Archive for July 24th, 2012

We now have the main indices for Irish residential and commercial property prices and rents for the first six months of 2012, and it might be helpful to take stock of trends and the outlook for the remainder of the year. The predictions on here for 2012 were published at the end of December here, and are shown below – marked “original” – along with the actual results for 2011, declines from peak to the end of 2011, the mid-year 2012 actual outturn and revised forecast for the full year 2012.

It now seems on here that the decline in residential property will be less than originally predicted and the revised prediction is a 10-15% decline – the late introduction of the House Price Database and the absence of any detail yet on the new property tax and lower interest rates are contributory reasons for the reduction in the forecast from a 15-20% decline.

The severe reductions in rent assistance by the Department of Social Protection in January 2012 are the main reason for revising residential rent and the revised prediction is a 0-5% decline. The original prediction based on the 2011 trend was a 0-5% increase.

Despite the giveaway budget last December 2012, commercial property has performed worse than expected and the revised prediction is a 5-10% decline. Scarcity of credit and poor European and Irish economies have contributed to the revision from the original 0-5% decline.

The commercial rents prediction remains unchanged at a 0-5% decline. Despite claims of prime rents stabilising, there is an acute oversupply of non-prime property, and this property is being offloaded onto the market dragging rents down.

Main developments in January-June 2012

Europe is still in crisis, for a small exporting nation, we depend on a healthy Europe to support our economic advance. Forecasts of economic growth in the EuroZone and in the UK have been cut, and as I write this today, both Spain and Italy are on the brink of seeking bailouts which are beyond the capacity of the European bailout fund, which is facing a challenge in Ireland’s Supreme Court today and may also be de-railed by German constitutional court challenges, decisions on which are expected at the start of September 2012. For the first six months of this year, Europe has lurched hopelessly from one crisis to the next, with the core problem of sovereign, personal, corporate and banking debt still not being addressed.

Economic forecasts are worse, the Department of Finance forecast for GDP and GNP at the start of this year was 1.3% and 1%, the official forecast for GDP is now 0.7% and although there was no Department of Finance forecast in the April 2012 Stability Propgramme Update, the consensus is that we will have modestly negative GNP this year. GDP and GNP both declined in the first quarter of 2012 by 1.1% and 1.3% respectively. Unemployment is now at a record in this crisis of 14.9% and the job announcement “spectaculars” have been more than offset by the drip-drip erosion of employment. Construction and retail have suffered in particular, though there have been some bright spots, with Exchequer targets being met, service sector activity growing, exports up in the first quarter and consumer confidence showing signs of stabilisation.

Rent assistance reductions that were announced in January 2012 were more severe than expected on here. The average reduction was 13% with the highest at 29%.

Interest rates are trending downwards – against expectations on here – the ECB has reduced its main interest rate by 0.25% from 1% to 0.75% which means that nearly half Ireland’s mortgage borrowers have benefited from immediate reductions to their tracker rates, whilst variable rates have also trended downwards. Having crossed the 1% Rubicon in July, the ECB may again cut rates during the remainder of this year.

Credit availability is more restricted, although we’re still awaiting the mortgage figures for the second quarter of 2012, the results for quarter one were dreadful. Finance for commercial property isn’t any better with Bank of Ireland, and to a lesser extent Barclays being the only lenders of note into the sector. NAMA has committed €2bn for staple finance which might help (NAMA’s) commercial property prospects going forward.


Expected developments in July-December 2012

Property tax, although hard data is suspiciously hard to come by from Phil Hogan’s Department of Environment , Community and Local Government, it seems that 40-50% of households still haven’t paid the €100 household charge, even four months after the 31st March 2012 deadline. We can quibble about the level of compliance, but it seems that there has been massive resistance to the new charge. We know that the so-called expert report on the shape of a new property tax to take effect from the start of 2013, has been recently delivered to Cabinet, but we don’t yet have any detail, though there is much anxiety amongst home owners that they may face an average annual charge in 2013 of hundreds of euro if not €1,000. Given the requirement under the Troika memorandum to raise over €1bn in new taxes in 2013 and with options on income tax and social welfare rates apparently taken off the table, with VAT and excise taxes already at elevated levels, it is likely that any average new property tax be in the €300-700 range. Increasing the cost of home ownership should logically mean a reduction in home values.

House Price Database (register), Tom Lynch, the CEO at the Property Services Regulatory Authority says that we will have hard sales price data from September 2012, and we may even get data going back to 2010. In a buyers market, the new register should have the effect of beating down prices because buyers with the upper hand will automatically seek the lowest price based on similar property sales.

Europe, this is the wildcard because on one hand, if the EuroZone decides to abandon the 2% annual inflation target and print more money, then we might see inflation rising which will mean property prices increase. On the other hand, the EuroZone crisis may intensify, undermining growth and leading to further asset depreciation. Or the status quo of a slow brownout may continue. A wildcard.

