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Archive for December 8th, 2011

This morning, Northern Ireland auction company Osborne King made light work of putting 22 assorted lots of property under the hammer in Belfast. Four lots failed to reach their maximum reserves meaning that 18 lots sold giving Osborne King a respectable 82% success rate. The catalogue for the auction is here.  Osborne King’s own version of its results is here. Here are the results in the NWL format.

(Click to enlarge)

The maximum reserves for the 22 lots that were actually offered for sale today was GBP 1.59m (€1.9m). In the event 18 lots sold which had maximum of reserves of GBP 1.15m and realised GBP 1.24m, 8% more than the maximum reserves.

Lot 4, which had a maximum reserve of GBP 75,000 saw a bidding war between two agricultural-looking gentlemen and eventually topped out at GBP 131,000. It is understood that Lot 5 was bought by Northern Ireland developer Lesley Herbert, wife of Michael Herbert and the betting is that it is a Buy-to-Let investment. Lot 11 was a pub which went unsold when the maximum bid of GBP 167,000 failed to reach the reserve, the maximum reserve being GBP 170,000 – this is the third pub that has failed to sell at Osborne King’s two distressed auctions and reflects the weak state of the Northern Ireland pub sector. Lot 14 was withdrawn before the auction with a suspected title issue.

Overall, there was a smaller crowd at the auction this morning compared with the first Osborne King distressed auction on 29th September, 2011 – detailed here. There was keen interest in ready-to-live-in residential property, and the lots sold included two development sites, so that sector is not completely flatlining. There was very little interest in sub prime investment property in Belfast.

Allsop Space remains by far the biggest and most successful auctioning company on the island of Ireland, with nearly 100 lots sold at the last auction in November. It is interesting that in the Allsop Space auction, prices achieved were 28% above maximum reserves, considerably more than the 8% at the Osborne King auction this morning. Allsop Space achieved a 89% success rate at the auction (92% afterwards_

The next Osborne King auction is scheduled for 8th March, 2012 in Belfast.

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This morning Ireland’s Central Statistics Office (CSO) has released its inflation figures for November 2011. The headline Consumer Price Index (CPI) was flat month-on-month but up 2.9% year-on-year (up from 2.8% in October 2011). The biggest driver of inflation in the past 12 months continues to be the CSO category of housing-related costs, and within that, the most significant component is mortgage interest* which has risen a hefty 17.8% in the past 12 months as domestic bank-driven interest rate rises take effect. Minutes ago, the ECB in Frankfurt announced another 0.25% reduction in its main interest rate bringing the rate down from 1.25% to 1%. For the 400,000-odd Irish borrowers with tracker mortgages this should be good news and it follows the 0.25% reduction in November 2011. The 117,000-odd fixed rate mortgages won’t benefit from any reduction, but the 270,000-odd borrowers with standard variable rates will be on tenterhooks to see if the beleaguered Irish banks pass on the rate cut. There will certainly be political pressure to pass on the reduction; let’s just hope the political pressure recognizes that some banks have been raising rates over the past year independent on changes at the ECB which means that there is a 2% spread between the highest and lowest standard variable rates in the State.

Mortgage interest comprises nearly 7% of the CPI “basket” so the effect is significant.

Elsewhere it seems that private rents are beginning to edge up – there was a monthly rise of  0.2% in November 2011, and an annual rise of 3.8%. It seems that in our financial crisis, the big correction in rent took place in 2009 with a 19% maximum decline, compared to a decline of just 1.4% for all of 2010. Since the start of 2011 there has been a 3.9% increase (mostly recorded in February and October 2011). How will the Budget 2012 announcements affect rent? Difficult to know but it has been announced that the total to be paid in rent allowance in 2012 is to be 12% lower than in 2011. When you take account of what is likely to be increasing demand for rent allowance payments, it seems that the rent allowance will fall by more than 12%. Private rents have tended to fall in line with rent allowance even though many landlords will not accept rent allowance tenants. The betting on here is that private rents will come under pressure. We are still awaiting the detailed changes to the rent allowance.

 

Measures announced in Budget 2012.

*The CSO notes the following in respect of mortgage interest “In line with normal practice for a fixed base price index, the current approach to measuring mortgage interest in the CPI reflects the situation in the base reference period December 2006 when the standard variable rate was dominant. Subsequently, tracker mortgages have become more popular. This did not give rise to any difficulties while the standard variable and tracker mortgage interest rates moved broadly in line with one another, which would be the normal expectation. However, the decoupling that has taken place since August 2009 has resulted in dramatically different trends emerging. For example, between September 2009 and September 2010 the standard variable rate increased from 2.93% to 3.66% whereas the tracker rate did not change. The Mortgage Interest component of the CPI, which is largely determined by the trend in the standard variable rate, increased by 25.1% as a result and contributed +1.25% to the overall change in the All Items index. It is crudely estimated that the latter impact would have been reduced by between 0.2% and 0.5% had the Mortgage Interest component been calculated on a current weighting basis. Users should take this “weighting effect” into account in interpreting the mortgage interest related movements in the index”

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It’s probably the circles I move in, but I don’t come across Dustin the Turkey much at all these days. For those unfamiliar with Dustin, he’s a bomber-jacketed boot-boy from Ballymun or Ballyfermot in Dublin. Plain-speaking and irreverent, he captured hearts and imaginations as a TV personality here. And in 2008 he was chosen to represent Ireland in the Eurovision song contest with the suggestively-titled “Irelande douze pointe”. Happily he didn’t win or even get to the finals; “happily” because at that stage Ireland was slipping into an economic crisis and the last thing the nation needed was to have to host the song contest the following year if we had won. Dustin still crops up from time to time – a cameo on a Christmas show here, an X-Factor appearance there, but as far as I can tell he is now semi-retired.

