Archive for December, 2011

There are three caveats that should accompany any forecast of property prices (1) none of us has a crystal ball and there are so many variables in how property prices change that, at best, you are getting an informed opinion and (2) when forecasting a “market”, you are not forecasting individual transactions, and property is not like milk – there will obviously be regional differences but even on the same street there will be individual properties and buyers and sellers, landlords and tenants, so a general price change might not affect a particular property and (3) to quote Upton Sinclair “it is difficult to get a man to understand something, when his salary depends upon his not understanding it” or to put it another way, you should always bear in mind the motivations of those providing forecasts, and given this is an anonymously-authored blog, that makes assessment difficult.

So the chicken entrails have been examined and the tea-leaves scryed, and here are the results

Although none of us has a crystal ball, we can set out the factors taken into consideration when giving predictions.

(1) Residential Supply.

According to the Preliminary Census Results for 2011, there were 294,202 vacant homes in the State in April 2011. Some of these will be holiday homes and we will find out in early 2012 when the Central Statistics Office publishes its full Census 2011 results what the true level of vacant housing is in the State. We aren’t building very much at all. According to the December 2011 monthly finance bulletin from the Department of Finance, there were 8,692 home completions in the first 10 months of 2011. “Completions” are measured by reference to connection to utilities and it is understood the true level of new construction is less than is suggested by these “completions”. Obsolescence is not routinely measured inIreland but international evidence suggests that 0.5% of property falls into such a state of disrepair each year as to be no longer habitable.Ireland has a relatively new housing stock which would suggest obsolescence is less here. But 0.5% would mean that 10,000 homes became uninhabitable each year.

(2) Residential Demand

Because of household fragmentation, we’re likely to need about 17,000 new homes in 2012 just to accommodate new household formation from the existing population. Ireland still has strong natural population growth – defined as births minus deaths – and based on recent trends there will be 80,000 new souls born in the State this year and 25,000 will shift off the mortal coil, giving a net natural increase of 55,000. For a country for which emigration has been such a painful and significant feature, it is surprising thatIreland does not accurately measure migration. Anecdote and the CSO’s surveys suggest there is net annual outward migration of about 40,000. So you might expect there to be a net population increase of 15,000 – natural increase minus net outward migration – in 2012 and at an average of 2.65 per household, that would indicate demand for 6,000 homes for this increase.

(3) Building costs

I must admit to being amazed at how often you hear “you couldn’t build such-and-such house for that asking price” when the seller might be using peak building costs PLUS peak land prices. And even if you do use current building costs, development land is notoriously difficult to value right now because of the lack of transactions. But what will happen to building costs in 2012? The trend is downwards according to the Society of Chartered Surveyors in Ireland annual rebuilding cost survey; Minister for Jobs, Enterprise and Innovation Richard Bruton has announced changes to the operation of Joint Labour Committees and the thrust of recent announcements has been that rates will be more reflective of economic conditions – in other words, rates will be reduced. Of course building costs don’t just affect new build, extensions/renovations/improvements should also be cheaper. Our building costs appear to still be almost double those in Northern Ireland.

(4) Interest rates

The betting is that ECB interest rates will be reduced in 2012 but since they’re at 1.0% and with a general feeling that the ECB won’t cut below 1%, there may be limited adjustment in Frankfurt. The ECB rates directly influence tracker mortgage rates which account for over half of Ireland’s mortgages (there are approximately 780,000 residential mortgage accounts in Ireland, about 400,000 are trackers, 270,000 standard variable and 110,000 fixed). Just before Christmas, the ECB made €490bn of three-year lending available to EuroZone banks and you might expect this would ease funding costs for banks. Deposit rates in Irelandremain high – 4% for term deposits is still available. Interbank lending remains muted. So overall, don’t expect rates to change very much in 2012.

(5) Credit availability

There were 12,000 new mortgages granted between Oct 2010- Sep 2011. That’s down about 90% from 2006. With banks “deleveraging”, in other words reducing lending to more closely match the level of deposits which continue to decline, and with little political oversight of bank mortgage lending, with loan to value rates remaining low at 50-75% typically though there are 92% LTVs available, don’t expect a wall of cash any time soon.Ireland still deters international investment and our prospects are not helped by the wider EuroZone crisis; whilst Barclays is said to have invested €40m-odd here over the last year, other international banks have absented themselves. NAMA is offering staple finance of up to 70% on certain high quality income-producing assets to pre-qualified purchasers.

(6) Incomes.

What will happen to gross and net household incomes in 2012? On the positive side, we know that some €250m of increments will be paid in the public sector in 2012. And we know from wage figures in 2011, that the CSO has reported some occupations are enjoying increased gross wages, for example, education establishments with more than 250 employees have seen average hourly wages increase from €35.56 in Q4, 2010 to €35.81 in Q3, 2011. Employees in the information and communications sectors appear to have had 10% increases in the past year. But in general according to the CSO, gross wages continue to come under pressure and this supports anecdote of companies seeking cuts to stave off redundancies.

(7) Unemployment/insolvency

According to most forecasts, unemployment is set to remain above 14% in 2012. That equates to about 300,000 unemployed and the Live Register seems set to remain about 450,000. Unemployment and fear of unemployment will deter major purchase decisions. Unemployment is likely to be accompanied by rent assistance and mortgage supplement benefits which are set to be reduced following the Budget 2012 announcements – we expect the detail in the next two weeks of what the new rates and conditions will be. The Government is set to introduce new personal insolvency legislation by March 2012 which is likely to be similar to that available inNorthern IrelandandBritain.

(8) NAMA.

Because NAMA doesn’t report individual transactions, we don’t know how active NAMA has been in the Irish residential market in 2011, and remember that NAMA has appointed receivers to less than 10% of the portfolio of loans under its control. So it will have been the developers themselves that will have been managing most sales inIrelandin 2011. But having said that, the belief on here is that NAMA’s approach towards Irish residential sales in 2011 has been characterised by reluctance. In 2012, NAMA is set to introduce a negative equity mortgage product with which some properties – initially 750 are expected – will be offered. NAMA is understood to control some 10,000 residential properties inIrelandwhich is just 0.5% of the total housing stock and just 10% of the estimated overhang of vacant property. So NAMA mightn’t be as significant as some believe. And frankly, I would be just as interested in the asset management activities of Bank of Scotland (Ireland), ACC, National Irish Bank and Ulster Bank – remember the earlier Allsop Space auctions this year were devoted to BoSI receiverships. NAMA does have a significant portfolio of Irish commercial property and you can expect a reasonable supply to be made available in 2012.

