Archive for February 28th, 2012

It was May 2011 when the NAMA chairman and the NAMA CEO first mooted the proposal that NAMA would introduce a scheme which would allow it to sell residential property in Ireland with built-in protection against future price falls. The product was to be unveiled in Autumn 2011, then that slipped to Q4,2011 and the latest from the NAMA chairman is that it is expected to be launched at the end of March/start of April 2012 after receiving European Commission approval, largely with respect to competition issues.

In response to an enquiry asking for information from the Commission on the details of the NAMA scheme, the European Commission last week refused to disclose any NAMA documentation, on confidentiality grounds. The letter from the Commission – available here – states that NAMA did submit documentation in December 2011 and January 2012, which begs the question why it took so long – seven months after the first announcement in May 2011 – for NAMA to get around to seeking Commission approval. Furthermore the letter confirms that the Commission was still considering the NAMA proposal on 22nd February, 2012.

The enquiry was from an individual named Richard Ryan – nothing to do with this blog – and was made through the useful service asktheEU.org which allows citizens to seek information from EU organisations, including the ECB, with the website sending the request to the appropriate contact at the organisation, citing the law under which the information is sought. The refusal to provide the NAMA documentation may be appealed.

NAMA’s negative equity mortgage – referred to as a “Deferred Consideration Initiative” by the Commission – is controversial and has sparked concerns domestically that NAMA may get a competitive advantage in shifting its portfolio of underlying security in 10,000 residential properties.


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This morning’s house price statistics from the Central Statistics Office show that house prices nationally are continuing to decline, and in fact have declined by each of the last 52 months – months, not weeks, though in June and July 2010 the index did remain flat. In not one month since September 2007 have prices nationally risen. And there is a body of opinion which says that Irelandhas so many supports and distortions in place in the property market that what we are seeing is a torturously long-drawn out adjustment to prices. Whilst none of us has a crystal ball, I would say the consensus is that house prices will continue to fall for some time, maybe a year, maybe two to three. According to the DAFT.ie 2012 Consumere Attitudes Survey , most people think prices have a ways to fall with more than 90% thinking that prices in five years time will be lower than today.

So faced with the old dilemma of rent versus buy, we show here today two properties in Dublin. The first property, a 620 sq ft home in excellent condition is for sale and its asking price of €199,000 is close to the average price for a Dublin home indicated by the CSO indices, that is €194,918 in December 2011, using the Permanent TSB/ESRI peak prices and applying the % decline from peak recorded by the CSO. If you had bought this property in December 2011, then according to the CSO the average price of a Dublin house fell by 4.1% which equates to €8,159 in the case of a €199,000 home and assuming you are paying 3.5% net annual interest on a 100% mortgage, you would have seen your wealth decrease by a total of €8,739.

The second property is for rent at €7,000 per month. This is the highest asking price in south Dublin city. You get a five bedroom furnished top spec home at one of Dublin’s best addresses.

Whilst the experience of one month isn’t necessarily probative of subsequent months price changes, it does show in a snapshot the disparity between renting and buying, and suggests renting provides better value for money. You should also bear in mind that individual properties and individual transactions may not be reflective of the market in general.

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This morning has seen the publication of the CSO residential property price indices for Ireland for January 2012. Here’s the summary showing the indices at their peak (various months in 2007 depending on type of property and location), the NAMA valuation date (November 2009), annual (December 2011), last month (December 2011) and January 2012

Now that the Permanent TSB/ESRI has abandoned its quarterly house price index, the CSO’s isIreland’s premier index for mortgage-based transactions. It analyses mortgage transactions at eight financial institutions : Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank ofIrelandgroup), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The index is hedonic in the sense it firstly groups transactions on a like-for-like basis (location, property type, floor area, number of bedrooms, new or old and first-time buyer or not) and then assigns weightings to each group dependent on their value to the total value of all transactions. The index is an average of three-month rolling transactions.

