The headline this morning with S&P’s report on Ireland will be that Irish banks may need a few more “red cents” in addition to the sums shoveled in after the March 2011 stress tests – this sentiment echoes that of the OECD, the European Commission and received indirect support from governor of the Central Bank of Ireland, Patrick Honohan who said banks will need more capital if, and that’s probably an important “if”, they don’t get to grips with distressed loans.
However the focus on here is property, and S&P sees residential property declining by a piddly 1% in 2013 and then remaining flat in 2014, or in other words saying we are at the bottom but it might be another two years at least before property prices nationally rise. That’s the national picture, the report refers to nascent price rises in Dublin.
On commercial property, there’s no quantum mentioned in the outlook, just that there will be “resilience” for best quality assets and declines in poor quality or badly located property. It should be noted that S&P is misleading when it says that “the IPD Index shows commercial real estate (CRE) capital values down about three-quarters.” – the latest IPD index indicates we’re down 66% to end September 2012, the more recent Jones Lang LaSalle index for Q4,2012 indicates we’re down 67% from peak.
Fitch said last week that its baseline outlook for Irish residential property was for a further 20% decline to give an ultimate overall peak to trough decline of 60%. This is identical to the latest outlook from the third of the big ratings agencies, Moody’s, last summer. So S&P appears to be saying it sees 50% as the ultimate decline from peak.
Minister Noonan last week criticised Fitch for not offering support for its outlook – though as far as I could see, they did refer to overhangs in supply, credit and mortgage distress issues. There is absolutely no support given in the S&P report at all for its outlook.