(9) Budget 2012 incentives

It seems to have gone generally unnoticed that Budget 2012 was probably as close to a “land run” as we’re likely to see in current economic times. In terms of commercial property, stamp duty was slashed from 6% to 2%, the commitment to change Upward Only Rent Review terms in commercial leases was formally abandoned, capital gains changes were made to encourage buying and holding commercial property, incentives were offered to first time buyers of residential property and section 23 allowances have also been preserved (despite stiff opposition to those allowances by Labour when in Opposition)

(10) The economy

Consensus estimates of GDP growth in 2012 seem to be hovering at 1% odd but the trend has been downwards as the EuroZone crisis rages out of control. Gross National Product is beginning to look less positive, and remember we have another few austerity budgets in prospect. Construction and retail look set for another poor year as households continue to rein in expenditure and the national capital programme is cut. The public sector is set for headcount cuts in most departments. On the brighter side, computing and communications may buck the trend. Foreign direct investment may be deterred by the wider EuroZone crisis and uncertainty about tax rates prompted byFrance’s insistence on pursuing the harmonisation of tax rates and bases for assessing tax; any change toNorthern Ireland’s corporate tax rate would appear to be some years off.

Residential property – why a 15 to 20% decline?

The Central Bank of Irelandposited a baseline scenario of a 55% decline from peak in residential prices. Northern Ireland has seen a 44% decline. The recent trend has been monthly declines of over 1%. There will be more auctions and from mid 2012, a House Price Database to provide more transparency; in a buyers market, what buyer is going to pay a premium price when they become aware of bottom prices. A step-change in repossession levels is in prospect with new personal insolvency legislation.

Residential rents – why 0 to 5% increase?

Private rents are up 4% in the past 12 months according to the CSO, and indeed they had been flat for most of the previous 12 months. Although rent assistance levels are set to be reduced in coming weeks, landlords will be under pressure with the new property tax, the ending of fixed rate or interest only mortgages. The evidence of the past 12 months is that landlords are winning the tug of war with tenants.

Commercial property – why a 0% to 5% decline?

I would expect a fillip in Q4, 2011 as the reduction in stamp duty and the abandonment of the Upward Only Rent Reviews commitment take hold, because previous quarters’ declines were in part due to the anticipation of changes. That fillip may continue into Q1, 2012 but I would then expect the NAMA’s supply of commercial property, the absence of credit and poor general economic conditions to drag on prices.

Commercial rents – why a 0% to 5% decline?

Rents are down 15% in the past 12 months but with the abandonment of the Upward Only Rent Reviews commitment there is no longer a threat to landlords with pre-February 2010 leases, so I would expect the pace of decline to ease. The wider economy is anaemic and there are general oversupply issues which will tend to drag rental levels down, but not to the same extent as the past 12 months.

[Residential property is based on the CSO series, residential rent on the CSO’s inflation series, commercial property and rent from Jones Lang LaSalle’s Irish commercial property series.]

UPDATE: 9th January, 2012. Property powerhouse and NAMA valuation panel member, CB Richard Ellis has issued some predictions for Irish commercial property in 2012. Overall there is some optimism that there will be stability though CBRE  continues to be downbeat on the prospects for secondary property. CBRE says there will be no speculative development, and that any development will be in cases where the space is pre-let.

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It seems that Michael D and Enda wanted to clear their desks on 24th December so that they’d have a clean run in their holidays over the Christmas-New Year period, and both issued their videos with seasonal greetings last week. From many perspectives though, it is the New Year message from German chancellor, Angela Merkel which will be broadcast this evening which is more relevant to our future; the speech is directed in part at a German audience but undoubtedly is, in parts, directed at others including ourselves. There is no specific policy initiative but general tepid reassurances about the future of the euro but there are suggestions that the economic crisis will remain challenging, and possibly more challenging in the short term than. Here’s an unmodified still from the broadcast – Angela might have her glad rags on and might look a tad tipsy but the message is sober –  Europe needs intensify integration as a solution to economic challenges.

The next Eurogroup meeting is scheduled for 23rd January and the next EU summit is scheduled for 30th January 2012 where the planned focus will be on employment; but with €72bn of Italian debt and interest repayments due by end March 2012 and Italian 10-year bonds finishing yesterday at 7.11%, you might think there would be earlier summits. There is a big Italian bond auction scheduled for Friday 13th January 2012.

This evening on New Year’s Eve, many Germans will sit down and watch an old black-and-white 18-minute British comedy called “Dinner for One” in which an increasingly drunken butler will help the lady of the house celebrate New Year amongst the ghosts of departed friends. It’s a wryly funny reminder of mortality, and its tone is a little too reflective for this time of day, so here’s a bastardisation of the sketch with Angela and Nicolas Sarkozy’s heads superimposed on the characters. The video, produced by German state broadcaster ARD, is funny enough, though sadly it is in German – if an English transcript becomes available, it will be posted. The gist is that on the occasion of the 90th EU summit, the French and Germans remember departed leaders, Greece’s Papandreou and Spain’s Zapatero, there’s a dig at Britain’s Cameron, a gibe at France’s shaky credit rating and in the end Sarkozy helps Merkel up the stairs promising her his “Triple A” – a promise the ratings agencies might deliver in the next couple of months.

UPDATE: 1st January, 2012. The video of the broadcast is now available, here’s the ZDF broadcast via Youtube with some humorous subtitles to lift the tone.

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In December 2011, the Department of Finance issued what it called an “information note on the reporting of deposit trends at Irish banks” where it claimed “customer deposits in the Irish Covered Banks have been stable since the middle of the year and in more recent months have shown modest growth in aggregate terms”. The note goes on to point out that the monthly publication of deposit and loan information should be treated with caution because the figures are (a) unconsolidated and (b) exclude deposits held by overseas subsidiaries of the covered banks eg in the UK.