Cash transactions: there is increasing concern that although the CSO captures data from the mortgage market, it omits cash transactions. The latest figures from the Revenue Commissioners are for 2009 which show that just 6% of transactions (by volume) were in cash. Last week, estate agents DNG claimed that cash made up one third of the market. At the start of January 2012, Sherry FitzGerald said that 29% of its registered buyers were cash buyers, and mortgage expert Karl Deeter said on here that “what Mark Fitzgerald [of Sherry FitzGerald] said at the AIB meeting in December (we were at the same table) is that 30% of purchases were cash – I’d take that as being completions unless this is a case of crossed wires”. In addition, the Sunday Independent reported the former acting CEO of the Irish Auctioneers and Valuers Institute saying that “I would say a quarter of deals at present are being done in cash”. The Allsop Space auctions won’t be representative of the general market but the latest analysis from it says that almost three quarters of its auction transactions were in cash. The CSO expects to have monthly data from the Revenue Commissioners from mid-2012 and it expects that it may subsequently be able to show the market size with its monthly release of the residential index. The perception is that cash transactions will be at keener prices than mortgage transactions because the buyer can move quickly and doesn’t need credit. If that perception is correct then the CSO may be understating – and potentially, understating substantially – the decline in prices.

As for the key questions:

How much does property now cost in Ireland? The CSO deliberately doesn’t produce average prices. The former PTSB/ESRI index did, and claimed the average price of a property nationally hit the peak in February 2007 at €313,998, inDublin in April 2007 at €431,016 and outsideDublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI figures as sound and comparable to the CSO series, then these would be the average prices today:

Nationally, €162,653 (peak €313,998)

In Dublin, €186,827 (peak €431,016)

Outside Dublin, €151,471 (peak €267,987)

I don’t think the CSO would be happy with this approach but it seems to me that the PTSB/ESRI series as represented by its historical indices closely correlates with the performance of the CSO indices.

What’s surprising about the latest release? Apartment prices nationally were down 4.3% in the month of January 2012. Prices inDublin took a battering again, with house prices down 4.1% in the month and apartment prices down 3.5%. Price drops outsideDublin continue to be more modest, with non-Dublin houses down by just 42.7% compared withDublin houses of 55.4%.

 Are prices still falling? Yes, and the 1.9% monthly decline nationally in January 2012 is up from the 1.7% decline in December 2011 and 1.5% decline in November  2011 but in the same range as the 2.2% decline in October 2011, the 1.5% decline in September 2011 and the 1.6% decline in August 2011.

How far off the peak are we? Nationally 48.2% (49.8% in real terms as inflation has increased by 3.2% between February 2007 and January 2012). Interestingly, as revealed here,Northern Ireland is some 45.2% from peak in nominal terms and 52.6% off peak in real terms. Are forbearance measures by mortgage lenders, a draconian bankruptcy regime and NAMA’s (in)actions distorting the market? Or are cash transactions which are not captured by the CSO index so significant today that if they were captured, the decline in the Republic would be even greater?

How much further will prices drop? Indeed, will prices continue to drop at all? Who knows, I would say the general consensus is that prices will continue to drop. You might find the DAFT.ie 2012 Consumer Attitudes Survey published today of interest though its scientific accuracy is questionable. This is what I believe to be a comprehensive list of forecasts and projections for Irish residential property [house price projections in Ireland are contentious for obvious reasons and the following is understood to be a comprehensive list of projections but please drop me a line if you think there are any omissions].

What does this morning’s news mean for NAMA? The CSO index is used to calculate the NWL Index shown at the top of this page which aims to provide a composite reflection of price movements in NAMA’s key markets since 30th November 2009, the NAMA valuation date. Residential prices are now down 28% from November, 2009.  The latest results from the CSO bring the index to 828 (20.7%) meaning that NAMA will need see a blended average increase of 20.7% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index. Ireland does not yet have a publicly available register of actual sale prices, but one is expected in mid-2012 following the passing of legislation last year – read the latest on the House Price Register here. There are three other residential price surveys, based on advertised asking prices or agent valuations – for the latest see here. Lastly the Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end and not hedonically analysed, it is next to useless.

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The Treasury Holdings bid to seek a judicial review of NAMA’s dealings with its loans is set to be resumed in Dublin’s Commercial Courtthis morning at 11am before Ms Justice Finlay Geoghegan in Court 14. The case was originally supposed to have concluded last week, and you’ll recall that Treasury was seeking an injunction against the appointment of NAMA’s receivers, and furthermore, a judicial review is being sought of NAMA’s dealings with Treasury’s loans. Treasury abandoned the first of these two strands at the end of last week, so the Court will continue to hear why it should or should grant leave to Treasury to pursue a judicial review.

