Archive for December 7th, 2011

The operation of NAMA is seemingly getting less transparent under this new Government. Yes, Fine Gael promised a register of all loans that were in default in NAMA but the sensible view was that such a register would never see the light of day because of contractual, data protection and confidentiality issues. Michael Noonan, the Minister for Finance, and minister with greatest influence over NAMA’s operations has not once mentioned the register since being elected in February 2011. But it seems the operation of NAMA is not just NOT becoming more transparent, it is actually going backwards and becoming even more secretive.

Take the review of NAMA by former HSBC banker, Michael Geoghegan (profile and picture here) which was undertaken at the start of October 2011. We don’t even know who initiated the review – Minister Noonan claims he did, NAMA claims it did, departed NAMA board member Peter Stewart intimated it was his idea. Who knows? But regardless, we don’t know what the review concluded – when asked about the review at the NAMA appearance before the Oireachtas Committee of Public Accounts in October 2011, the NAMA chairman said the review was presented to the board orally and nothing was written down.

This afternoon RTE’s David Murphy reports that the Geoghegan review “raised the possibility” of the Government selling NAMA – not just the assets in NAMA, but NAMA itself! What RTE describes as the Geoghegan “report” is also said to recommend NAMA taking more direct control of more developers loans – remember that NAMA presently manages about 180 developers directly, the remaining 700-odd are managed at the original banks under the watchful eye of NAMA’s “master loan service provider” Capita. The “report” is said to recommend NAMA doubles in size from 200 to 400 employees to manage the extra workload.

If you were one of the TDs or Senators on the public accounts committee, you might feel a little offended that the review contained a suggestion that NAMA be sold or doubled in size, and yet none of this was forthcoming when NAMA was quizzed on the Geoghegan review in October.

So who would buy NAMA? Remember that NAMA is now busy selling the “low-hanging fruit” so it will be left with the more difficult assets as time moves on. NAMA has huge expertise in loan acquisition, but that phase has ended. In Ireland Certus is asset-managing Bank of Scotland (Ireland) legacy loans; Ulster, ACC, National Irish Bank manage their own bad loans but would they be interested in selling these loans to NAMA? Further afield, there is talk of other European countries setting up their own equivalent of NAMA, for example Spain. But would NAMA’s expertise translate to the Spanish market? So beyond NAMA’s assets, what would a buyer be getting? An expensive lease on Treasury Building in Dublin 2? An organisation that has been criticised for being too public-service, process-focussed? Difficult to say, but the man who reportedly introduced the possibility of NAMA being sold, Michael Geoghegan has been announced as the new chair of the NAMA advisory board.

UPDATE: 8th December, 2011. It is understood that the Geoghegan Report was originally agreed for oral presentation to NAMA’s board and to Minister for Finance, Michael Noonan and was subsequently delivered as such; but that it is now hoped that a written version may be made available publicly in order to inform debate on NAMA. Reports suggest the Department of Finance will publish the report later today or tomorrow.

UPDATE: 8th December, 2011. NAMA has now made available the Geoghegan report which is here, and has also simultaneously produced a press release available here. Analysis will follow here later.

UPDATE: 9th December, 2011. There is a separate entry reviewing the Geoghegan report here.


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This year’s Budget 2012 has certainly contained many property-related changes. Although not strictly a budgetary matter, Minister for Finance Michael Noonan did use the opportunity of the information dump yesterday to announce that the long-awaited changes to pre-February 2010 commercial leases to abolish Upward Only Rent Review (UORR) provisions, were to be abandoned. Cynics might claim that the Minister was saving the blushes of his Cabinet colleagues, justice minister Alan Shatter and Attorney General Maire Whelan, as the announcement should more properly have been made by Minister Shatter.

The reduction in commercial property stamp duty from 6% to 2% with effect from midnight last night, should tend to boost activity in the sector. Unfortunately there are still issues with accessing finance and Ireland’s economic outlook remains uncertain, so there’s unlikely to be a boom in activity any time soon. In economic terms the reduction of stamp duty should also lead to upward pressure on commercial property prices – if the clearing purchase price for a commercial property last night was €106m including 6% stamp duty, then the clearing price should remain the same today which would mean the sale price would rise from €100m to €104m (€103.922m to be more precise). The reduction in stamp duty and the abandonment of UORR plans may mean that Q4, 2011 sees the first increase in Irish commercial property prices since NAMA was created in 2009. Interestingly the Department of Finance thinks – page 6 of the Budget policy statement –  the reduction in stamp duty rates will have an impact of €64m in the 2012 finances, which simplistically implies the Department thinks there will be €1.5bn of commercial property transactions in 2012. Some industry sources have raised eyebrows at such a large volume of business, remembering it was €6bn at the very height of the Celtic Tiger property bubble. Others see €1.5bn as reasonable despite the absence of financing.

