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Archive for November 21st, 2011

BBC Northern Ireland will be screening a special on NAMA tomorrow, Tuesday evening at 10:35pm on BBC One (Northern Ireland only) – programme details from the BBC are here. There will be a repeat on BBC Two (Northern Ireland) on Wednesday evening at 11.20pm. It’s part of the Spotlight series which has a history of exposing untoward behaviour – who will forget the programme on the wife of the First Minister, Peter Robinson two years ago.

Tomorrow’s 30-minute programme will be presented by the BBC Northern Ireland Economics Editor, Jim Fitzpatrick and will include an interview with the NAMA chairman Frank Daly which will be the first broadcast feature interview with NAMA on Northern Irish matters. There will also be a contribution from the Northern Ireland Minister of Finance and Personnel, Sammy Wilson who in August 2011 called for a “full” Northern Irish representative on the NAMA board; he is also impatient at perceived delays at NAMA in progressing its asset management phase. Of course it was last month that NAMA  lost its first director, Peter Stewart who was widely seen as the Northern Irish representative on the NAMA board. NAMA has a sensitive role in the small Northern Irish economy where there are concerns at the consequences of fire sales and the hoarding of property.

Tomorrow’s programme is also expected to deal with Northern Ireland’s property crash which is amongst the world’s worst and certainly appears to have been worse than the Republic’s. And there will be a visit to a so-called “NAMAtown” in County Down where a cluster of property is understood to be under the control of the Agency.

The programme will be of interest across Ireland – Sammy Wilson has more freedom to express his views than Government ministers on this side of the Border, and we should get a clearer idea of what NAMA will mean down here.

There will be a review of the programme here later in the week.

UPDATE: 28th November 2011. Having at last managed to watch the Spotlight special on NAMA , this is a quick review. The programme itself was as much about the collapse in property prices in Northern Ireland, as about the interference of the “Dublin government’s” NAMA in the small Northern Ireland economy. Four instances were shown to evidence the price declines, a 1-acre site which at the peak in 2006/7 sold for GBP 1.7m but was bought in September 2011 at auction for GBP 94,000; an upmarket 5-bedroom house “Molesworth” in Dromore, County Down which has seen its asking price reduced from GBP 950,000 to less than GBP 500,00  and some NAMA mansions formerly owned by Dromore developer, Sam Thompson of Thompson Developments – one reduced from GBP 1.2m to “less than a third of that” and another originally for sale at GBP 1.35m but now asking GBP 595,000. Yes indeed, residential property prices in Northern Ireland have declined by as much, and probably more, than residential property in the Republic. Michael Moore of Queens University opined that prices may not return to their 2007 peaks in “this lifetime”

 

Elsewhere negative equity was on display in a case study of a man who now owed GBP 60,000 on his home on top of the existing value of the home, and he had lost his job and now faced losing his home in a couple of months and possibly being pursued for the GBP 60,000 shortfall. The programme claimed that 44,000 households in Northern Ireland (out of a total of  700,000 households approximately) are in negative equity – that compares with 200-400,000 out of 1.7m in the Republic.

 

And so to NAMA. NAMA chairman Frank Daly gave a brief interview in which he articulated the well-rehearsed line about NAMA not forcing hoarding or fire sales in Northern Ireland and would undertake to engage constructively with local developers and businesses. Specifically Frank rejected a suggestion that NAMA does not engage with developers – he was responding to criticism that NAMA had put the kibosh on a bid by a new business in Dromore to acquire a NAMA property which was part of an overall site.

 

The Northern Ireland Minister of Finance and Personnel, the sometimes bohemian Sammy Wilson, had two main items on his agenda, a “full representative” on the NAMA board – he’s been calling for this since August 2011 which was two months before “full representative” Peter Stewart resigned from the NAMA board and Peter Stewart was seen to be representing Northern Ireland’s interests ; secondly he wanted to ensure that NAMA did not undermine the local economy in Northern Ireland where property was oftentimes acquired as an ancillary investment by established businesses, businesses which are now threatened by NAMA should NAMA call in the loans.

 

Interestingly “debt negotiator” Conor Devine made a contribution and there were forecasts of widespread foreclosure activity in the “new year”. Conor raised the issue of family businesses established for decades facing an uncertain future after a foray into property and the subsequent collapse in values.

 

Overall it was a light low-budget programme which portrayed the extent of the residential property collapse (commercial was largely ignored) and which gave a broad overview of NAMA and brought Sammy Wilson and Frank Daly together in one programme to explore the issues facing the property collapse in the small Northern Ireland economy. Th theme of the needs of the Republi’s taxpayer versus those of our neighbours in the North inevitably arose throughout.There wasn’t much that was new but it brought people up to speed with what NAMA was doing.

 

The programme will be available on the BBC iPlayer until tomorrow here. If you have a computer based outside the UK you might need convince the BBC that you have a UK computer and you might use a proxy masking service like ExpatShield.

 

 

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This morning has seen the publication of the eighth CSO residential property price indices for Ireland. The inaugural series was published by the CSO on 13th May 2011 and covered the period from January 2005 to March 2011. This morning’s release covers the month of October 2011. Here’s the summary showing the indices at their peak (various months in 2007 depending on type of property and location), the NAMA valuation date (November 2009), a year ago (October 2010), December 2010 (end of last year, start of this year), last months (September 2011) and October 2011.

