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Archive for the ‘vacant property’ Category

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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Media failure of the Week

This week’s long-awaited legal clash between Treasury Holdings and NAMA promised to have it all: a judicial review with Michael Cush SC set to attack the very core of NAMA’s being, the colourful Johnny Ronan on the stand as well as NAMA’s owlish Brendan McDonagh being subjected to some fairly intrusive questioning. The judicial review hearing commenced on Tuesday and sure enough there was media reporting of Day One. On Day Two, RTE filed a report, so did the Irish Times courtesy of Mary Carolan (pictured top) and the Independent produced a remarkably similar report by Tim Healy (pictured bottom).

 

But after Wednesday, there seems to have been a media blackout. It’s potentially a critically important case for NAMA, because if the Agency is held to have acted unlawfully in its dealings with Treasury, there might be an avalanche of claims by other disgruntled developers whose loans have been foreclosed.

Runner-up this week must go to all the media organisations that turned up at the Battle of the National Library; that’s where TV3’s political editor Ursula Halligan is accused of “leading a charge” – sounds like something out of Crimean War! – on An Taoiseach, who is said to have nearly collapsed into a flower pot surrounded by the press pack, baying for comment on his stance on gay marriage. Sadly, there appears not to have been a single image from a stills photographer or cameraman or indeed a sound recording of the incident. Strange that.

Demolition (arithmetic) of the Week

€0

The amount of money spent by NAMA on protecting and maintaining a 12-apartment block on the Gleann Riada estate in Longford between December 2010 and July 2012.

€150,000

The amount of money put aside by NAMA to demolish the 12-apartment block on the Gleann Riada estate in Longford

€235,000

The amount fetched at auction Friday, of the 14 part-complete houses at Castlemaine (pictured below), a ghost estate at Annagh Banks in Kerry.

€122,500

The amount fetched at auction in May 2012 of an unfinished group of three houses in Cavan.

In fairness to NAMA, auctioneers have told me that some buildings they have seen will be beyond economic recovery but the fact remains in this case that NAMA didn’t even try, it seems, to sell the block. “It’s on a flood plain” seemed to be the NAMA deflector of choice, ignoring the fact that the rest of the estate is presumably also on a flood-plain, and if there are measures taken to protect the estate, they would presumably have been taken for the apartment block also.

Economic bright-spot of the Week

On Tuesday, the Department of Finance released the June 2012 Exchequer Statement, and, overall, it is revealing remarkably good news. Despite the State slipping back into recession in Q4, 2011 and both the domestic and international economies still facing considerable challenges,Ireland is on track to meet its deficit reduction plan in 2012. Not too shabby. Income tax and corporation tax account for most of the good news (see below), but it is encouraging that VAT is also on target despite the hike at the start of 2012. Minister for Finance, Michael Noonan says he is confident our deficit will in 2012, come in at less than the 8.6% agreed with the Troika. Not too shabby at all.

On Thursday, the National Treasury Management Agency managed to sell €500m of 3-month treasury bills at an interest rate of 1.8% per annum, the first such sale or issuance since September 2010. The issuance was oversubscribed with a cover of 2.8 times, and CEO of the NTMA, John Corrigan said most of the buyers of the bills were from overseas, market sources indicate overseas buyers might have represented 90%. The issuance was reported from New York to London to Frankfurt, and presented as a small sign of Ireland’s recovery. ECB president Mario Draghi did say (with emphasis added) “Ireland is a euro area country that, through extraordinary efforts, has run a programme which is on track – so much so that Ireland returned to the markets today, if I am not mistaken. This is much earlier than anybody could have expected until two or three months ago. Even though this might not yet be part of a regular extended programme for a long period of time, I think that this success should be properly celebrated, and it is a testament to the determination of the Irish government and the capacity of the Irish people to understand and “own” this programme and make the needed sacrifices. I think this is very important. Actually, it is so important that an event like this could be one of the factors that are making the financial environment nowadays a little less tense than it was a month ago. I think this ought to be taken into account.” and there might be some concern at the interest rate paid when Ireland has access to cheaper funding, but overall it was a positive. And it is noteworthy that at the end of the week, Ireland has the second lowest yield amongst the PIIGS on its bench-mark bond and at 6.3%, is just 0.3% above top-of-class Italy at 6.03%.And we are now back to rates last seen in late October 2010, just before the Troika bailout.

Economic low-point of the Week

For a couple of months on here, there has been confusion at the apparently upbeat claims by the Government about unemployment on the one hand, and, on the other hand, the evidence from statistics and anecdote, and this week the Central Statistics Office confirmed that unemployment in Ireland had reached a record in the present crisis of 14.9% equating to around 310,000; this, despite apparently high emigration. It seems that some spectacular job announcements like the 1,000 jobs at Paypal in Dundalk are being offset by a high volume of layoffs that are not making the national headlines, plus some of the job announcements actually refer to recruitment over a period of years. There are approximately 450,000 on the Live Register which captures all recipients of employment-related benefits. The unemployment rate in Northern Ireland is 7.1% and is 8.2% overall for the UK.