It remains unclear why the Central Bank of Ireland (CBI) cannot produce clear statistics on deposits in Irish banks each month, particularly if there is a positive news story to be reported; deposits held by “overseas subsidiaries” eg Bank of Ireland’s substantial deposits held in conjunction with the UK’s Post Office are arguably not relevant to the health of the Irish economy.  And with an accountant’s hat on, “unconsolidated” doesn’t mean very much in the context of private sector deposits reported every month. So the Department might claim that “in more recent months [customer deposits] have shown modest growth in aggregate terms” but the figures from the CBI paint a different picture.

This morning, the CBI has released its monthly snapshot of the state of Irish banks focussing on deposits and lending. The data covers the period up to 30th November 2011 and shows that during the month of November 2011, deposits by ordinary households and businesses continued to decline at the so-called “covered” or State-supported banks – essentially the two pillar banks, Bank of Ireland and AIB, and also Permanent TSB. The €408m decline to €101.4bn in private sector deposits in November 2011 is larger than the €255m decline in October, but far less than the average decline of €1.3bn per month over the past year when a total of €15.6bn of private sector deposits “flew” from the covered banks. The decline of €408m compares with a decline of €7bn a year ago in November 2010 when the country entered an IMF programme. I think it’s fair to say that the flight of deposits is continuing to slow. Indeed, the decline in deposits may not have anything to do with confidence in Irish banks but may just reflect the economic reality of there being less spare cash to place on deposit.

Deposits overall in the covered banks fell for the first time in five months by €3.6bn to €262.7bn. The reduction is almost entirely due to a decline in deposits from non-European depositors.

The CBI doesn’t provide an analysis of deposits at the covered banks – about the only analysis it doesn’t provide – but in terms of all banks operating in Ireland including foreign and IFSC banks, Irish household deposits fell by €1.2bn in November compared to modest increases in September and October. Total deposits from all sources in all Irish banks fell €4.8bn in November, mostly as a result of depositors outsideEurope removing deposits. Could this be a reflection of doubts in the immediate future of the EuroZone and rumblings about EZ bank ratings downgrades?

Here is the full set of deposit statistics for the different categories of bank operating inIreland.

First up is the consolidated picture for all banks operating in Ireland including those 450-banks based in the IFSC which do not service the domestic economy.

Next up are the 20 banks which do service the domestic economy and include local subsidiaries of foreign banks like Danske, KBC and Rabobank. There is a list of all banks operating in Ireland here together with a note of the 20 that service the domestic economy.

And lastly the six State-guaranteed or “covered” financial institutions (AIB, Anglo, Bank of Ireland, EBS, Irish Life and Permanent and INBS – Anglo and INBS have now been merged to form the Irish Banking Resolution Corporation, IBRC)

(1) Monetary Financial Institutions (MFIs) refers to credit institutions, as defined in Community Law, money market funds, and other resident financial institutions whose business is to receive deposits and/or close substitutes for deposits from entities other than MFIs, and, for their own account (at least in economic terms), to grant credits and/or to make investments in securities. Since January 2009, credit institutions include Credit Unions as regulated by the Registrar of Credit Unions. Under ESA 95, the Eurosystem (including the Central Bank ofIreland) and other non-euro area national central banks are included in the MFI institutional sector. In the tables presented here, however, central banks are not included in the loans and deposits series with respect to MFI counterparties.

(2) NR Euro are Non-Resident European depositors

(3) NR Row are Non-Resident Rest of World depositors (ie outsideEurope)

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The Nationwide Building Society has this morning published its UK House Price data for December 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 £163,822 (compared with GBP £165,798 in November 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 11.9% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of November 2011 being GBP £163,822 (or €195,554 at GBP 1 = EUR 1.1937) is 16% above the €168,669 implied by applying the CSO November 2011 index to the PTSB/ESRI peak prices in Ireland. The average home in Northern Ireland in Q3, 2011 was worth €163,438, according to theUniversity ofUlster/Bank ofIreland survey (less according to Nationwide – see below).

With the latest release from Nationwide, UK house prices have risen by 0.6% 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 828 (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 20.7% for NAMA to breakeven on a gross basis.

The Nationwide has also published its quarterly series for Q4,2011 this morning which analyses prices in greater detail. It shows that in the past year, London has performed best with a 5.4% increase in prices whilst Northern Ireland is at the bottom of the league with a 8.9% decline. This is reflected in the Q4, 2011 prices which also show Northern Ireland at the bottom of the league with a quarterly decline of 2.6% leaving average prices at GBP 113,614 (€135,621)

The outlook for property in the UK remains uncertain with more downside risk than upside. The UK has adopted Quantitative Easing – printing GBP 295bn of new money in its GBP 1.5tn economy – as a key tactic to inflate itself out of the 2007 financial crisis and its aftermath. Annual inflation in 2011 is likely to be 4.5-5.5% (to the end of November 2011, UK CPI prices for 11 months were up 3.8%), so the only region to see real growth in the past year was London. Chancellor of the Exchequer George Osborne delivered a sober Autumn Statement in November 2011, and although theUK economy will see positive growth it will be in the muted, 0.9% in 2011, 0.7% in 2012, 2.1% in 2013, 2.7% in 2014 and 3% in 2015 and 2016 (longer term projections always tend to be optimistically positive). Remember their deficit is similar toIreland’s though they will end up with debt:GDP at 78% in 2015 compared to our 115%+ (and our debt:GNP will be about 140%). Unemployment at 8%+ will remain high for the short term, there will be little upward pressure on wages and inflation will take another year to come down to the 2-3% target.

Regionally London will have the Olympics in 2012, but that is not likely to affect London prices generally (east London prices might tip up on the back of the prestige). Prime London is said to remain strong but has become less strong in the second half of 2012. There are moves afoot to ease planning laws, so as to allow more housing but these are mired in internecine party politics. Don’t expect a glut of new housing anytime soon.

So all in all, you might expect muted changes to house prices in the UK in 2012.London will probably perform best again, and there are likely to be small declines in some regions. Northern Ireland was the worst performer in 2012 but there appear to be signs that its 44% decline from peak is easing.