More NAMA supply, NAMA’s residential property portfolio of 13,000 Irish homes worth about €2.5bn is not market-moving but it is still significant and at some point these homes will need come on the market if NAMA is to have its loans repaid, NAMA may rent rather than sell for the time being however. NAMA’s commercial portfolio, worth about €6bn is significant in a market which was worth less than €0.5bn in 2011. Over supply of vacant commercial property is still a major problem generally, though there are noted shortages in some locations for some types of property. NAMA might prefer to rent rather than sell, but the degree of oversupply is such that we can expect some NAMA property to come onto the market for sale.

Budget 2013, last year’s budget was the most commercial property-friendly budget in (my) living memory, with stamp duty slashed from 6% to 2%, with the abandonment of Upward Only Rent Review reform and capital gains tax incentives. Alas, the experience of the first six months demonstrates that more is needed to get the commercial property market moving. NAMA has a market-moving portfolio of commercial property-related loans and we might assume that Minister Noonan will give NAMA a willing ear for any proposed changes to the tax/regulatory environment. You can probably expect an extension of incentives for residential property also, though of course these will not be announced in advance lest they lead to a deferral of existing purchases.


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This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for June 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)
  • 12 months ago (June 2011)
  • the start of this year (end December 2011)
  • last month (May 2012)
  • this month (June 2012)

The CSO’s indices are Ireland’s premier indices for mortgage-based residential property transactions. The CSO analyses mortgage transactions at nine financial institutions : Ulster Bank, Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank of Ireland group), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The indices are 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 indices are averages of three-month rolling transactions.

Cash transactions: we learned from Minister Noonan recently that it should just be a “matter of weeks” before the CSO provides up-to-date information on the total market, including cash-transactions. This will be excellent news because there is increasing concern that although the CSO captures most 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. In February 2012 , 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 earlier this year 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 them says that almost three quarters of its auction transactions were in cash. The CSO still hopes 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. NAMA, which is not an honest broker in this discourse, said recently “the index indicates a decrease of 48% overall but we believe the market has decreased by 57% or 58% on average. The index simply has to catch up because the transactions on the market reflect that.” NAMA in particular seems to believe that prices outside Dublin have fallen significantly further than the CSO index suggests. We are now expecting the Property Regulatory Services Authority will introduce the new House Price Database in September 2012

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, in Dublin in April 2007 at €431,016 and outside Dublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI prices as sound and comparable to prices captured by the CSO series, then these would be the average prices today:

Nationally, €155,916 (last month €157,601, peak €313,998)

In Dublin, €185,225 (last month €187,147, peak €431,016)

Outside Dublin, €141,900 (last month €143,356, 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? After the indices rose in May 2012 for the first time since 2007, the declines have resumed with both Dublin and national, house and apartment prices declining. After all the talk of Dublin houses stabilizing, there was a decline of 0.8% during June 2012, and the average value of a Dublin home falling by €1,500 during the month.

Are prices still falling? Yes, by 0.9% nationally after the blip in May 2012 when prices nationally rose by 0.2% following a decline of 1.1% in April 2012, it was flat in March 2012 which followed a 2.2% decline in February 2012, 1.9% monthly decline in January 2012, 1.7% decline in December 2011, 1.5% decline in November  2011, 2.2% decline in October 2011, 1.5% decline in September 2011 and 1.6% decline in August 2011.

How far off the peak are we? Nationally 50.3% (52.7% in real terms as inflation has increased by 5.0% between February 2007 and June 2012). Interestingly, as revealed here, Northern Ireland is some 46.3% from peak in nominal terms and 54.0% 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. 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 31.0% from November, 2009.  The latest results from the CSO bring the index to 804 (24.4%) meaning that NAMA will need see a blended average increase of 24.4% 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 late 2012 following the passing of legislation this – read the latest on the House Price Register here. There are four other residential price surveys, based on advertised asking prices or agent valuations (see below, details here) – Phil Hogan’s 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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According to the unaudited 2011 NAMA accounts, the Agency spent a tad less than €10m on legal fees last year, and it has a budget of a staggering €25m under that heading for 2012. It is an almighty budget, especially when you consider the general maxim that winning parties in court actions can generally seek to have their costs reimbursed.

Yesterday in Dublin’s High Court, NAMA made an application with an individual, Cyril Barden, named as the respondent. We do not have details of the application, so have no further information on the respondent or the matter at issue. There is a 41-year old Cyril Barden from Wexford who is a director of at least two property related companies, Kellden Limited and Granitefield Manor Management Company Limited, but it should be stressed we do NOT know if this is the same Cyril Barden named in the NAMA application.

The application number is 2012/2762 S and the applicant is National Asset Loan Management Limited represented by solicitors Hayes. As is usual with recently-filed applications, there is no solicitor on record shown on the Court Service for the respondent.