The easing of Capital Gains Tax for property bought between now and the end of 2013 as long as it is held for seven years, rounds off a trio of announcements which should all tend to boost activity. The reaction from those servicing the property industry has been, as you might expect, broadly welcoming.

In respect of residential property, the €100 annual household charge which I see is now being referred to as the “preliminary household charge” is not likely to affect the residential property market at this level. But it seems the Government is at pains to minimise any nastiness associated with this new charge – no doubt the Troika and the IMF in particular, has warned against the potential for a backlash and advised the introduction to be made as painless as possible. It remains almost certain that this charge will increase substantially in coming years.

Section 23 allowances which provide tax allowances on property in designated areas (the Upper Shannon has become one of the most notorious regions for this allowance which is credited with helping creating sprawling ghost estates in Leitrim for example) is to continue, despite the announcement in Budget 2011 in December 2010 that the allowance was to be phased out.

And lastly there are limited changes to tax relief on mortgage interest payments, most notably, for first time buyers who bought property between 2004-2008 will be allowed deduct 30% of their mortgage interest from taxable income. And separately, first time buyers in 2012 will be allowed deduct 25% of their mortgage interest from taxable income. Both measures are calculated to cost the State an additional €57m, with 2012 buyers costing just €5m.

Property services powerhouse and NAMA valuation panel member, CB Richard Ellis (CBRE) gave a mixed response to Budget 2012 criticising the absence of measures to boost employment and stimulate economic activity; it is particularly critical of the decision to increase VAT because of the effect it will have on the retail sector. CBRE had previously issued an urgent call to the justice minister to clarify his intentions with UORR lease terms, following reports on here that the political commitment was to be abandoned. Yesterday, CBRE “broadly welcomed” the confirmation in the Budget 2012 announcements of the abandonment of the UORR proposals and anticipate that the newfound certainty in commercial property rights will attract investment to a sector which has been moribund for over a year. Marie Hunt, Executive Director at CBRE, Dublin, “we broadly welcome the confirmation from Government that they now no longer intend implementing retrospective legislation with regard to rent review provisions in business leases. This was clearly the single biggest obstacle to transactional activity in the investment sector of the market over the last 12 months and we are happy that this has been cleared up today.  The removal of this uncertainly along with the reduction in stamp duty for commercial property and capital gains tax changes for properties purchased over the next two years will enable transactional activity to resume in this sector of the economy”.

With respect to the €100 annual household charge CBRE “implementation of the property tax from next year onwards.  CBRE expressed surprise that residential investors who already pay a second homes charge now appear to also be liable for the €100 household charge for every property they own, not just their principal private residence. When you consider that owners of residential properties will potentially be liable for PRSI on rental income from 2013 onwards, this is a body blow to many residential investors who are already struggling with unaffordable mortgage repayments”  

Jones Lang LaSalle (JLL) – another NAMA valuation panel member and former employer to NAMA’s most senior property man, John Mulcahy – welcomed the Budget announcements saying “Jones Lang LaSalle has given a broad welcome to the property measures taken by the Minister for Finance in yesterday’s Budget speech”. Margaret Fleming, European Director of Investment at JLL said “it is hoped that some stability will be brought to the Eurozone in the near future – this is beyond Irish control. However yesterday’s provisions on Upward only Rent Reviews, Stamp Duty and CGT respectively restore good order to Landlord and Tenant law; reduce the barriers to entry for investment; and encourage investors to act during 2012.  None of this will artificially raise the price or value of property – prices will recover only when economic and investment fundamentals are right – but it should encourage a rise in the volume of transactions.”

