Archive for October 1st, 2012

There is now a steady stream of bank-owned Irish property coming onto the market in spite of the uncertain economic outlook and the certain scarcity of finance. On Saturday last, the Belfast Telegraph reported that Bank of Scotland/Certus was bringing a GBP 7m (€9m) portfolio to the market, a portfolio which comprises 14 pubs, an hotel and commercial space. Osborne King are the selling agents – though the portfolio doesn’t yet appear to be online. The BelTel reported that the property was owned by pub landlord Harry Diamond.

And last week, it was Neil Callanan, the former business editor at the Sunday Tribune, now at Bloomberg who reported that on this side of the Border, the Royal Bank of Scotland/Ulster Bank is bringing a mixed portfolio, dubbed “Project Gemini”, to the market with a price tag of €75m according to Bloomberg. The selling agents are Savills and the listing is here and the brochure is here. The portfolio comprises 640 apartments, most in Dublin-some in Cork, an hotel and 200,000 sq ft of commercial space. With an annual rent roll of €5.5m, the reported asking price represents a notional yield of 7.3%. Who would buy such a mixed bag? Difficult to say, the Irish generally don’t have the finance but the portfolio looks as if it needs local management.

We should shortly get a trading update from NAMA as the Q2, 2012 accounts were due to be delivered to Minister for Finance Michael Noonan last week, but according to the Comptroller and Auditor General’s report on NAMA published over the summer, NAMA is generally hoarding its Irish assets as it focuses on disposing of the overseas globally dispersed assets. Outside NAMA, AIB has been flogging loan portfolios. Bank of Ireland appears to be reining in its disposals and IBRC seems to be mirroring NAMA (again!) with not very much coming onto the market. It may be the two British banks that lead the way with imminent disposals as they run for the hills.


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With the launch yesterday of a property price register in Ireland, we are now close to drawing a line under the relevance of the various asking price and estate agent notional valuation indices which prevailed for so long. Before saying “Good Riddance!” to the old price surveys, it might be worth stopping to thank those who have shed some light on residential property prices for so long whilst Officialdom prevaricated over the introduction of the property price register. For years, the good people at DAFT and MyHome in particular have given us an insight into price trends nationally and regionally and provided informed commentary. Time and money has been expended in the private sector to bring us some limited transparency.

Thank you, all.

But between asking prices which yesterday’s property price register demonstrates are all over the place, Marian Finnegan’s real/nominal and second-hand home dance and the lack of transparency in estate agent valuations which would otherwise be criticised for not being partial, for off-market transactions being ignored, for all of those reasons – Good Riddance! And before you feel too sympathetic for these sources, remember they should be financially compensated with the increased transaction levels which should pertain as a result of the transparency revealed in the property price register – asking prices should be more realistic, there should be less scope for protracted negotiations and buyer/seller expectations should be more closely matched.

So this is likely to be the last roundup on here because by January 2013 there should be some entrepreneurial move to create an index based on settled prices .We now have the quarterly reports and announcements from DAFT, MyHome and Sherry FitzGerald . Lisney may release its figures later this week, and DNG seems to have cropped up late in the day with its own survey which wasn’t tracked on here before and isn’t now given the imminent obsolescence of all of these surveys.

(1) At a national level, prices dropped 0-3% in quarter three of 2012 and 12-14% in the last year and are now 50-57% down from peak.

(2) In Dublin, prices fell 1% according to DAFT, but according to Myhome and Sherry FitzGerald were up 1-2% in the quarter. Annually Dublin prices are down 6-14% and are down 55-60% from peak.

(3) DAFT.ie and Myhome.ie both provide 26-county-by-county results.

(4) All sources indicate supply levels are stable at national level but have reduced in Dublin.

In terms of how the different sources compile their statistics this is what each has to say.

(1) DAFT.ie : Its index is based on properties advertised on Daft.ie for a given period. The national average is built up from Census weights per county, in effect ensuring the average reflects where people live, not any variations from that that may exist in Daft’s market share. The regressions used are hedonic price regressions, accounting for all available and measurable attributes of properties and only coefficients with a very high degree of statistical significance (p < 0.001) are used. The average monthly sample size for sales during 2009 was over 10,000. Indices are based on standard methods, holding the mix of characteristics constant, with the annual average of 2007 used as the base. A working paper on the methodologies employed in both rental and sales markets will be published on the Daft.ie website soon. Stock and flow statistics are calculated using consistent series for the period covered. The change to the national average price is built up from Census weights per county, in effect ensuring the average reflects where people live, not any variations from that that may exist in Daft’s market share.