 

And of course Dustin is a puppet. Literally.

 

Today An Taoiseach Enda Kenny is jetting off to the latest gathering of EU leaders in Brussels, where this evening they will start work on the latest wheeze to save the euro, or to be more precise how to deal with presently over-indebted nations, how to prevent nations becoming over-indebted in future and how to fund the debt of EU nations and their banks given no-one wants to lend to us anymore. Leaders are running out of superlatives for these summits and at the last summit in October, Taoiseach Kenny assured us that the EU had not just understood the problem, but had created a final solution. It will be amusing to see what modification is made to the superlatives this time round to lend credibility to any outcome.

 

At stake for Ireland is the treatment of our debt, particularly our bank debt and to be precise the €28bn promissory notes in the Irish Bank Resolution Corporation (IBRC, the merged entity comprising Anglo and Irish Nationwide Building Society). Remember the Government’s claims at the start of November 2011 that Anglo “was repaying its bonds out of its own resources”. Well that is technically true in the sense that the Govt gave Anglo €29bn of capital, mostly in promissory notes. Anglo exchanged these promissory notes at the Central Bank of Ireland for cash. And the cash was handed over to the bondholders. Technically true, but each year for more than a decade, Ireland will need find €3bn in cash to pay for these promissory notes. And Ireland doesn’t want to pay €30bn plus interest for a failed bank so that it can repay bondholders.

 

Also at stake at the EU summit for Ireland is the protection of our 12.5% corporate tax rate, a bedrock of our economic policy. Emerging from Brussels is the suggestion that the Common Consolidated Corporate Tax Base (CCCTB) is back on the table, which means that Ireland may well be free to maintain whatever tax rate it wants but new rules determining the country where income arises will mean that our tax rate may no longer be attractive – if Google generates income in France at present then that income is booked in Dublin and corporate tax is charged here, under the CCCTB rules Google may be forced to declare its income in France and pay French tax. Some non-Irish observers may say that CCCTB is perfectly sensible but they might want to examine their own country’s tax codes first.

 

So what would happen if some mandarin from the Department of An Taoiseach were to mosey on down from Merrion Street this morning to O’Connell Street, pop into Easons and purchase a Dustin the Turkey puppet for €19.99. And then put Dustin in a government car where he would be whisked out of the city, along the quays eventually giving way to suburbia and then the brown/green melancholy of an Irish winter countryside until he eventually arrived at the Casement Aerdrome in Baldonnel, west Dublin..

 

There he would be met by the support staff to the Government jet. And he would be placed in a seat where he would sit still and watch the world pass beneath him, Ireland, the Irish Sea, northern England, the North Sea until he landed in Brussels Airport. His sachet of peanuts unopened, his un-drunk coffee cold.

 

And in Brussels, he would be met by Irish consular staff who would bring him to the European Council at the Justus Lipsius building. And there he would at last be taken out of his wrapping and flung on some seat at the summit table where he would remain this evening and tomorrow.

 

Voiceless. Handless. 

 

And when the summit concluded tomorrow he would be removed, and probably used as a free Christmas present by one of the consular staff.

 

You probably wouldn’t expect Dustin to be very successful. But remember the other 26 members of the EU also play a role in support of Ireland. Putting aside the worthy notion of solidarity, you would expect countries to act in their own national interest. So if Ireland’s tax arrangements were being threatened, you might expect other countries with similar rates to pipe up to protect their own patches. So Cyprus with a headline corporate tax rate of 10% or Latvia with an effective tax rate on profits of 6.5% may not have any particular loyalty to Ireland but they might see the attack on Ireland’s tax rate as a precursor to an attack on their own economies. And more generally, you would expect a family of nations to act together to deter behaviour which victimises one nation. So even though Dustin might not have anything to say or do at the summit, you would still expect Ireland’s interests to be protected to an extent.

 

Of course Enda Kenny is no €19.99 puppet. His €200,000 annual salary, TD’s pension, expenses, pension contributions, unregistered gifts and entertainment must surely give us some assurance of the man’s worth. And he doesn’t act alone; he has an astute €170,000-a-year finance minister, a finance ministry with a staff of 700, €168,000-a-year special advisers not to mention a communications chap paid €35,000 over the Government’s own guidelines, a €190,000-a-year Tanaiste who doubles as a foreign affairs minister, and separately a €130,000 Europe minister (Lucinda Creighton). So An Taoiseach will have an expensively produced strategy with well thought-out tactics, he will have overseen the creation of alliances with other EU countries, notably the UK and the other PIIGS and low tax-rate countries, he will have briefed our partners on why GNP is a more appropriate measure of Ireland’s economy and the risks of having debt:GNP at levels over 140%. He will be word-perfect on the need for a stimulus and naturally he will be well-versed on the economics of our corporate tax rate.

 

Unlike Dustin, he will not sit silently around a table of his peers; he will communicate a message, provide our partners with helpful information and will build on previously-forged alliances to promote Ireland’s objectives. And he will emerge tomorrow after the summit, avoid the photocopier room this time (remembered here with Lucinda doing her sex-face impression in the background), and give a statesmanlike interview with RTE in which he will detail his achievements to the nation. On Sunday last we had a down-at-the-mouth state of the nation address; tomorrow An Taoiseach will lift our spirits.

With the country bankrupt and dependent on a bailout to pay its way week-to-week, we expect no less from one of the most expensive governments in Europe.

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