There is a second application which is a month old, but for completeness, might be mentioned here. This is application number 2012/2505 S and the respondent is named as Nadine Terry. Again there is no further information available from NAMA or the Court Service on the respondent, so we don’t know who they are, but there is a Terry Nadine associated with developer Frank Conway of the Conway Partnership, but it should be stressed we do NOT know if this is the same Nadine Terry named in the NAMA application. The applicant in this case is again National Asset Loan Management Limited, again represented by Hayes solicitors.

So far in 2012, NAMA has made 19 applications in Dublin’s High Court and has been on the receiving end of a further six. There is no evidence to show that NAMA is involved in more legal action than the banks from which it acquired loans, but still, it is an impressive portfolio of litigation for just seven months. NAMA is also seeing court action in other jurisdictions including New York, Florida, Georgia, Toronto and London, and these are just the ones we know about!

In the past, NAMA has taken legal action against individuals to enforce personal guarantees or to secure personal judgments, but it should be stressed that we do not know if either of these objectives lies behind the current applications. NAMA generally doesn’t comment on individual legal cases.

UPDATE: 24th January, 2013. The Phoenix Magazine in Dublin, out today, claims to provide further detail on the Cyril Barden case. The magazine which strives to be satirical claims that Cyril is a “blueshirt” and cites his support for Wexford Fine Gael TD, Dr Liam Twomey in the 2011 General Election as well as a contribution of €650 to the same TD in 2007. The Phoenix says that NAMA is seeking a €10m judgment on the back of a development in Kilmuckbridge in Wexford by the Richmond Partnership. The Richmond Partnership included Cyril and the two Doran brothers, Michael and Martin who have both gone on to be declared bankrupt in the UK. The Phoenix notes that “last year” a notice was filed with the Irish Companies Registration Office in respect of a company in which Cyril is a director, Falcon Financial Limited, and the notice refers to an address for Cyril in Pembrokeshire in Wales, a little bit west of Swansea where Ivan Yates was declared bankrupt last September 2012. The judgment from the NAMA hearing presided over by Mr Justice Peter Charleton is expected imminently.

UPDATE: 5th February, 2013, Yesterday in the Commercial Court division of the High Court, NAMA obtained a €10m judgment against Cyril Barden on foot of loans originally provided to the developer by AIB and Bank of Ireland in respect of developments in Wexford, loans that have since been acquired by NAMA. Judge Charleton was presiding and dismissed Cyril’s defences which included being “denied fair procedures over the acquisition of the loans by NAMA and that no conclusive and final valuation of the assets were made prior to that acquisition” The Judge also rejected the defence that one of the loans was not repayable on demand.

UPDATE: 7th February, 2013. The High Court judgment has now been published.

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As former Anglo executives Willie McAteer and Pat Whelan contemplate the eventual possibility of an 80-year jail term each, arising from 16 charges laid before each yesterday in Dublin’s District Court, one of NAMA’s active law firms must be feeling distinctly uncomfortable.

In October 2010, the Irish Times reported – the report is now mostly behind a paywall but is substantially reproduced by the Broadsheet.ie here –  that major Irish law firm Matheson Ormsby Prentice (MOP) “advised the board of Anglo Irish Bank in July 2008 that the loans to the children of Seán Quinn to buy shares in the bank did not breach company law or constitute “unlawful financial assistance” It seems MOP in fact put their advice in writing to the Anglo board.

But yesterday in the Dublin District Court, Messrs McAteer and Whelan were charged with 16 counts each – one for each person to whom Anglo advanced loans for the purchase of its shares – of offences under section 60 of the 1963 Companies Act and each count carries a maximum penalty of five years in prison and a €3,100 fine. It might be a fair bet that both men are right now feeling a little miffed at the advice apparently provided to the Anglo board in July 2008! Neither man is understood to have entered any plea at this stage, both men have been released on bail and the matter is scheduled to be dealt with in court from October of this year.

It was revealed last week that NAMA has so far paid €994,000 to MOP for due diligence work undertaken during the acquisition of loans from banks by the Agency. But MOP is also on both NAMA’s enforcement and financing panels. MOP, whose chairman is Sir Anthony O’Reilly is one of Ireland’s leading law firms and has offices in Dublin, London, New York and Palo Alto.

Last week MOP was the firm of solicitors behind an application on behalf of NAMA at Dublin’s High Court.

NAMA was asked if it has plans to sever or suspend links with MOP after yesterday’s developments, if it still had confidence in the ability of the firm and the advice provided and if it had taken steps to investigate the newspaper report about the advice given by MOP to the board of Anglo. Any response will be posted as an update here. NAMA has in the past been eager to make it clear that it has not used the legal services of the firm associated with solicitor, Brian O’Donnell who is being pursued for the repayment of property-related loans.

The Irish Times report deals with just six of the 16 individuals to whom loans were advanced by Anglo, the six being the five Sean Quinn senior children and Sean Quinn senior’s wife, Patricia. The other 10, commonly known as the “Anglo Golden Circle” or “Maple 10” appear not to feature in the advice reportedly given by MOP.

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