(2) Myhome.ie : Its index is based on actual asking prices of properties advertised on MyHome.ie with comparisons by quarter over the last six years. This represents the majority of properties for sale inIreland from leading estate agents nationwide. The series in this report have been produced using a combination of statistical techniques. Their data is collected from quarterly snapshots of active, available properties on MyHome.ie. Their main National and Dublin indices have been constructed with a widely-used regression technique which adjusts for change in the mixture of properties for sale in each quarter. Since the supply of property in each quarter has a different combination of types, sizes and locations, the real trends in property prices are easily obscured. Their method is designed to reflect price change independent of this variation in mix.

(3) Sherry FitzGerald : Its index is based on the analysis of a basket of properties in its locations nationwide. Commencing in 1996 in the Dublin market, it was extended nationwide in 1999. Each basket of properties was chosen based on a weighted profile of properties in each location. The basket extends to over 1,500 properties, which are re-valued on a monthly basis for Dublin properties and a quarterly basis for nationwide properties with results produced quarterly. The basket is held constant and re-valued based on market evidence. Sherry FitzGerald through its franchise network is represented in every major city, town and county in Ireland.

So two of the above are asking price indices and the Sherry FitzGerald index is a valuation assessment index (akin to how SCS/IPD and JLL compile the commercial property indices as far as I can see)

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REG: They’ve bled us white, the bastards. They’ve taken everything we had, and not just from us, from our fathers, and from our fathers’ fathers.
LORETTA: And from our fathers’ fathers’ fathers.
REG: Yeah.
STAN: And from our fathers’ fathers’ fathers’ fathers.
REG: Yeah. All right, Stan. Don’t labour the point. And what have they ever given us in return?!
XERXES: The aqueduct?
REG: What?
XERXES: The aqueduct.
REG: Oh. Yeah, yeah. They did give us that. Uh, that’s true. Yeah.
COMMITTEE MEMBER #3: And the sanitation.
LORETTA: Oh, yeah, the sanitation, Reg. Remember what the city used to be like?
REG: Yeah. All right. I’ll grant you the aqueduct and the sanitation are two things that the Romans have done.
MATTHIAS: And the roads.
REG: Well, yeah. Obviously the roads. I mean, the roads go without saying, don’t they? But apart from the sanitation, the aqueduct, and the roads–
XERXES: Medicine.
REG: Yeah, yeah. All right. Fair enough.
COMMITTEE MEMBER #1: And the wine.
FRANCIS: Yeah. Yeah, that’s something we’d really miss, Reg, if the Romans left. Huh.
LORETTA: And it’s safe to walk in the streets at night now, Reg.
FRANCIS: Yeah, they certainly know how to keep order. Let’s face it. They’re the only ones who could in a place like this.
REG: All right, but apart from the sanitation, the medicine, education, wine, public order, irrigation, roads, a fresh water system, and public health, what have the Romans ever done for us?
XERXES: Brought peace.
REG: Oh. Peace? Shut up!
From Monty Python’s “The Life of Brian”, mixed feelings about the Roman occupation of Israel

The IMF missionaries are due back in the next fortnight to start their 10-day quarterly review of our adherence to the Memorandum of Understanding which sets out the terms under which the IMF has lent us €22.5bn. It might be worth remembering that the IMF came on the scene in November 2010, more than two years after our disastrous banking guarantee and after our GDP had seen a vertiginous drop, when we had 10%-plus deficits, when we had unemployment of 14% and when we were locked out of international bond markets which refused to lend to us at sustainable rates.  The IMF is loaning Ireland, a developed “First World” country an extraordinary amount of money by the IMF’s traditional lending standards, the IMF is charging us the standard rate which applies to the most impoverished country and the IMF’s main concern for Ireland is that we get back on our feet, deal with our unsustainable deficit and repay the IMF. Of course when it comes to closing our €13bn annual deficit, there will be difficult decisions which involve cuts and taxes even if we can deliver growth and investment, and because the IMF is at the centre of these discussions, it gets tarred with a brush for something which is not of its making. Remember also that IMF was supportive of Ireland imposing losses on bondholders.

