (or rather the banks) could be mitigated. The problem with the distortion is that if it goes on for too long or maintains prices too high above their clearing level then the distortion may do more harm than good to the economy. And you end up with a “wine lake” of property being kept off the market so as to maintain high prices.

In this morning’s Irish Times, regular contributor to the property pages, Bill Nowlan of “property asset management firm” WK Nowlan gives some views on NAMA’s pricing of property which many will find controversial; nothing strange about that in an opinion piece. What elevates this contribution to a higher plane is the fact that WK Nowlan and Associates Limited is a firm which has been engaged by NAMA to (1) provide property management services related to enforcement and insolvency matters and (2) provides valuation services. And it seems to me that NAMA is using WK Nowlan for far more than plain old property management services on foreclosed property – Frank Nowlan of WK Nowlan and Associates was appointed as a property receiver by NAMA in May 2011 in respect of assets in the following companies:

(1) Mondale Developments Limited

(2) Panimine Limited

(3) Frederick J Sutton Limited

(4) Rathdrum Properties Limited (incorporated in Ireland– not to be confused with a UK-incorporated company with the same name)

(5) AS Delahunt Limited

So the words of Bill Nowlan carry more weight than any common-or-garden opinion piece. And Bill today writes that NAMA “could (and should, in my view) refuse to sell any of their Irish assets or allow their borrowers to sell below a given value range – say, values prevailing in January of this year” And just to remind ourselves, commercial property is down 7% since the start of this year and figures being released next month for Q3, 2011 are likely to show continuing declines; and on the residential front, the CSO says that prices nationally are down 10.6% since the start of this year. So if Bill’s advice were to be followed we would need wait several years before NAMA brought product to market.

One might question how WK Nowlan is carrying out its property receivership role on NAMA assets and whether the opinions expressed today interfere with offers for assets at today’s prices. There might also be a need to quantify NAMA’s interference in the property market – keeping prices 5% above their clearing price for six months is one thing, keeping prices 30% above their clearing price for five years is quite another. Let us not forget that residential property prices have dropped by just 43% in the Republicof Irelandsince the peak in 2007 according to the CSO. But in Northern Ireland prices are down 45% in comparable terms, and in real terms are down more than 50% compared with 43% in the Republic. We already have had enough distortion of the market here. Advocating NAMA to sit on its assets for another few years will only exacerbate that distortion and stymie an already moribund market.

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In light of the claim by the Department of the Environment, reported in today’s Irish Independent that no council has demolished an estate in Ireland, above are photographs evidencing the demolition of one estate in County Westmeath reported here in the Mullingar Advertiser. But is it the only estate bulldozed by a council inIreland?

What: A partly-built housing estate with at least three bungalows seemingly complete

Where: Ballynagore (also referred to as Ballinagore) inCountyWestmeath – a village about 16 km south of Mullingar, illustrated on the map below with the red balloon

Who: The Westmeath County Council is the authority which bulldozed and levelled the site

When: The demolition work started in August 2011, and the photographs above show the site today, fenced off, with mounds of earth, presumably to prevent the site being used by Travellers

(click to enlarge)

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The NAMA CEO, Brendan McDonagh delivered a speech to the Irish Council for Social Housing (ICSH) in Salthill this morning in which he gave further details of the NAMA negative equity mortgage product. It is, said Brendan, hoped that the new mortgage product will be trialled in Q4, 2011 (which starts in a couple of days) and Q1, 2012 and will cover 750 properties initially. There have been discussions with AIB, Bank of Ireland and Permanent TSB but Brendan wasn’t giving any further details this morning. There is strong speculation that the negative equity product will resemble the product launched by financial services group, IFG three weeks ago.

There wasn’t a great deal new in the speech at all, but the following was interesting

(1) NAMA claims the Government have agreed with the Troika that NAMA will generate €7.5bn in cash by 2013. Again the view on here is that this is not a term of the Memorandum of Understanding and doesn’t carry a force of commitment, and can be changed.

(2) NAMA claims to control 10,000 of what it estimates are “50,000 residential units lying vacant dwellings all over the country”. It’s not clear where NAMA sources its vacancy figures but there are 23-33,000 vacant dwellings in so-called ghost estates (ghost estates generally make up less than 1/10th of our housing stock) and that there are 100,000+ vacant dwellings that represent an overhang. The 50,000 estimate from NAMA has the feel of an estimate of new housing on estates than total empty property.

(3) NAMA says that there 100,000 people on our housing lists. The estimate from the ICSH is that 98,000 households are on the housing list with about half being one-person households, but that would still seem to give you a total well in excess of 150,000 people. That said, there is a suspicion that we are not accurately counting the numbers on the housing list because of double counting and not counting households who secure housing.