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“If past history was all there was to the game, the richest people would be librarians”  Warren Buffett

There will be a review on here of NAMA in 2011, but it will be published over the New Year holiday when we’re likely to be nursing hangovers. This is a look forward into 2012 at one of the world’s biggest property asset management companies.

1. The NAMA advisory board

Following the review of NAMA by ex-HSBC career banker, Michael Geoghegan in October 2011, Minister for Finance Michael Noonan has announced a new quango, a NAMA advisory board which will advise the Minister on NAMA’s activities. The Geoghegan review was published in December 2011 and was described by one departing NAMA board member as a “watershed”. Minister Noonan has promised a Direction pursuant to the NAMA Act to establish the advisory board and its remit; yet three weeks after the announcement, we still await the Direction. And having personally spent some time recently reviewing the European Commission decision approving the NAMA scheme, I really can’t see this board having much of a role interfering in NAMA’s activities. And it is really a sad state of affairs when the Minister needs an advisory board to tell him what the 700-odd staff in the Department of Finance should already be telling him. NAMA might indeed benefit from more asset management and property market experience, but it is hard to see how this advisory board will work, even if it does ever see the light of day.

2. NAMA asset management in Ireland

It’s a common mantra that the Irish property market will pivot on decisions at NAMA. Looking at NAMA’s residential portfolio, that seems an exaggeration. NAMA reportedly has 10,000 residential units under its control. Ireland has a total housing stock of just over 2m completed units, with some 300,000 vacant though some of these will be holiday homes. Consensus estimates are that the country has an overhang of about 100,000 units, that is, empty homes above the long term average. So NAMA’s 10,000 dwellings are not insignificant, but they hardly give NAMA a dominant influence in the Irish residential market either. Having said that, the long-awaited negative equity mortgage product is set to be launched in coming weeks; some housing will be offered on an arms-length basis for social housing; NAMA may dip its toes in auctions and given the 10,000 mortgage transactions in 2011, NAMA has the capacity to have an impact if it offloads a significant proportion of its portfolio in the short term. But as far as I can see, NAMA’s offerings to date which have included John Fleming’s Cork residential property, have not had any significant impact. And I don’t expect 2012 to be much different.

With respect to commercial property, NAMA is said to control €9bn of property by reference to November 2009 valuations, probably €6-7bn in today’s terms – that’s the equivalent of over 1,000 Anglo HQs. That is significant in an Irish market where transactions totalled less than €500m in 2011. NAMA is offering so-called staple finance – offering loans to potential buyers at 4%-odd for up to 70% of the value of the property; again this makes NAMA significant to the commercial property sector. So NAMA does indeed have the ability to shape the commercial market, and I would expect the Agency to be active in disposals in 2012.

With respect to development land, again NAMA has a lot on its books, the €50m 25-acre former Irish Glass Bottle site in Ringsend inDublin might be the jewel in the development land crown but NAMA is understood to control thousands of acres of development land throughout the country. But with little short-term development in prospect will NAMA sell or hold? Probably “hold” would be the guess on here.

3. NAMA asset management in Northern Ireland

If you thought property development and investment was an obsession on this side of the Border, you should really take a look at Northern Ireland. It has a GDP of €40bn compared with the Republic’s €160bn and its economy is dominated by public sector spending; corporate tax harmonisation with the Republic appears to be several years off -if it ever happens at all – so foreign direct investment is not likely to dominate its economy to the same extent as the Republic’s anytime soon. Add to this the historical sectarian dimension, the small local political scene, and you end up with a property market that makes JB Keane’s The Field look normal, un-obsessive and relaxed. NAMA is at pains to stress that it will neither hoard nor engage in fire sales in Northern Ireland, and its aim there (as elsewhere) is to maximise the value of its portfolio. Given Northern Ireland’s residential property is 44% off peak, and recorded a slight increase in Q3, 2011, you might think NAMA might bring residential property to market sooner rather than later. Ditto with commercial property. NAMA has said its Northern Ireland portfolio comprises undeveloped land GBP 2 billion (€2.4 billion), investment property GBP 1 billion (€1.2 billion) and “property and land under development”  GBP 350 million (€400 million); these are nominal values, NAMA is likely to have paid far less for these loans. NAMA will be closely watched to see what it does with development land which has crashed 90%+ from peak values. NAMA also faces competition from a Northern Ireland Executive which is to sell off GBP 540m (€650m) of property over the next four years.

4. NAMA asset management in Britain

“Sell, sell, sell!” has been the NAMA approach to Britainin 2011, particularly in and around London. Not only have prices recovered from NAMA’s valuation date of November 2009 but some commentators suggest that Britain is close to a peak in terms of prime London prices. A recent (innumerate) Financial Times article reported “speaking to investors at Davy’s, the brokerage, inLondon on Friday, Mr McDonagh gave the first detailed breakdown of Nama’sUK loan position. Of a total €10.5bn in the country, €6bn are inLondon and the bulk of the remaining €5.7bn in the surrounding counties.” The betting would be that in light of NAMA’s strategy to date, these assets will be disposed of sooner rather than later.

5. NAMA asset management in rest of world

Understood to total about €2bn in terms of NAMA acquisition values – according to the NAMA CEO in October 2011 “our main assets in continental Europe, by value, are in Germany, France and Portugal and we have smaller pockets of assets, ranging from €10 million to €20 million, in Malta, the Czech Republic and Poland. Collectively, these add up to €120 million so it is not a huge amount”. And beyond Europe NAMA is understood to have assets in theUS (and it seemsCanada if only Ray Grehan’s €1m apartment). I don’t believe NAMA has anything of significance in Brazil,Russia,India or China.Cape Verde has not been mentioned in the context of NAMA, and NAMA’s recent advertisement for private investigators didn’t require expertise in South Africa. With recoveries in prices since November 2009 in theUS (in general), France and Germany, you might expect disposals in these territories if NAMA pursues the same strategy as the UK.