An Toaiseach Enda Kenny has expressed his wish to wave goodbye to “Ajai Chopra and the IMF” at the airport at the end of next year. To the extent that such a wish is based on the hope that Ireland has gotten off its economic knees and is able to manage its budget, and obtain loans to finance any minor deficits, that is a hope we can all share. But to the extent that the IMF is delivering unprecedented reforms in the country in the face of opposition from the usual vested interests, it is not an exaggeration on here to say that the departure of the IMF at the end of 2013 is a worry, because the IMF has indeed delivered and plans on delivering historic reform to the way this Republic works.

You can thank the IMF for the residential property price register unveiled yesterday, you can thank the IMF for the – albeit limited – reform to our draconian, distorting, uncompetitive, uncapitalist, unsocialist bankruptcy regime, you can thank the IMF for an independent fiscal council which is still finding its way, you can thank the IMF for putting reforms to competitiveness in our legal and medical sectors on the table though there is obviously still much to do in these areas, you can thank the IMF for the central credit register which will promote responsible borrowing and lending. Some of these reforms need be fully realised – as the IMF recently noted, Ireland has the second highest expenditure on public health relative to GDP in the world, yet we have poor health outcomes, we have one of the highest expenditures in the world on public education yet our education results are mediocre, 20% of our medication is cheap non-generic compared with 80% in the UK. With respect to Kilkenny’s triumph yesterday, maybe it is the IMF members who should be carried aloft on shoulders to their next meeting at the Department of Finance, because the IMF is delivering real reform.

As a close observer of the IMF intervention in Ireland, it is almost comical to see this Government bend over backwards at the last minute to reluctantly implement the terms of the bailout. The fiscal council was supposed to have been up and running by Q2, 2011 and it was on 7th July 2011 when its members were appointed just in time for a review mission. We had the Personal Insolvency Bill in June just ahead of an IMF review and the IMF was not going to let the deadline for that term slip again.

There are still major reforms which will be fought against tooth-and-nail by the usual suspects, and you might recall that even the late Brian Lenihan admitted that in office he was overcome at times by the onslaught from vested interests. But as yesterday’s property price register demonstrates, when this Government is under close scrutiny from lenders it will comply with the conditions of the bailout. Those politicians who do want to see reform, and the media might do worse than hold the IMF to account to the softer terms of the Memorandum of Understanding, the so-called qualitative terms. And let’s use this unfortunate episode in our progress as a Republic to make this a better place for all.

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They say that sunlight is the best disinfectant and yesterday in Ireland we finally had some disinfectant poured on the vexed issue of house prices. After decades of waiting, it finally came down to 53,000-odd records, each with three main items of data – a date, an address, a price. In the end there was no uproar about data protection and in this day and age, extracting 53,000 records from the Revenue Commissioners database should not be beyond a State which boasts of being a global IT hub providing a home to most of the world’s biggest computer age companies. At last we can put an end to asking price indices, which even their promoters will admit are deeply flawed, at last we have prices for both cash- and mortgage-based transactions. We can now see the true state of property prices in Ireland, a country which has seen one of the steepest declines in residential property prices in the world. But why stop there, when there is so much more information out there which would improve property decision making in our society and help combat distortions, chicanery and uncompetitive behaviour.

Residential rents

Now that the data protection legislation has been judged not to be an impediment to publishing price information against specific addresses, there is no apparent legal obstacle to the Private Residential Tenancies Board (PRTB) publishing the applicable rent for all the rental properties which it otherwise publishes at present. The PRTB holds the details of 100% of private rental arrangements in the State, it makes available on its website the address and other details of each rented property. All it needs do is add a rent value and we will finally know the true state of rents in this country and not rely on estate agents providing the CSO with estimates which inform the inflation sub-index or DAFT producing indices based on asking rents. Not only would we have transparency but the Department of Social Protection would have better information on which to base its policies on rent assistance levels.

