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Archive for August 16th, 2012

The Germans call it “Das Sommerloch”, or “the hole in summer”; we call it “silly season” with holidays and inactivity stemming the usual flow of “proper news” and this year, the firing gun heralding its commencement has been fired by former banker, Mike Soden*, who gives us all a good laugh today, courtesy of the Irish Examiner who reports his comments.

Mike is reported to have said “The easiest solution, in my judgement, is that NAMA has got the responsibility of establishing a base price, or a floor price, for property in the country..because if you woke up tomorrow morning and the headlines in the Thursday property section of the newspapers read that property prices had increased by 10%, the wonderful factor of greed would re-enter the marketplace, and you would find that there is a turn in the marketplace”

Mike wants NAMA to set a floor in the Irish property market. Forget about the fact that NAMA only controls loans on 13,000 homes, with over 9,000 presently rented – all of this in the context of a country with 2m dwellings, nearly 300,000 vacant and an “overhang” representing a surplus over long term vacancy rates of 80-100,000. So NAMA’s potential impact on the Irish residential market, whilst not insignificant, is hardly dominant or market-moving.

NAMA does have a potentially dominant role in the Irish commercial market, with the Agency saying it paid €9.25bn for loans secured by Irish commercial property, property which will probably be worth €6bn today in light of the 25% decline in property prices since 2009 and the fact that NAMA originally paid a long term economy value of about 10%. In 2011, the Irish commercial property market saw less than €500m of transactions, and this year isn’t shaping up to be much better. So a €6bn portfolio is indeed market-moving.

The problem for NAMA is that it is already sailing very close to the unfair competition wind with its staple financing product, which as a result of NAMA’s ultra-cheap source of funding, government guaranteed bonds on which NAMA pays the 6-month Euribor rate of less than 1% per annum, means that NAMA has a potentially unfair advantage over its competitors in Ulster Bank, ACC and  BoSI/Certus, for example.

It might be a novel concept, but some people suggest that “the market” should find its own level, and absent artificial intervention from banks, government and NAMA, that level might be quickly established, which might boost confidence amongst potential purchasers – not to mention banks providing finance – previously deterred by the fear of further declines in prices.

Anyone with a pair of eyes can see the vast oversupply of commercial space in Dublin, with CBRE, Paribas, JLL and others wall-papering vast swathes of the capital with their “for rent” and “for sale” signs. “Supply” and “Demand” are the two pillars of “markets”, so until this oversupply is dealt with, you can hardly expect there to be a general floor, and certainly not one which NAMA can lawfully set.

Das Sommerloch is followed by Hundstage or “dog days” of sultry weather of late August and even less activity. On days like these, you might even yearn for to hear Deputy Damien “yeah but, no but” English hold forth on some subject or other!

*Mike is a former chief executive of Bank of Ireland, whose unlucky indiscretion in 2004 in accessing at work a prostitution website in Las Vegas ahead of a visit, led to his termination. He has been on the board of the Central Bank of Ireland since 2010, is the author of “Open Dissent” on the Irish banking crisis/collapse, and is widely regarded as a respected and knowledgeable banker.

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