6. NAMA staff

Remember when NAMA was a glint in the late Brian Lenihan’s eye and was to have a staff of no more than 50? And then it rose in increments to 100, then 150 and now stands at 200. The Geoghegan review recommended a doubling to 400, mostly to come from transferring resource presently sitting in banks managing smaller NAMA loans. In Opposition, Enda Kenny wondered how NAMA could manage a €70bn portfolio with so little when compared to other large asset management companies. So don’t expect retrenchment and redundancies at NAMA anytime soon. What about the senior personnel? A common criticism is that it is of a civil service mould and unable to manage the cut-and-thrust of commercial life. The view on here is that we don’t have the information to tell one way or the other yet but it seems that the loan acquisition phase was handled competently. So I would expect Brendan McDonagh to remain in position. And frankly, in terms of chairmen and NAMA’s almost impossibly difficult position between Government initiative and commercial exigency, I think it would have been difficult to find someone better than Frank Daly. Rumour had it that he wasn’t to Minister Noonan’s liking but will the highly pragmatic Minister for Finance risk an unproven pair of hands in such a sensitive position? I wouldn’t be surprised however if NAMA’s most senior property man, John Mulcahy, were to seek greener fields. Within a highly – and probably necessarily – bureaucratic organisation and understood to be on “only” €300-400,000 per annum when the local commercial property market is likely to start stabilising, you’d have to wonder what will keep John at NAMA – it’s unlikely to be public or political adulation!

7. NAMA transparency

NAMA is set to come within the ambit of Freedom of Information legislation in 2012, but the view on here is that this won’t materially change NAMA’s transparency. Remember that Gavin Sheridan at thestory.ie had a success of sorts in September 2011 when he convinced Ireland’s Information Commissioner to classify NAMA as a public authority, and thus to be encompassed by legislation which allows environment-related freedom of information requests. I’m not aware of this success leading to any new information from NAMA. And remember that even when NAMA becomes subject to proper Freedom of Information legislation, it will still be able to hide commercial information, which is probably what we need most to see to be convinced that NAMA is meeting its primary objective of maximising returns from its portfolio. NAMA must offer up its staff for Oireachtas committee hearings when asked, so the public accounts and finance committees might be able to extract better information on how NAMA operates; the problem is that NAMA’s chairman is so skilled in the arts of Irish public discourse that he can occlude practically anything; NAMA’s CEO is mastering the art and it will be increasingly challenging to extract meaningful information. There is a suggestion the Comptroller and Auditor General will be conducting a “commercial audit” to ensure NAMA is disposing of property in the best manner, but I wouldn’t hold my breath. A few well-placed Parliamentary Questions might extract something of value. But all-in-all, I would expect NAMA in 2012 to remain a secretive organisation.

8. Profit and Loss

NAMA reported a full-year loss of €1.1bn in 2010. The betting on here is that it will make a loss in 2011 but it will probably be less than 2010 after Minister for Finance, Michael Noonan saved NAMA’s ass in Budget 2012 by drawing a line under the proposal to interfere in Upward Only Rent Review leases and by lowering commercial property stamp duty from 6% to 2%, and preserving existing tax incentives and extending others. So the expectation on here is that IPD and Jones Lang LaSalle will both report reversals of the substantial declines in Q1-Q3 of 2011 when Q4 is reported in January 2012. But how will NAMA do in 2012? The betting on here is that it will break-even, with impairments following declines in Irish residential property offset by an operating profit and a profit on sales in theUK, and the Irish commercial property stabilising.

9. Scandal

When you consider the colossal size of the NAMA project, its dependence on third party service providers and its large volume of individual transactions, it is nothing short of miraculous that there hasn’t been any scandal of note. Poor old John Mulcahy was spliced with yachts and developer cronyism in 2010 but that was probably unfair; in 2011, solicitor Brian O’Donnell who is on NAMA’s legal panel – the work for which has now been completed – ran into money difficulties with Bank of Ireland but NAMA was quick to say his services had not been used by the Agency, and frankly even if they had it wouldn’t have been critical. Senator Mark Daly crops up every so often with allegations against NAMA, but when challenged never seems able to provide any detail. An Taoiseach Enda Kenny committed a stupid gaffe in June, when he claimed shenanigans in NAMA’s disposal of assets, particularly stupid as British and Northern Irish members of parliament were listening, but he withdrew the criticism and pronounced himself happy with NAMA a couple of days later. Whilst it remains a concern on here that NAMA always seems to be achieving the lower end of sales prices in theUK, nothing concrete has yet emerged to challenge the notion that NAMA is doing a decent job. During the year, there were a couple of suggestions of excessive entertainment at NAMA for new staff members. Indeed in December 2011, a private message was received on here suggesting NAMA was having a lavish Christmas party at a 5-star hotel but when asked, NAMA confirmed that its staff had no company-funded party this year at all. So what about 2012? Expect some claims about poor performance at some receivers/sales agents. If NAMA has 200 staff on its books and effectively employs another 400 at the banks, then it seems almost inevitable that one of them will cock-up at some point.

10. The unknown unknowns

Remember that it was Fine Gael policy at the start of 2012 to farm-out NAMA’s asset management role to 3-4 asset management companies; mind you, Fine Gael had a number of policies that never left the drawing board. And for all the swagger from domestic politicians, remember NAMA is a scheme which required European Commission approval, and any significant change to its remit or operations is likely to entail additional consent at European level.  There was hysterical reporting that NAMA might be sold off, following leaking of the Geoghegan review but the only reference in the actual review was to the fact that as NAMA approaches the end of its 10-year lifespan, there may be a need to sell off whatever rump remains. If there is no euro at the end of 2012, what will that mean for NAMA’s portfolio? It would depend on how the euro broke up, what became of NAMA bonds, how loans to developers denominated in euros would be converted – but the fact that NAMA was sitting on real property assets might act as a brake on losses. On the other hand, if the ECB floods the EuroZone with freshly-printed euros, might that act to support property prices through inflation? Will the relationship between NAMA and its developers change into a more co-operative and less confrontational one? Probably not by design but nature might take its course as both sides recognise the realities.

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You would have thought this would be a quiet week for news reporting at NAMA, but it seems the Irish Independent has discovered a few nuggets which seem to cast NAMA in an uncharacteristically benign light. But stick the nuggets under a microscope and they start to look just a leeettle suspicious.