Now that the Permanent TSB/ESRI has abandoned its quarterly house price index, the CSO’s isIreland’s premier index for mortgage-based transactions. It analyses mortgage transactions at eight financial institutions : Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank ofIrelandgroup), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The index is hedonic in the sense it firstly groups transactions on a like-for-like basis (location, property type, floor area, number of bedrooms, new or old and first-time buyer or not) and then assigns weightings to each group dependent on their value to the total value of all transactions. The index is an average of three-month rolling transactions.

As for the key questions:

How much does property now cost in Ireland? The CSO deliberately doesn’t produce average prices. The former PTSB/ESRI index did, and claimed the average price of a property nationally hit the peak in February 2007 at €313,998, in Dublin in April 2007 at €431,016 and outside Dublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI figures as sound and comparable to the CSO series, then these would be the average prices today:

Nationally, €171,315 (peak €313,998 Feb 2007)

In Dublin, €202,209 (peak €431,016 Apr 2007)

Outside Dublin, €156,673 (peak €267,987 Jan 2007)

I don’t think the CSO would be happy with this approach but it seems to me that the PTSB/ESRI series as represented by its historical indices closely correlates with the performance of the CSO indices.

What’s surprising about the latest release? The rate of decline in property prices shows no sign of easing. Dublin price declines continue to outstrip those in the rest of the country – Dublin apartments are down over 60% from peak, Dublin houses over 50% yet non-Dublin property is down just over 40%.

Are prices still falling? Yes, and the 2.2% month decline nationally in October 2011 is greater than the 1.5% decline in September 2011 and the 1.6% decline in August 2011.

How far off the peak are we? Nationally 45.4%% (46% in real terms as inflation has hardly changed since 2007). Interestingly, as revealed here, Northern Ireland is some 44% from peak in nominal terms and 52% off peak in real terms. Are forbearance by mortgage lenders, a draconian bankruptcy regime and NAMA’s (in)actions distorting the market? Or are cash transactions which are not captured by the CSO index so significant today that if they were captured, the decline in the Republic would be even greater?

How much further will prices drop? Indeed, will prices continue to drop at all? Who knows, I would say the general consensus is that prices will continue to drop. This is what I believe to be a comprehensive list of forecasts and projections for Irish residential property [house price projections in Ireland are contentious for obvious reasons and the following is understood to be a comprehensive list of projections but please drop me a line if you think there are any omissions].

What does this morning’s news mean for NAMA? The CSO index is used to calculate the NWL Index shown at the top of this page which aims to provide a composite reflection of price movements in NAMA’s key markets since 30th November 2009, the NAMA valuation date. Residential prices are now down 24.2% from November, 2009.  The latest results from the CSO bring the index to 831 (20.4%) meaning that NAMA will need see a blended average increase of 20.4% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index. Ireland does not yet have a publicly available register of actual sale prices, but legislation to give effect to such a register is presently before the Oireachtas – read the latest on the House Price Register here. There are three other residential price surveys, based on advertised asking prices or agent valuations – for the latest see here. Lastly the Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end and not hedonically analysed.

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Last week Britain’s Private Eye magazine (page 9 of the current issue 1301, not available online) reported on the curious case of the proposed new power station at Thorpe Marsh near Doncaster in northern England. The 1,500 megawatt natural gas-powered station has been given the green light by David Cameron’s government. Nothing odd about this so far, though the development cost of the station is eye-watering – GBP 1bn (€1.2bn) to build and the operator also needs to have in place a contract with a natural-gas supplier to provide about GBP 0.5bn (€0.6bn) of gas a year to the station so that it can generate electricity. The developer would then have a contract to supply electricity to the UK’s national grid and would generate income and profit over a couple of decades which would pay for the initial investment.

What is odd is the development has been awarded to a company, Thorpe Marsh Power Limited, which doesn’t have assets of any great account. However the Eye reports that this company is fronted by a certain Peter Wilcox who has previously been associated with power companies whose registered address was 52/54 Gracechurch Street in the City of London. Which just happens to be the registered address of companies in the ESB international group.

Why the secrecy? The Eye suggests that it is for PR reasons, that the station might never be built and hundreds of much-needed local jobs might never materialise and the company behind the development might not want to be associated with undelivered promises.

But could there be a more nationalistic reason? Might it be that the ESB, the Irish state electricity generation and distribution company wouldn’t want to be seen to be investing nearly €2bn in another jurisdiction whilst ignoring the need for less profitable infrastructure improvement in the auld sod? At a time when the national capital investment programme has been severely trimmed in the ongoing austerity, overseen by our bailout friends, might the ESB be a little embarrassed that it is set to invest €2bn overseas?

The ESB press office was asked for a comment on the Private Eye story and was specifically asked if it is indeed behind the proposed development at Thorpe Marsh in England. There has not been any comment forthcoming yet.

UPDATE: 22nd November, 2o11. The ESB press office in Dublin has denied that the ESB is involved now or in the past with this development. A case of excess speculation by the Eye on this occasion it seems.

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