Ireland’s biggest estate agency Sherry FitzGerald, which operates under the name DTZ Sherry FitzGerald in commercial property also broadly welcomed the budget announcements saying it delivered “much needed clarity and reform for the property market”. Whilst welcoming the clarity surrounding UORR leases and the reduction in commercial property stamp duty, the agency did sound a note of warning about lending for residential mortgages. Marian Finnegan, Chief Economist said “the lack of liquidity in the residential mortgage market is one of the single greatest barriers to market activity.  The market requires a notable increase in lending if normal activity levels are to be restored. This could be best achieved through specific lending targets.”

Finally, local Cushman and Wakefield partner, Lisney added its broad approval to the Budget measures. James Nugent, incoming Managing Director of Lisney said “both of these measures [reduction in stamp duty and clarity on UORR] should help kick start the investment market. In relation to the rent review issue, the Government’s indecision has created many difficulties in the commercial property sector. Landlords and their banks have been unable to sell assets, which might otherwise have been sold. International investors have avoided Ireland and taken a very negative view of the country. In spite of this, we believe that the introduction of these measures will see the return of international investors who will again seriously consider investing in Ireland. Consequently, we believe that 2012 will be a far better year for the investment market and turnover will be significantly greater than the €174m experienced this year to date”. Elsewhere Lisney say it is unclear if the CGT changes will apply to residential as well as commercial property.

Personally I think the creation of a NAMA advisory board may do more to stimulate activity than might at first be appreciated. Minister Noonan said the board was to advise him on appointments to the NAMA board proper but also to develop strategies to manage/dispose of NAMA assets and to attract investment into the sector. It is indeed still curious that down-on-its-luck Ireland repels foreign investment whilst the quasi-gangster country, Bulgaria seems to be a destination for international property investment funds. The advisory board has the potential to develop an Enterprise Ireland/IDA-style organisation to promote Irish property as a highly attractive investment product. Beyond that, industry sources have welcomed any development which will lead to NAMA acting in a more commercial manner.

Beyond the property service sector, there hasn’t been any official response by commercial property owners to Budget 2012. Pension funds which have investment in Irish property are likely to be better off with the stamp duty and UORR decisions. Smaller-scale investors who benefited from Section 23 relief will welcome the continuation of the relief. NAMA has just issued a statement in which CEO, Brendan McDonagh welcomes the measures with respect to stamp duty and CGT. He said “lack of certainty on this issue was a major concern among investors. This has now been resolved as a result of the Budget statement and investors can now make investment decisions with greater confidence”

On the other hand, commercial tenants are dismayed by the decision to shelf the much anticipated changes to UORR. Retail Excellence Ireland (REI) released a particularly stinging attack on the decision, claiming it will cost “thousands of jobs” and leaves beleaguered retailers coping with a 30% drop in retail sales in the last three years, but on average having seen a reduction in rent from the top of the boom of just 3.93%. REI goes on to say that it was “made aware of the constitutional issues pertaining to the Landlord and Tenant (Business Leases Review) Bill” and “had worked hard to construct commercial solutions to these issues”. It concludes by saying it will be seeking an “immediate meeting with the Taoiseach and the Tanaiste”. And residential owners are not happy at the “preliminary” household tax of €100.

UPDATE: 7th December, 2011. The Grafton Street Tenants Association which has been particularly vocal in the UORR debate has issued a statement which is reproduced in full here “The Grafton Street Tenants Association (GSTA) today (December 6th 2011) reacted with dismay and anger at the government’s decision not to tackle the issue of upward only rent reviews for existing leases in Budget 2012.

“Today’s Budget amounts to a betrayal of the retail sector in Ireland and tens of thousands of jobs will be lost as a result” said John Corcoran, spokesman for the GSTA and owner of Korkys shoes on Grafton Street.

Corcoran continued “In July 2009, Ciaran Lynch TD brought emergency legislation to the Dail to allow commercial rents to float to market levels only to be voted down by the then Fianna Fail led government.”

“Today the current Fine Gael / Labour Coalition have gone back on their promise, contained both in their manifestos and the Programme for Government, to tackle this issue and give retailers a fair chance in the current terrible trading conditions. This move, combined with a 2% increase in VAT will be the last straw for many retailers.”

“No other commercial tenants in the Eurozone have to endure this ruinous commercial lease law which has destroyed our country and was endorsed and copper fastened by our own government.”

“We call on the government to review their decision on Upward Only Rent Reviews and save the Irish retail industry from disaster.”

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