Yesterday the Independent reported that NAMA had “tipped-off” the Revenue Commissioners (Irish tax authorities) about “possible tax evasion” by “dozens” of the 850-odd developers whose loans NAMA is managing. Dig a little deeper and you will see that NAMA was doing no more than its duty in notifying suspicious transactions or assets to the Revenue; some or indeed many, of these suspicions might previously have been notified to the Revenue by the original banks – NAMA is not saying and the Independent doesn’t include such detail.

Of course, if you were of a cynical persuasion you might think that NAMA was trying to resurrect a weapon in its original arsenal – the sharing of information by the Revenue with NAMA. The EU “decommissioned” that particular weapon because if the Revenue was to share information with NAMA, that would place NAMA in a better position to recover debts than other banks and institutions in the State – credit unions, guaranteed banks like AIB and non-guaranteed banks like Ulster Bank – and the EU was keen to minimise NAMA’s effect on competition in Ireland.

And today, it is reported in the Independent that  NAMA “has reversed or is close to overturning” more than €160m of asset transfers by NAMA developers. “Wowaweewa” as Borat would say, very nice! Except in his pre-Christmas (2010, that is, 12 months ago) update NAMA chairman Frank Daly said that “as a result of the Agency’s insistence, a number of borrowers whose loans have been acquired by NAMA have reversed or are in the process of reversing transfers of over €130 million worth of assets which they had previously sought to transfer beyond the reach of NAMA or the relevant Banks. These assets will now be used to support the execution of the agreed business plans.” So in the past 12 months, despite completing the acquisition of billions of euros of loans and examining hundreds of business plans, NAMA has managed to “reverse” or “get close to reversing” a measly additional €30m of asset transfers.

But there’s more: NAMA is reported to have secured €221m (a very precise figure I must say!) of additional security on its loans to developers. This additional security according to the Independent “was largely achieved from the agency’s biggest clients, and involved cases where borrowers were compelled to grant NAMA charges over unencumbered assets in exchange for the agency’s support.”. Again very impressive. But hang on a second – “in exchange for the agency’s support” – is this the support which involves the agency advancing an additional €950m to the developers? So – to get this straight – NAMA may have advanced €950m to developers who offered up €221m of assets as additional security? Surely that’s not right.

And lastly the Independent today reports that “a spokesman for the toxic loans agency confirmed the figures’ accuracy and said the combined €380m [€160 reversal of asset transfers and €221m additional security] benefit to NAMA would cover “most” of NAMA’s €500m running costs over its ten-year lifetime.” Now hang there a second! €500m running costs over its ten-year lifetime? Whatever happened to the €1.6bn operating costs that NAMA referred to in its official business plan in June 2010? Here was what NAMA told us last year about its €216m projected costs in 2011 (that is, the 12 months of 2011).

The implication from today’s reporting is that NAMA’s Herculean efforts will to a large extent offset its cost. Hmmm. By the way the €500m referred to in today’s report  is likely to represent the staffing costs at NAMA for its 10 years life (particularly if it doubles in size to a staff of 400, as seems likely), though that’s not stated in the Independent.

And to think that most of us were going to get back to the gym and the spinning classes next week!

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Yes some of us might be braving the after-Christmas sales, or venturing out for brisk walks and fresh air, but the rest of us are struggling with over-indulgence and the remote control. So here’s a review of 2011 in pictures which hopefully won’t distract too much from holiday relaxation.

First up, during the year the blog has received the very kind assistance of Japlandic.com in illustrating some of the year’s events (Japlandic.com, with examples of artwork available here). Here’s a reminder of those images together with some words, in inverted commas below, from Japlandic describing the approach taken in producing those images.

July 2011: IBRC formed through the merger of zombified Anglo Irish Bank and Irish Nationwide Building Society.

“The IBRC brief immediately inspired thoughts of Dali’s “Christ of St. John of the Cross” (http://en.wikipedia.org/wiki/Christ_of_Saint_John_of_the_Cross). Its feeling of sacrifice, surrealism and vast emptiness were apt. Removing, the John figure, superimposing the image of the country on the cross and adjusting the aspect wasn’t effective. So, an homage to the original was ditched and the alternative was a simple cross on a black background – maintaining the imagery of sacrifice surrealism and emptiness whilst also imparting the message “You’ve nailed the country to the cross, you Gobshites!””

October 2011: After eight years at the helm of the European Central Bank, Jean-Claude Trichet, who in recent times had become a bugbear for Ireland, retired and was replaced by Italian, Mario Draghi.

“The Trichet Retirement brief inspired thoughts of Trichet missing the wood for the trees – worrying about inflation whilst the continent sank into depression. Hence the superimposing of his image seeking to measure the “price” of something whilst the “value” of his efforts are revealed in the background. The background image is an iconic image of a bombed out Brandenburg Gate – also echoing the “values” supposedly inspiring the German and French approaches to the Euro and the whole European project – but the imagery also seeks to remind people how foolish politicians and technocrats can be and what the results can be when they are blinded by ideology.”

October 2011: Despite promising in front of former USpresident Bill Clinton to implement the Keane Report proposals within two weeks, An Taoiseach Enda Kenny was ultimately left red-faced at a report which did nothing in the short term to address the mortgage arrears crisis. It is to be hoped that any future commissions, expert groups etc have clear terms of reference, suitable membership, timescales and allocated support with both manpower and finance.

“The Keane Report brief needed to be representative of a report into which the highest effort and thought went into to ensure it looked spiffing as it collected dust on the shelves.”

December 2011: It fell to Minister of State at the Department of Finance, Brian Hayes to defend Budget 2012 on the Vincent Browne show on 6th December 2011. When asked about the unpalatable adjustments, the junior minister turned the question back at his challengers.

“The Brian Hayes Challenge brief was very straight forward – unfortunately poor Brian is not that easily recognized –  so the initial effort at showing him in his patriotic pomp (http://i828.photobucket.com/albums/zz209/What_Goes_Up_/Japlandic/DoYourDutyTweaked.jpg) had to be dialed back. The final version has less of theAmericanaand more of the Gombeen.”

