Archive for September 28th, 2011

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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