Meanwhile on the other side of the world, in Singapore where a company of which Treasury Holdings is the “trustee-manager”, a company called Treasury China Trust (TCT),  is listed on the Singaporean stock exchange, there have been some developments overnight. TCT issued a statement to the stock exchange in Singapore after a 10% fall in its stock price was linked to the ongoing court case in Dublin. The TCT press release is here, and it says

“Treasury Holdings is beneficially owned and controlled by Mr Richard Barrett and Mr John Ronan. Treasury Holdings is the ultimate corporate legal entity that owns, indirectly, all of the interest of THRE, the trustee-manager of TCT. TCT owns and operates the properties of TCT, through a number of project companies in the People’s Republic of China”

Clear as mud? So does Treasury Holdings inDublinown TCT, and could the assets or activities of TCT be affected by the financial problems at Treasury Holdings? It seems the purpose of the statement is to assuage fears in TCT being dragged into Treasury Holdings’ plight, but from the statement, I cannot see a certain financial liability break between Treasury Holdings and TCT.

Elsewhere the statement says “Treasury Holdings has informed the Trustee-Manager that the issue of Treasury Asian Investments Limited (“TAIL”) has been raised by NAMA in the Irish Court Proceedings. The Trustee-Manager further wishes to clarify that (i) the history of the TAIL matter was disclosed in full in the Introductory Document issued in relation to TCT on May 21, 2010, and (ii) NAMA’s requirements of Treasury Holdings in relation to TAIL were agreed unequivocally by Treasury Holdings.”

The TAIL transaction was reported here last week and involved €20m of assets of Treasury Holdings being transferred to Messrs Ronan and Barrett for consideration that was deemed inappropriate by NAMA. Reading the NAMA affidavits last week, you might have difficulty reconciling the NAMA statements therein with the statement above from TCT that “NAMA’s requirements of Treasury Holdings in relation to TAIL were agreed unequivocally by Treasury Holdings”

You might recall Ronald Quinlan’s reporting of the transaction in the Independent on Sunday, from which the following is extracted:

“Commenting on Nama’s supposed unhappiness with the deal, Ms Birmingham said: “Nama has at all times since the start of its dealings with Treasury sought the reversal of this transaction as its clear effect was to diminish the assets available to creditors of Treasury Holdings including Nama, by far Treasury’s biggest creditor.

“At no stage has Nama accepted the propriety of what was done in the TAIL transaction,” Ms Birmingham added.

While Nama’s version of events in relation to the TAIL transaction dominated the front page of The Irish Times last Thursday morning, things took something of a twist in the High Court later that day when the agency’s Senior Counsel Paul Sreenan conceded, on foot of an interjection from Ms Justice Finlay Geoghegan, that Treasury had in fact agreed a specific pre-condition concerning the deal with Nama.

According to the Memorandum of Understanding (MOU) signed by Treasury Holdings with Nama on December 13, 2010, Nama, amongst other things, provided its consent for the transaction to proceed once it was granted specific security over the group’s charge over the TAIL shares, allowing Nama to benefit from the net proceeds of their sale.

Interestingly, the pre-condition contained in Treasury’s MOU with Nama also stipulated that 33.3 per cent of all future post-tax profits in excess of the €20m in TAIL shares would be remitted to the developer on the basis that the money would be used exclusively to repay its Nama debt.”

So then, what’s the big deal with the TAIL transaction if Treasury has, as it claims this morning, “unequivocally agreed” to NAMA’s requirements. The Memorandum of Understanding referred to above was signed in December 2010 – 14 months ago – so why is TAIL even an issue now? Or is it the case that although the MoU has been agreed, that Treasury hasn’t – 14 months later – complied with its requirements in terms of providing NAMA with security and undertakings in respect of the TAIL transaction, this after NAMA has advanced €103m to what seems like a deeply insolvent company. And if that is the case, was TCT being entirely frank in the implication of its statement which was that it was at one with NAMA in respect of the TAIL transaction.

NAMA was asked for a comment this morning, but given the ongoing court case, I wouldn’t hold my breath for any clarification.

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