NAMA before Oireachtas committees

January 2011: Even if NAMA becomes subject to Freedom of Information in 2012, it’s unlikely to reveal very much about the Agency which will still be able to use “commercial confidentiality” as a defence when rejecting requests. So for the time being, the best means of getting answers from the Agency is through Oireachtas committees. NAMA appeared in January, September and October 2011 – all created headlines.


Paddy McKillen and Maybourne

February 2011: Property investor Paddy McKillen was partly successful with his appeal to Ireland’s Supreme Court against the High Court’s decision to approve NAMA’s acquisition of his loans. September 2011: NAMA scores a bulls-eye when it sells loans it controls in the Maybourne Hotel group to David and Frederick Barclay. The sales tag of €800m meant NAMA recouped the original face value of the loans.

Grosvenor Square

February 2011: NAMA sees the refinancing of €300m loans secured on 20 Grosvenor Squarein London– exclusively reported on here. It took another few months for the deal to complete but it showed there’s plenty of life in the primeLondon residential market.


February 2011: a landmark sale by a Treasury Holdings company under NAMA’s auspices – exclusively reported on here. A €100m price tag was not at all shabby considering the national challenges.

Enda in Europe

June 2011: He didn’t get off to the best start in March 2011, when he was accused of upsetting our European partners, he has often looked befuddled as he tried to explain the Irish negotiating position but the general consensus seems to be that An Taoiseach Enda Kenny tried very hard to build brides at European summits where he had few cards to play. As to his strategy and tactics, there is much debate..

NAMA reports €1bn loss

July 2011: NAMA unveils its annual report for 2010, its first full year of operation. Given that the Agency started with clean sheet when it was created in December 2009 and that it had the theoretical ability to change its valuation date, it was indeed spectacular that it published such a huge loss. Minister Noonan’s Budget 2012 announcements may prevent such a large loss in 2011, but the Agency is still some way from generating a profit.

Ghost Estate demolition

September 2011: according to the most recent survey by the Department of the Environment, Community and Local Government we now have “only” 2,066 ghost estates in the country . In August/September, Westmeath County Council became the first council in the country to send in the bulldozers.

One Warrington Place

September 2011: NAMA’s first staple finance offering – that’s where the Agency lends up to 70% of the purchase price to the purchaser – exclusively reported on here. The architecturally interesting office building which houses Bord Gais is located in south Dublin Docklands.Suggestions that it sold before Christmas to Prudential for €28.4m.

Occupy Dame Street

October 2011: It was 8th October 2011 when the protesters first gathered in front of the Central Bank ofIreland onDame Street in centralDublin. They’re still there. There have been other Occupy protests inCork andGalway, for example. Having met the protesters onDame Street and outside The Four Courts, I’d have to say these are well-meaning people, but it seems the protest is a drop in the ocean to turn the tide.

The Ballyhea/Charleville bondholder protesters

November 2011: In April, May, June 2011, bonds were being repaid from the zombified remains of Anglo and Irish Nationwide Building Society without hardly a whisper in the mainstream media. In March 2011, the community of Ballyhea in county Cork began a weekly march to protest at the repayment of these bonds from the State’s coffers – 28 weeks later, a walking/running and cycling odyssey to the Dail to hand in a petition, a fast and the attention of domestic and international media (not to mention some guest marchers, Declan Ganley and the mammy, and Dr Constantin Gurdgiev and family). On 2nd November, 2011 when the €730m Anglo unsecured unguaranteed senior bond was repaid, the payment was front page news, there were walkouts in the Dail where the subject dominated Leaders’ Questions. The weekly protest is now organised with neighbouring Charleville. Diarmuid O’Flynn has been a driving force for the protest throughout the year organising marches, Facebook campaigns and bondwatch Ireland which sets out all the bonds payable at Irish banks.

Korky’s Banners

December 2011: The issue of Upward Only Rent Review clauses in pre-February 2010 commercial leases became very vexed this year. Both Labour and Fine Gael gave commitments to allow tenants with such leases to have reviews to allow market rents instead of rents which might have been set at the peak of the Celtic Tiger. In December 2011, in a codicil to Budget 2012, Minister for Finance Michael Noonan announced there would be no changes, and the election commitment was thus abandoned. The angry response from the retail trade, in particular, was to be expected.

Anglo HQ

December 2011: With a suggested price tag of only €5m, this former Liam Carroll project is hardly the most valuable jewel in NAMA’s crown but because it stands as a carbuncle on an otherwise redeveloped north Dublin Docklands quayside, it has come to symbolise the Celtic Tiger crash. It seems as if it will be sold to the Central Bank ofIrelandand be completed to house the Central Bank’s staff in one site.

Battersea Power Station

December 2011: It’s almost as if the 38-acre site on the south bank of the Thames in Londonis cursed. Defunct as a power station for three decades, it received approval for a redevelopment at the start of 2011. But in December, NAMA and Lloyds put the companies controlling the site into administration. It’s now back to step one as the administrators seek a new buyer.

Coalition talks

March 2011: Okay it was hardly the most exciting episode of the year, but the post-election talks between Labour and Fine Gael to form a new government provided some light relief on here.

A happy St Stephen’s Day to you all.

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The empty place setting

The Poles – those lads who helped build this country in the 2000s, whose home country’s economy will grow by 4% this year,  where debt:GDP is 57%, where Dell relocated to, whose train facilities are like something from the 21st century, which is hosting Euro 2012; but enough, it’s Christmas – have a rich treasure of traditions. Some are superstitions like sitting down and standing up if you are going on a trip and have had to return to the house to get something you’d forgotten; or if you meet a “one for sorrow, two for joy” magpie, you must bow and ask the magpie how it is today. They give sweets as a gift if you were going on a trip, they throw water at each other at Easter. They celebrate a “name day” in addition to your official birthday. So if your name is “Justyna” the 26th September is your name day, and you get gifts that day in addition to your “official” birthday.

Today is Christmas Eve and for the Poles, it is the second biggest day of the year, only surpassed by New Year. And today is rich in tradition: there is fasting – you can have a cup of tea, but that’s your lot! – until the sun goes down; but then there is a fabulous meal with a standard 11-dishes. Now some of the dishes mightn’t be too palatable to our tastes like the jellied fish but then again our sausages and black pudding aren’t very popular with Poles either. When setting the table for this evening’s feast, the Poles will set an extra place at the table.

