Embattled Minister for the Environment, Community and Local Government, Phil Hogan has this evening announced an agreement between his ministry and NAMA whereby NAMA is to make available 2,000 dwellings – apartments and houses – for use through leasing arrangements in 2012. The housing will be made available to local authorities and unspecified “volunteering” housing associations.
Amazingly there is no pretence at the political interference in NAMA’s operations – the statement has the chutzpah to say “Minister Hogan and former Minister for Housing, Willie Penrose TD have put considerable pressure on NAMA in 2011 to achieve a greater social dividend in the housing area” – so much for the impression that NAMA might have been independent of the political process! I fully expect Northern Ireland’s Minister for Finance and Personnel, the sometimes-bohemian Sammy Wilson, to be on the blower to NAMA tomorrow morning demanding cheap/free social housing for Northern Ireland.
Of course it is a scandal that there are a crudely-estimated 98,000 households (and rising) on housing lists in the State, which at the same time has, in the national sense, some 300,000 vacant dwellings. We have already seen a small number of developments bulldozed by local authorities which gives a perception that we really don’t know what we are doing. In practice, some housing will not be suitable – because of location for example.
What is surprising about the announcement today is that so much property is now to be made available by NAMA, yet only a short few months ago, it was suggested that NAMA’s property was in the main not appropriate, it was suggested that NAMA had met with housing associations and reviewed the portfolio and found there was little of practical use. What has changed?
Of concern on here is the issue of the terms under which the housing will be provided by NAMA. An ongoing concern is that government departments will “bring pressure” on NAMA to gift benefits to their departments which are otherwise required to deliver savings so that the national deficit can be eliminated. Our political leadership should be concerned at ministries acting individually to take bites out of NAMA’s potential to deliver on its primary objective – to maximise the value of the assets under its control.
If a house is worth €100,000 on the open market, then that is what NAMA should charge for it, and not a cent less. Of course there is nothing to stop the Government seeking a dividend of €25,000 per house from NAMA, a dividend which can then be considered by the Government as a whole and the spending of that dividend can be prioritised across ALL government departments, not just those who “bring pressure” on NAMA. In this way, the integrity of NAMA’s primary objective is maintained – dividends are deducted AFTER calculating net profit – and at the same time, the Government can take advantage of NAMA to deliver benefit in a structured way which recognises the priorities of the government as a whole.
NAMA has not issued any statement, and has not yet replied to a request for comment.
UPDATE: 21st December, 2011. NAMA has not issued a statement but it is understood that it will offer the housing on an “arms-length and commercial” basis.
NAMA Wine Lake 
This is a case of “Hobson’s Choice” for NAMA….. or making the best of a bad lot. It’s options were severely limited when the sale of the Grange failed to meet expectations. Rumour has it that the top bid was approximately what was IMO, a heady €25 million, or some €5 million below NAMA’s cost of acquisition.
So while NAMA may have done well in Bond Street with David Daly (a no brainer- even for NAMA), it is showing it’s vulnerabilities in the residential market in Ireland. And events are working against it. The mortgage interest relief on residential investments only amounts to 75% and from next year there will be a PRSI charge on rental income. Who in their right mind would invest in residential investment property in Ireland?
The game and international interest has moved to Europe and the UK – but Europe in particular. There is a tsunami of assets to be sold by the european banks by the end of 2013 and agents will confirm that the interest in the Irish commercial investments currently for sale has waned. Where two months ago, there was substantial interest, on second round offers this has diminished, with in most cases, offers being reduced or dropped, leaving just one or at the most two valid final offers.
No, this is Hobson’s Choice for NAMA. Expect to see it finish the development at the Grange to enable a rental market and to fudge the financial recoveries for the benefit of its media image.
NAMA has begun the process of morphing into an Irish developer.
@WSTT, interestingly Ray Grehan is reported to have valued ” two properties in the Quartz development at The Grange, Blackrock in Dublin…at €750,000, carrying an AIB mortgage of €525,400, costing €10,500 a year in interest and €68,132 a year in capital repayments.” The reported valuations come from a July 2010 (so 18 months old) statement of affairs lodged with the High Court in London, and reported on by Mark Hennessy in today’s Irish Times.
http://www.irishtimes.com/newspaper/finance/2011/1222/1224309381338.html
In May 2004, Steven A. Seelig, now a NAMA director, thena member of the Monetary and Financial Systems department of the IMF, wrote an IMF Policy Discussion Paper titled, “Issues in the Establishment of Asset Management Companies” Steven co-authored it with Stefan Ingves and DongHe.
