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Archive for October 24th, 2012

“Deputy Joe Higgins should note that the site is under the control of NAMA and that, as a consequence, Mr. Murphy does not gain. NAMA gains if there is any gain. NAMA represents the people in trying to get back the moneys that were lost.” Minister for Heath James Reilly in Dail debate on 3rd October, 2012

The controversy over the decision by Minister for Health, James Reilly to bump up a site belonging to his associate at 66,68,70 Dublin Street, Balbriggan, north Dublin to a priority list for the development of a primary care centre, just isn’t going away. The Minister has so far failed to provide credible criteria for his decision and from the reflection of the words and actions of former junior minister Roisin Shortall, there is a sense that the decision stinks to high heavens.

A couple of weeks ago, NAMA refused to confirm if it had discussed the site with Minister Reilly. The site is in NAMA as a result of the borrowings of businessman and developer Seamus Murphy being acquired by the Agency. NAMA cited its obligation to maintain confidentiality pursuant to Sections 99 and 202 of the NAMA Act

In the Dail this week however, Minister Reilly was asked directly by the Sinn Fein finance spokesperson Pearse Doherty if he had met with NAMA about the site, and the response was that yes, Minister Reilly met NAMA in April 2012. The Minister was asked for the nature of the discussions but he did not respond to that aspect of the question. The Minister says that he and his officials discussed “a number of PCC locations” with NAMA “including Balbriggan” but he then confusingly goes on to say “no specific address” was mentioned. It is unlikely that NAMA has myriad properties in Balbriggan!

So now, we have James Reilly having discussions with NAMA prior to his bumping-up of a site – belonging to his associate Seamus Murphy – to a priority list which prompted the resignation of his junior minister amid accusations against Minister Reilly of “stroke politics” and we also have NAMA saying it didn’t provide anyone outside the Agency with details of Seamus Murphy’s borrowings, meaning that when James Reilly claimed that Seamus Murphy would not benefit from the transaction, he could only have known whether the loan on the Balbriggan site was in excess of its sales value from someone other than NAMA, but Minister Reilly says he didn’t discuss the financial aspect of the site with Seamus Murphy. We are unable to judge if the discussion that James Reilly had with NAMA in April 2012 had any impact on NAMA’s intentions with the site, though NAMA is duty-bound to report any attempt to influence its decision on a property to the Gardai – “it is an offence to communicate with NAMA with the intention of influencing the making of a decision in relation to the performance of its functions.  If such an attempt were to be made, the Act imposes an obligation on an officer or Board member of NAMA to report it to a member of the Garda Síochána.”

The full parliamentary question and response is here.

Deputy Pearse Doherty: To ask the Minister for Health if he or his representatives have had contact with the National Asset Management Agency in respect of a property at 66, 68,70 Dublin Street, Balbriggan, County Dublin; and if so, the dates and nature of the contact.

Minister for Health, James Reilly: My officials and I met once this year with NAMA on 20 April 2012.  Within its commercial remit NAMA advises that it is at all times open to proposals which can contribute to the achievement of broader social and economic objectives.  In this context many issues of interest to the health services were discussed.  A record of the meeting shows that a number of PCC locations were discussed, including Balbriggan.  However, no specific address was mentioned.

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[UPDATE: 29th October, 2012. The transcript of the Committee hearing is now available here]

This afternoon, the NAMA CEO and chairman – Brendan McDonagh and Frank Daly respectively – made their way up the road from the NAMA HQ to attend an Oireachtas finance and public sector reform committee hearing. NAMA’s Head of Asset Management and NAMA board member, John Mulcahy turned up eventually despite the word on the street that he is up to his ears in dealing with what he describes as “shit” in the Agency. The opening statement by the NAMA CEO is here and the NAMA chairman is here.

Of course the Enda Farrell scandal was to the fore and NAMA came prepared to close down any examination with the old reliable that the matter was before the courts and was subject to a Garda investigation. It emerged that NAMA initially found out via the Deloitte investigation on 12th August that there was an alleged leak of information. NAMA says that “two or three debtors” have contacted the Agency to find out what data may have been leaked relevant to them – it is understood that David Daly, an ex-NAMA debtor who had his loans refinanced and Sean Dunne were two such debtors. NAMA says that there is one further investigation in train; this is likely refer to the matter reported by Ronald Quinlan in the Sunday Independent last week. What was new was that NAMA didn’t take the opportunity offered to it to say if there had been any staff suspension.

NAMA maintains that the alleged leak of information has not been prejudicial to its debtors and expresses confidence that the information has not been disseminated beyond the identified email recipients. Although NAMA previously stated that one of the reasons it protects the confidentiality of its sales, is that if prices were published, it would damage NAMA commercially – now NAMA says that the alleged leaks will not affect its commercial prospects! NAMA is also requiring buyers to assure the Agency that it is not connected with a NAMA employee. NAMA will not blacklist investors or suppliers of services after the Enda Farrell affair.

NAMA says that since October 11th, it is ensuring nearly all property sold by NAMA and its debtors is offered on the open market. This follows extensive  criticism of NAMA’s sale of property off-market. NAMA revealed that 200 approximately properties out of the 3,500 disposed of by NAMA debtors have been sold off-market.

NAMA accepts that where it sells loans, it loses control over the debtor who may go on to see immediate debt forgiveness from the buyer of the debt. NAMA has sold €1.9bn of loans to date. NAMA says that the ICG Longbow transaction was initiated by the other lender on the scheme.

NAMA expects over 1,000 properties to be actually transferred for social housing by the end of 2013.

The hearing is ongoing. The transcript and any other nuggets from the hearing will be posted as an update later.

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This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for September 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 (September 2011)
  • the start of this year (end December 2011)
  • last month (August 2012)
  • this month (September 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: With the launch of the property price register three weeks ago, the continuing relevance of a mortgage-only index from the CSO may be short-lived. Already DAFT.ie has begun the work to produce hedonic indices based on all the transactions made available by the Property Services Regulatory Authority, transactions dating back to January 2010. I would not expect the CSO index to be the foremost residential property index in the State by the start of 2013.

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, €158,322 (last month €156,879, peak €313,998)

In Dublin, €188,109 (last month €183,622, peak €431,016)

Outside Dublin, €143,981 (last month €144,189, 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? Prices nationally have risen for the third month in a row and the pace of increase has picked up – 0.2% in July, 0.5% in August and 0.9% in September The increase was focused on Dublin where house prices rose by 2.6% in the month, Dublin apartments were up by just 0.2% and outside Dublin, prices fell by 0.1%.

 Are prices still falling? No, prices are up 0.9% nationally in September 2012 following a 0.5% increase in August 2012 and 0.2% in July and a decline of 1.1% in June, an increase of 0.2% in  May 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 49.6% (52.2% in real terms as we have had inflation of just 5.4% between February 2007 and September 2012). Interestingly, as revealed here, Northern Ireland is some 53% from peak in nominal terms and 59.5% 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 in Ireland are now down 29.9% from November, 2009.  The latest results from the CSO bring the index to 792 (26.3%) meaning that NAMA will need see a blended average increase of 26.3% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index calculated from mortgage-based transactions. There are four other residential price surveys, based on advertised asking prices or agent valuations (see below, details here). In addition Phil Hogan’s Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end to which the transactions relate, and which is not hedonically analysed – it is next to useless, and as some might say is a reflection of Minister Hogan, the Department will continue to produce these indices at a “marginal cost”.

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