Archive for January 18th, 2012

The Sinn Fein finance spokesman, Pearse Doherty has tweeted following his party’s meeting with the bailout troika of the ECB/EU and IMF, that “Troika wouldn’t rule out mini budget latter this year if we r not able 2 meet targets – told me we will cross that bridge if we come to it” This is at odds with IMF statements late last year which said that further adjustment would not be required in 2012 even if slow economic growth were to mean the target for 2012 – getting our budget deficit down to 8.6% of GDP – were not met. The IMF said “the planned amount of fiscal adjustment should be maintained in the event of adverse developments to avoid amplifying policy procyclicality.” If Pearse’s tweet is confirmed, then it seems to indicate a shifting of position.

Separately, Independent TD Shane Ross challenged An Taoiseach Enda Kenny in the Dail this morning over official projections of economic growth in 2012. Budget 2012 projected real Irish GDP to grow by 1.3% in 2012 which is higher than recent forecasts from the EU, ESRI, IMF and some economists, which have tended to be in the 0-1% range. Enda however insisted that he was optimistic about the official growth projections and reminded us that the economic situation in our export markets is fast-changing and that it is too early to abandon the official estimates. That is fair enough, but you would have to say, having considered the number of forecasts below our official forecast, that there is more downside risk than upside. The effect of lower economic growth is we bring in less taxation, we probably spend more on social welfare and the deficit % of GDP increases.

So the above is of concern. But what really seems concerning from this perspective is that whilst the rest of Europe is focussing on strategies to engender growth, the heart of Europe seems unconcerned about Ireland and the ongoing austerity. When the ECB president Mario Draghi spoke last week about Europerecovering from the economic crisis, he spoke of an acceptance for the need for growth measures. But when by Derek Scully from the Irish Times asked (from about 54:00 on the video of the press conference) about how programme countries (Portugal, Ireland and Greece) might develop growth measures, Mario was emphatic and said no, he wasn’t giving a green light for programme countries to abandon austerity and deficit balancing so that they could pursue job creation measures for example.

Unemployment figures released for the UK this morning showed that the Northern Ireland unemployment rate now stands at 6.8% compared to 14.3% here in December 2011. With a mini-Budget a possibility, with lower than projected growth a probability and with sky-high unemployment, it seems the country needs growth measures more than ever.


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It is being reported this morning that NAMA is now asking its developers for copies of tax returns in order to check for inconsistencies between the statement of affairs submitted by developers with their NAMA business plans, with what developers have been reporting to the Revenue Commissioners (Irish tax authorities). The implication is that some developers might have been concealing assets from NAMA, but disclosing the assets to the Revenue Commissioners – so inconsistent as well as dishonest is the suspicion.

It is also being reported that some developers have refused to hand over copies of their tax returns to NAMA. A NAMA spokesman said that the Agency “often (depending on the case) request copies of these returns and, in the case of co-operative debtors, there is usually no difficulty as the returns will corroborate information that they have otherwise provided” If the developer refuses, then the refusal might – and no more than “might” – “cause the Agency to seek further information about a debtor’s financial position – including perhaps the use of credit verification services – in order that the Agency can satisfy itself on the completeness  of the information provided to the agency” You might recall that before Christmas, NAMA advertised a tender for a panel to provide “credit verification services”.

Every time I hear “NAMA” and the “Revenue Commissioners” associated together, I think back to the European Commission decision approving the NAMA scheme in February 2010. The decision rejected a term in the NAMA Act that would have allowed NAMA to seek information from the Revenue Commissioners – the concern was that such an extraordinary power would give NAMA a competitive advantage over other banks, Ulster Bank for example. Both NAMA and Ulster Bank are trying their best to get the most back on the bad loans that they both manage, and both are trying to enhance their loans as best they can and in some instances portfolios of loans will be sold. So both NAMA and Ulster Bank, in the eyes of European Commission, should have a level playing field where neither has superior access to the Revenue Commissioners.

It is understood that NAMA’s seeking tax returns from developers is not different to NAMA’s competitors. NAMA is obliged to inform the Revenue of any situation where it believes there has been a breach of the law in relation to tax.  And under Section 204 the Revenue are empowered to seek information from NAMA.

So although developers might not like the implication of NAMA demanding tax returns, it seems that NAMA is not acting differently to other banks. So really all we have learned this morning is that some developers are not cooperating and that such non-cooperation might lead to investigations.

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Jones Lang Lasalle (JLL) has today published its commercial property series for Ireland for Q4, 2011(the report should be available here later). The JLL series is one of the two Irish commercial indices 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 other quarterly Irish price series is published by SCSI/IPD and will be available on Wednesday 25th January 2012 at 3pm; because it is generally published after JLL’s, it is not used here but the index does historically show a very close correlation with JLL’s.

The JLL Index shows that capital values rose in quarter four, 2011 for the first time since Q3, 2007. The Index increased by 1.2% in Q4, 2011 compared with Q3, 2011. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have declined by 20.6%. Commercial prices in Ireland are now 64.2% off their peak in Q3, 2007 – Jack Fagan in the Irish Times says 63.8%, mind you he refers to “Jones Land LaSalle”. On an annual basis prices are down by 10.0%. The NWL index is now at 833 which means that NAMA needs to see a blended increase of 20.0% 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).

Taking account of the measures announced in Budget 2012 – the reduction in stamp duty on commercial transactions from 6% to 2%, the abandonment of proposals to abolish Upward Only Rent Review terms in pre-February 2010 leases and the enhancement of capital gains arrangements for commercial property held for several years – the expectation was that there would be a small increase in commercial property prices in this quarter. However the anaemic broader economic picture, oversupply, uncertainty about NAMA’s intentions with its market-moving portfolio (estimated to be worth €6-7bn in an Irish market which saw less than €0.5bn of transactions last year) are all tending to put downward pressure on prices.

Two transactions in Dublin’s south Docklands before Christmas show that the Irish commercial market is not completely flatlining. Number One Warrington Place is understood to have sold for €27m representing a traditional yield of 8%, or nearly 6% by reference to what rent would be on the space if a new lease was created today. The buyer is understood to have been Prudential. And Riverside II is also understood to have sold for close to its asking price of €35m.

The Irish Times reports that commercial rents fell 10.2% in 2011.

UPDATE: 18th January, 2012. The JLL report is now available online here, and it adds considerably to the commentary in Jack Fagan’s report in the Irish Times. JLL says that the increase in Q4, 2011 was “technical” and arose as a result of the reduction in stamp duty. Excluding the effect of stamp duty, underlying prices in fact fell by 2.6%. However it is reported that rents fell just 0.5% in the quarter which indicates a considerable easing of downward pressure on rents, is this because landlords no longer have the threat of Government interference in Upward Only Rent Review clauses?

UPDATE: 26th January, 2012.

Yesterday the Society of Chartered Surveyors in Ireland (SCSI) and the IPD released its joint Irish commercial property price series for quarter four of 2011. It too shows an increase in Q4, 2011 but of just 0.2%. The SCSI/IPD index should be more accurate than JLL’s as it examines values on 328 Irish properties compared with about 30 at JLL. Having said that both indices show a remarkable correlation. Here’s the summary and the comparison with JLL’s:


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