Today sees the publication of the November 2011 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.
The Index shows that capital values were flat in November 2011 and indeed prices have been more or less flat for over a year now. Prices reached a peak in June 2007 and fell steadily until August 2009 when the current rally started. Prices then increased by 15% in the year to August 2010 but since then prices are up a measly 2.0% and in six of the last 12 months the monthly increase had only been 0.1%. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 11.5%. Commercial prices in the UK are now 34.1% off their peak in June 2007. On an annual basis prices are up by 1.6%. The NWL index is remains 831 which means that NAMA needs to see a blended increase of 20.4% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).
The table below shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner.
The outlook for UK commercial property looks unclear, which is hardly surprising as the outlook for the UK economy generally is uncertain. Europe generally is trying to get to grips with the aftermath of the UK decision to veto a new EU treaty last week, with many UK domestic commentators suggesting the UK economy has been placed at greater risk by the move. Others suggest that the veto will safeguard the UK’s vital financial services sector. All seem to agree theUK’s actions are historic.
Economic growth in 2011 in the UKhas been subdued and an annual outturn of +0.9% is expected for GDP according to the Chancellor of the Exchequer, George Osborne’s Autumn Statement issued late November. Since 2007 the UK has committed to a programme of Quantitative Easing (printing more pounds) totaling GBP 295bn or 20% of its GBP 1.5tn GDP and inflation has been a feature of the UK economy since 2007 – CPI inflation has increased by 15.4% between June 2007 and November 2011. The latest forecasts for UK CPI and RPI inflation are for 4-5% in 2011 which will fall in 2012 but stay over 3% before falling to 2.3% in 2013. Despite the travails of the EuroZone and US economy, sterling exchange rates have remained highly stable in the past 12 months. The UK’s base interest rate has been 0.5% since February 2009 and the outlook is subdued despite the hefty inflation.
The UK has a large number of commercial property markets across Northern Ireland, Scotland, Wales and England. The Financial Times reported over the weekend that approximately one half of all NAMA’s assets are located in London.
NAMA Wine Lake 
@NWL
What do you think is the net effect of inflation and currency depreciation on the value of NAMA’s UK loans?
Were the loans made in sterling?
@christy, difficult to say because of the extensive use of hedging and derivative instruments at NAMA which would mask changes flowing from inflation (15% since 2007 in the UK) and currency depreciation (20% since 2007).
The loans were demoniated in sterling,and are paid,IF,in sterling.
NAMA is a little ‘shy’ in its latest report on sterling exposure,but utilizes the US bank Citibank,for treasury functions.
With the amount of forced sellers in the UK growing daily,it’s a very precarious position for NAMA.The Irish market is effectively on ‘ice’,for the forecable future so any weaking in the London market has significant implications.Add some political posturing to the mix,and it will separate the men from the boys.My money is on NAMA continuing at a rapid and accelerated pace exiting the UK market,correctly so.