Today sees the publication of the August 2012 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index 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 Index shows that capital values fell by 0.3% in August 2012, which along with the decline of 0.4% in July, and the 0.5% decline in each of May and June, represents. Prices reached a peak in the UK in June 2007 and fell steadily until August 2009 when a rally started. Prices then increased by 15% in the year to August 2010 but since then prices are actually down by 0.9% and in the last 12 months prices have decreased by 2.8%. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 8.3%. Commercial prices in the UK are now 36% off their peak in June 2007. The NWL index falls to 802 which means that NAMA needs to see a blended increase of 24.7% 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).
The table below shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner.
The overall outlook for the UK economy is muted in the short term with the country suffering a double dip recession after a quarterly declines in GDP in the first and second quarters of 2012 – 0.3% quarterly contraction in GDP in Q1, 2012 and 0.7% quarterly contraction in Q2, 2012. The UK has a so-called Office for Budget Responsibility (OBR) which is independent of Government and produces its own economic forecasts and commentary on fiscal policy. The latest report from the OBR was published on 21st March, 2012 and it forecasts GDP growth from 2012-2015 at 0.8%, 2%, 2.7% and 3%, deficit of 8.3%,5.8%,5.9%,4.3%, debt:GDP of 72%,75%,76%,76%, unemployment rate of 8.7%, 8.6%, 8.0%, 7.2%, house prices of -0.4%,0.1%,2.5%,4.5% and inflation of 2.8%,1.9%,1.9%,2%.
Monetary policy is overseen by the independent Bank of England and the current Bank of England rate is 0.5% and has been since February 2009. So far the UK has printed an additional GBP 350bn of new sterling in an economy of GBP 1.5tn – UK inflation since 2007 has been over 15% compared to near-flat prices in Ireland.
About half of NAMA’s portfolio was located in London which has so far performed very well from Aug 2009 to Dec 2010 but has been more subdued over the past year. Supply shortages and money chasing a relatively stable investment have maintained prices and there might even be a short term fillip from this year’s Olympics. Beyond London and the English south east, there is evidence of prices waning amidst sluggish economic growth and stunted lending. NAMA’s strategy for UK assets was revealed in the recently published Comptroller and Auditor General’s report. NAMA expects to dispose of half of its UK assets by 2013, and 40% extra by 2015 and just 10% by 2020. So by 2015, NAMA will have largely exited the UK market.
One of the most valuable Irish sales in London this year was concluded in August 2012 when David Arnold’s D2 Private sold 23 Savile Row in London’s West End for GBP 220m (€275m). It is not known if this is a NAMA related sale – David Arnold’s One Warrington Place in Dublin was a NAMA-related property but loans relating to D2’s Woolgate Exchange in the City of London have remained with the original bank, Anglo (or IBRC as it is now known after the merger with INBS).