The meaning of the extra setting might be different in different Polish households: in some, it’s for the ghosts of the dead, particularly the recently dead; in others, it’s for a guest that might, or might not, turn up. But generally it’s for those that can’t be with us this year, for whatever reason.

In Ireland today, and particularly tomorrow, there will many missing; sons, daughters and in some cases whole families who have had to emigrate to find work and an income to sustain themselves.

But having reflected on those missing this year, it is to be hoped that in 2012 this country gets back on its feet and creates the conditions needed to sustain the nation. Thankfully politicians are no longer talking of emigration as a positive feature which releases the pressure on unemployment. And forced emigration is beginning to be seen for what it is – a fundamental failure in leadership to provide.

We live in God’s own country, with a climate which is almost by design, an average of a couple of degrees below what is comfortable to the human body; so we’re always provoked into consciousness; a country where the rain gives us an ever-changing art-gallery of skies. And where the communities of people make this a most special place. I hope there are less empty places at the table next year.

Thank you

It’s hard to know the appropriate time to acknowledge those that bring this blog to life, Christmas or New Year. But given recent comments and messages on Twitter, perhaps now is a good time to say “thank you” to the commenters that inform, educate and entertain. Whether it’s the new Wild Geese (or should that be “Wild Tigers”?) or those at home making sense of the mess, all have enriched the debate and I hope fostered understanding of what is a traumatic national experience. Thanks also to those who have sent private messages to the blog – using the contact form at the bottom of the About tab – messages which have generated stories, insights and exclusives. Thanks to Japlandic for providing images (which will be featured in a review next week).

And whilst not strictly gratitude and recognising this has something of the Skibbereen Eagle about it, it seems the decent thing to acknowledge the cast that shapes the reality reported on here – at NAMA, the owlish Brendan, the hawkish Frank and the aquiline (see below) John and beyond, the redoubtable Mr Justice Peter, the sometimes-bohemian Sammy, the underrated Vincent, the Jack Russell Professor Patrick and of course Noddy and Big Ears.


Christmas arrangements.

For the last couple of years, December has seen a hotbed of activity in terms of NAMA and the banks. Remember the clandestine court hearings last year, to which journalists had to hoof through the snow in Dublin at top speed following tip-offs, only to be turned away by the judge? And the previous year, NAMA was created on 22nd December. This year, we’re still waiting for the Department of Finance to publish its review of the €3.7bn error in the national debt, the Anglo HQ in north Dublin Docklands might change hands and speaking of Anglo, the courts will remain open in Kiev next week – they celebrate Christmas according to the Julian calendar on 7th January – so we might find out the identity of those behind Lyndhurst Development Trading SA – the company which emerged on the scene this week with a massive claim against a Quinn shopping centre – if Anglo can successfully get access to the diplomatic back-channels opened up after 9/11.

So there may be a few news stories over the next few days, but in the main there will be reviews of 2011 and a look forward to 2012. Commenting will remain open as normal, but please bear in mind the commenting guidelines, particularly if you are a new commenter.

I wish you all a safe, peaceful and happy Christmas. Nollaig shona dhuit  (and for good measure, Wesolych Swiat Bozego Narodzenia)

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(The new properties added in November 2011, click to enlarge)

NAMA has today published its now regular monthly list of properties subjected to foreclosure action. The full list is here, the list of new properties added is here, and you will find previous editions of the monthly list which was first launched in July 2011, here.

You should read the full list of NAMA’s terms for accessing the lists here. But in summary, this is what you’re looking at:

(1) Real estate property subject to loans in NAMA to which receivers have been appointed. The receiver’s website is shown against each property.

(2) This is all the real estate foreclosed sorted by country, and then region.

(3) Not all of the property may be for sale.

(4) Contact the receiver with enquiries or expressions of interest in the first instance. Only pester NAMA if you’re not getting any response from the receiver and make allowances that receivers will be busy with queries, particularly after a new release of foreclosed property.

(5) If you think there are mistakes on the list, contact NAMA.

What’s new?

Tom McFeeley’s apartment block in Stratford (east London), properties of Cork developers to whom NAMA appointed receivers in October 2011, property in Furbo in County Galway. After the avalanche of Northern Ireland shown on the October 2011 list, there is none in November 2011.

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In terms of top prize for political incompetence in 2011, you’d be hard-pressed to find a better example than the farce that has surrounded the issue of Upward Only Rent Reviews (UORR) in commercial leases; remember both Labour and Fine Gael had promised to abolish UORR terms in existing commercial leases so that tenants would no longer have to pay rents which were set in better economic times, and particularly at the peak of the Celtic Tiger when commercial rents were twice today’s levels.

The commitment stymied the commercial property market where transactions dried up as neither buyer nor seller knew what rental terms would apply after the Government’s intervention. And Minister for Justice, Equality and Defence Alan Shatter issued frequent updates where he re-affirmed the commitment, and for many months the stock response to requests for updates from the justice ministry was that a bill would be brought before the Oireachtas before Christmas 2011. And a framework including detailed legislative provisions went to the Attorney General in October 2011.

Then on 6th December, 2011 it was Minister for Finance, Michael Noonan who announced the Government was abandoning the proposed changes. Minister Shatter skulked around the Oireachtas avoiding the justified criticism of what looks like legal amateurism. So UORRs in pre-February 2010 commercial leases look set to remain, though there is a Supreme Court case, Kidney v Charlton, which is set to be heard on 27th January 2012 in which the constitutionality of UORR provisions in older leases is set to be tested.

Commercial tenants are not happy; Retail Excellence Ireland issued a particularly bad-tempered criticism of the Government’s decision. And today, a new banner has been unveiled atop Korkys shoe shop on Dublin’s Grafton Street. The new banner (old version can be seen here) is self-explanatory and givenGrafton Street is only a couple of blocks from the Dail, it is likely to be seen by many politicians including those who made the ill-fated commitment earlier this year.

UPDATE: 22nd December, 2011. Tenants on Grafton Street have produced a video to accompany the launch of the new banner.


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