It is relevant because NAMA is an AMC (Asset Management Company)
In it he stated:
“Because AMCs handle large volumes of assets, and in some countries may control a significant percentage of the wealth of the nation, it is important that they be insulated from political interference in the disposition and restructuring of assets. The very nature of the asset management process invites political interference.
AMCs should have a strict profit-maximizing goal. In all its operations, it should act as a normal market participant. This goal should guide all its operational policies, including the valuation of assets, funding strategy, and speed of asset disposition.
A critical factor in assuring an AMC’s success and independence is the ability of the public and the government to evaluate its performance. This requires proper accounting for the assets at the time of transfer and for cash flows over time. Performance should be measured against either a “mark-to-market” value or an estimated recovery value at the time of transfer.”
Is it resigning time Steven? Or do you forget what you wrote?
@WSTT, given that NAMA has foreclosed on 900-odd properties (admittedly some are multiples but many are commercial, development or part-developed or not located in Ireland), it seems that Minister Hogan is stretching facts a little. What NAMA has apparently done is identified 2,000 residential properties in its portfolio (most or many of which will still be managed by developers themselves) that would be suitable for social housing. And local authorities and “volunteering” housing associations are welcome to contact NAMA’s receivers or more likely NAMA developers themselves, to enquire about the possibility of entering into a lease arrangement. I understand it’s akin to NAMA’s position with Priory Hall – remember NAMA contacted Dublin City Council to try to flog to the Council homes in the NAMA portfolio (again most or many were still controlled by the developers) and the Council was able to rent some of those properties on a fully commercial and arms-length basis.
Despite his history in the party, I’d be surprised if Phil Hogan survives the first Cabinet reshuffle. This household charge is descending into the realm of farce, despite widespread over-building there has been scarcely a dent in the list needing housing, the septic tank and water charges are being badly handled and he’s lost his “super junior minister” to boot.
@ NWL Mr. Hogan is in the cabinet (with Frances Fitz) as a Kenny loyalist, not for his abilities. His new “super junior” falls into the same category from the LP view. She is completely ineffectual but loyal to Gilmore and does not like the Deputy Leader. The promotion of Joe Costello should also be seen in that light. Relations between Mr. Costello and his constituency neighbour are very poor. Both Party Leaders are digging in and surrounding themselves with loyalists rather than those with ability. There is a far greater chance of Joan Burton finding herself on the backbenches than Hogan.
On a slightly related issue, the restructuring of rent supplement will be announced very early in January. I gather that the changes are quite radical and are not just directed at reducing the cost of the scheme.
@Niall, although it was flagged in advance by Minister Burton, I can’t see the the proposed change to impose PRSI on private rents in the final budget document. At the time that Minister Burton made the statement in November, the PRSI was to apply to rental “profit” but there was speculation that it would apply to gross rental income. It will be interesting to see if there is any change in this regard when the other budget adjustments are finessed in early 2012.
Little sleight of hand here,parking a few thousand units,taking them off market.
Nightmare to unwind this,statement above references renting them,silent on sale.But most likely the people responsible will be long gone from NAMA,hopefully won’t impact any already distressed homeowners directly.Quite the surprise if you purchased at top of market,to now find out the profile of your new neighbors had changed drastically.
“AMCs should have a strict profit-maximizing goal. In all its operations, it should act as a normal market participant”
Must be the joke of the year. Nama shoiuld act as a normal market participant?
What about private landlords and the effect it will have on their rental income (both current and future). Will NAMA pay the new hnousehold charge?
@ Property observer It depends completely on who is rehoused. For example a good proportion may be living with extended family in overcrowded conditions, e.g. a lone parent with a child living with her parents and siblings.
The real stewing of the private landlords will happen in January when rent supplement is adjusted.
@ NWL The treatment of rents & other investment income for PRSI purposes depends on your status. If you are liable at Class S (i.e. self employed or a director with a controlling interest) you pay Social Insurance on your total income, including rents.
If you are an employee and liable at Class A, B or D you do not pay Social Insurance on your investment income whether it is derived from rents, interest or dividends. JB’s proposal was to extend the liability to Social Insurance at Class S on the investment income of this group of people. The total net income involved was between €1,400M and €1,500M. My understanding is that she intends to bring it forward as part of the “Spring” Social Welfare & Pensions Bill to take effect from Jan 2013.
My understanding is that the revision in the conditions for payment of rent supplement will involve the rented accommodation meeting standards, which is not currently the position. The payment of rent supplement will require landlords to meet a range of conditions, which should of course have been in place before now.
I’m amazed that it has taken Hogan this long to slip out of the see through ‘black and amber’ shirt….
http://www.irishtimes.com/newspaper/breaking/2011/1222/breaking5.html