(4) NAMA estimate that only 35% of approved mortgages are being drawn down.

And finally, as is customary in a speech from NAMA, there was the usual dig at developers, though somehow this seems softer than the “extravagant mindset” finger-wagging tirades in previous speeches.

“At NAMA we have a very simple maxim, if the taxpayer is being asked to keep a debtor in business it would seem to be a matter of basic common sense that the debtor would not seek to maintain a lifestyle that is beyond his current means. It draws unnecessary media attention and it takes away from the many genuine debtors who are doing their level best. I urge debtors to engage in NAMA, we are realistic, but you have to meet us halfway. We want to try and (sic) achieve a consensual workout; it is the optimal way to find a solution to a very difficult problem in the interest of all our citizens.”

The speech is available here and the press release summarising the key points NAMA wants to publicise, is here.

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Every time I hear the mantra that during the 2000s we replaced our economic model of the 1990s – built on competitiveness and industry – with one where we sat around hoping to make a quick buck by selling property to one another, I wince. Why? Irelandin the early 2000s had a housing shortage, it had a rapidly increasing population, it had very low unemployment meaning an expanding workforce needing places to work – offices, factories, shops. And of course we were prosperous and needed more shopping, sport and entertainment, transport and hotel facilities. Not to mention much needed schools, hospitals and health care. Most of these developments were property-based. And guess what? We had a construction and development boom. And in 2011 we have one of the best housing stocks in Europe, and there’s certainly no longer a general property shortage. Yes there was an abundance of assholery with poor planning, poor design and in some cases poor construction, but overallIreland has ended up with a terrific property base, a national asset for any country.

And yes we all have tales of farmers who one day were walking around in manure-encrusted overalls and the next, were cruising by in a BMW convertible, yes we can see over-supply around us, yes we come across nightmares like the pyrite-damaged housing in north Dublin and elsewhere  (an example pictured here) and more commonly, shoebox apartments with lousy sound insulation. But most housing is decently constructed, well-insulated and heated and to my eye at least, reasonably-well designed and constructed. And aside from housing, where did we think our rapidly-expanding workforce, particularly in the IT sector, was going to work? Sit out in a field under a umbrella balancing a laptop on one knee and a smartphone on the other?

Of course we famously have a general oversupply of property that is causing problems. But it’s with a sense of sadness that I view any suggestion of demolishing the legacy of assets we have built up over the past decade. That someone has gone to the trouble of sourcing and clearing a site, getting planning permission, designing and constructing modern property; and then to now get a bulldozer and level the site and return it to agricultural use and land-fill the debris, somehow represents a failure of imagination and initiative.

Up to now though, although there has been talk of demolition, including demolition of NAMA property, there has been little actual evidence of bulldozers in action. Today the Irish Independent reports that Wexford County Council is pressing to demolish an estate on its patch – Coill na Giuise in Gorey (pictured here). In order to demolish the estate, it needs permission from Phil Hogan’s Department of the Environment, Community and Local Government which according to the Irish Independent is now reconsidering the Council’s request after an initial rejection. According to the paper “the Department of the Environment last night told the Irish Independent it generally favoured making such housing estates safe by fencing them off. A spokesman added that no ghost estates had been flattened to date, to its knowledge”

Perhaps the spokesman should take a look at what Westmeath County Council has done in the village of Ballynagore (reported by Claire O’Brien in the Mullingar Advertiser at the start of August 2011 with pictures here from irelandafternama.wordpress.com) The council has demolished the houses in the small estate behind the pub in Ballynagore and the site has now been leveled. Although the estate in Ballynagore was smaller than that in Gorey, presumably the same issues apply, particularly exposure to financial liabilities.

There are well-rehearsed problems with many of the new housing estates throughout this country, which still has some 98,000 households on a housing waiting list (though there are suggestions the bookkeeping which tracks the list needs to be audited to remove double-counting and other inaccuracies). Housing resources though, might not be of the right type or in the right location. But shouldn’t these estates, earmarked for demolition, be offered to the market before sending in the bulldozers? Shouldn’t entrepreneurs be able to cast their rulers over schemes to see if they can be developed into productive property; perhaps not with permanent residential housing, but maybe with holiday homes/villages, care facilities or other property-based uses. There may still not be a demand for such estates but shouldn’t councils be putting them to the market before putting them to the blade of a bulldozer? And shouldn’t the Department of the Environment be sufficiently familiar with the issues to know that demolition by councils has already started?

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