Commercial property sales

Property can be categorised in all sorts of ways but residential/commercial is a common split. There can be some grey areas like sites, hotels, student accommodation but if you say that commercial is everything that isn’t residential then that would include shops, offices, warehouses but also farms, development land, pubs, conference centres, private hospitals. Yesterday we got residential prices. The same rationale for publishing the residential property register – transparency leading to confidence leading to transactions – should also apply to commercial property. Remember the investment commercial property market – one sector of the commercial market – in Ireland was worth just €200m in 2011, down from €3bn at its peak, and despite stamp duty reductions, the abandonment of upward only rent review reform and other tax changes, 2012 is not looking to be a great deal better than 2011.

Commercial rents

We were supposed to have a database of commercial rents – and such a database was presented as part-and-parcel of the new residential property register – but alas the soporific Minister Shatter hasn’t gotten around to this yet. The rationale for the commercial rents database was to allow transparency in the market to create competitive rents, particularly in a State where there is still a general vast oversupply of commercial property with vacancy rates of 20-30% not uncommon in many sectors.

Other than through the IMF, it is difficult to see the practical source of the political motivation to address the outstanding areas of transparency – there are too many vested interests in this State who would prefer to keep us in the dark and close the curtains to prevent even existing chinks of light entering.

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Shame on RTE yesterday for headlining with an extract from a radio interview with Minister for Social Protection Joan Burton, an interview in which Minister Burton said she regretted her party and former Cabinet colleague, Roisin Shortall’s decision to resign. Yes, the Minister Reilly controversy is in the news but if the embattled health minister decides to have a boiled egg and soldiers for breakfast this morning, that hardly warrants a headline. And what was Minister Burton supposed to have said? She was delighted Minister Shortall resigned? Worse still for RTE, during the same interview on the Marian Finucane radio show on Sunday 30th September, Minister Burton let slip that NAMA faces a loss of upto €15bn. The Minister said at 1 hr 22 mins onwards in the following – click play yesterday’s show – that in relation to the bank debt shouldered by the nation

“… Not counting, by the way, another €30 billion that we’ve committed on NAMA, at least half of which we will get back”

Having a senior minister around the Cabinet table let slip such an admission surely ranks as more important news than stating the bleeding obvious, that she regrets the resignation of her party colleague. But this is RTE, a broadcaster which today would appear (again) to be ignoring the departure to bondholders of €1bn from this shores – and evidence in the public domain suggests bondholders are in the main foreign investors – at AIB, a bank into which we have poured €21bn so far and which, without taxpayers’ money, would be utterly bust. Mind you, this is the same RTE which failed to report the €50m loss in its pension fund in 2011 and instead broadcast headlines about a “deficit” of €16.8m as opposed to a fully recognised loss for the year of €70m.

So, unless the Minister was expressing a personal opinion on RTE radio yesterday, she is likely to be repeating a view which has circulated in Cabinet meetings. Of course the official line from Minister for Finance Michael Noonan is that NAMA is “confident” it will recover €30bn of the €32bn it paid for the €74bn of face-value loans plus NAMA is “confident” it will recover any additional advances and the cost of operating NAMA. It is an “aim” of NAMA to also recover the €2bn of the €32bn consideration for the loans it paid with subordinated bonds which will only be honoured if NAMA makes a profit at the end of its lifetime, scheduled to be in 2020. However, even NAMA itself is not expressing “confidence” that it will in fact make a sufficient profit so as to pay the €2bn, which means the taxpayer will be on the hook for this. And remember whatever “confidence” is being expressed by NAMA, that confidence is based on NAMA’s projections which have not been fantastically accurate up to this juncture. The view on here is that if the economy does return to normality and grow at a steady 3% per annum pace in the second half of this decade, then there is a chance of NAMA breaking even or perhaps making a profit. But who knows.

I can tell you neither NAMA nor Minister Noonan has a crystal ball capable of predicting the future, and if NAMA thinks it has spreadsheet macros which can predict future property values, then NAMA should just give away all its assets and have its 220 staff focus on selling the bloody macro to asset management companies around the world who would pay more than €30bn to be able to predict future property values.

What is absolutely dumbfounding is the fact – confirmed by Minister Noonan in a response to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty – that there has been no attempt to get the risk inherent in the NAMA operation transferred off the nation’s shoulders as part of the ongoing bank debt negotiations.

This omission represented unforgivable incompetence even before Minister Burton let slip that NAMA may face a €15bn loss.

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