Banking Shockers of the Week

In theUK, they are navel-gazing at the manipulation of interest rates by Barclays, and potentially others. Here in Ireland, we had a couple of court cases to shed even poorer light on the state and practices of Ireland banks

“In that regard, it is possible that the expert on behalf of Anglo has not yet fully appreciated how abnormal a bank it was…” High Court in Dublin judgment published this week where Anglo’s lending practices were examined, with stinging criticism from the judge. The case involved Belfast developer Peter Curistan and the Parnell Centre in central Dublin and the Odyssey centre in Belfast. Anglo lent money on terms which included a 25% profit share and a CB Richard Ellis valuation of the Parnell Centre that was bizarre. A couple of email messages reproduced in the judgment are unkind to other Colossuses in the world of Irish property development.

“About this time Mr McDonald [Bank of Scotland (Ireland)] told Mr Walsh that he was coming under considerable pressure to lend more money due to increased lending targets imposed by the bank and the bank was keen to expand the loan book to key customers and Mr Walsh was identified as a key customer or a preferred customer.  Mr McDonald advised that the bank had received particulars of Direct Line House in Leeds and it was proposed that Mr Walsh should acquire this property” High Court in Belfast judgment published this week where BoS(I)’s lending practices came under the spotlight. There were allegations of bankers driven to increase lending and informally waiving standard banking terms. The case involves Northern Ireland developer Chris Walsh and is set for a full airing in 2013.

And lastly – and although this is a month old – this little line from the sixth Troika review of Ireland hasn’t received any publicity. The condition of the four state-guaranteed banks – AIB/ESB, Bank of Ireland, IBRC and Irish Life and Permanent – deteriorated last year with the % of non-performing loans across all four rising from 12.1% to 19.5%. The Troika sounds a warning note about the immediate prospects for the covered banks with the continued de-leveraging of quality assets. Sobering.

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It will be another few weeks before NAMA finishes with its wrecking ball at a block of flats in the Gleann Riada estate in Longford but the Agency has said that it has no further plans at present to demolish more property. In a response to a question in the Dail on Thursday from Fianna Fail’s Timmy Dooley, the Minister for Finance Michael Noonan said that although NAMA controls loans underpinned by 179 so-called ghost estates, the Agency has no plans at present to demolish any more. Last October 2011, a report by the Department of Environment, Community and Local Government revealed that there were 2,066 ghost estates – housing estates built during the boom years which are still part-complete, empty or substantially empty.  29 such estates are controlled by NAMA and are in desperate need for completion works – foot-paths, sewerage, lighting. A further 150 estates are controlled by NAMA but are largely completed. NAMA now says that it hasn’t plans to demolish any, but its decision-making is dependent on economic viability and structural issues.

The full exchange is here

Deputy Timmy Dooley: To ask the Minister for Finance his views on whether the National Assets Management Agency will engage in demolition of part built housing schemes; and if he will make a statement on the matter.

Minister for Finance, Michael Noonan: NAMA have advised me that there are no plans to demolish further developments but it may be considered as a means to reaching resolution on properties where; a) the economic viability of the site is otherwise in question, or b) due to structural or other considerations, the development is not viable.
As the Deputy may know, there was recent media commentary on a development in Longford which is to be demolished. I am advised by NAMA that the salient facts in this case were: NAMA acquired loans secured on this property in December 2010; the property, comprising two-bedroom duplex units and three-bedroom apartments, was poorly constructed, had been subject to continuous vandalism and anti-social behavior, including the removal of all fixtures and fittings and had become a significant source of concern for neighbouring residents.   I am further advised by NAMA that the property is located on a flood plain and in the middle of an industrial estate.   As a result of its condition and location, NAMA advises that the investment required to bring the property to a habitable state and to the point that it could be sold, in the unlikely event that a willing buyer exists, would be such as to make the investment uneconomical and that it is questionable whether structurally such works could in fact be undertaken. In any event, NAMA advises that Longford County Council, in detailing the Category 4 remediation works to be taken as part of the agreed site resolution plan in respect of this development, set out a requirement that the apartment block be demolished.

NAMA advises that to undertake the necessary remediation on this development, including the proposed demolition of this block, it had first to take enforcement proceedings over the property, which was a protracted process.

Following publication of the Report of the Advisory Committee on Unfinished Housing Developments in June 2011, the Minister for State with responsibility for housing established a National Co-ordination Committee to oversee planning and implementation of remediation programmes in respect of unfinished estates.  NAMA is represented on this Committee and is proactively engaged in policy processes aimed at the resolution of the problem of unfinished housing estates.

I am advised by NAMA that of the 243 estates categorised by local authorities as the most problematic from a public safety perspective (Category 4 estates), only 29 (or 12%) of these estates are controlled by NAMA debtors or receivers.  150 (or 10%) of Category 3 estates are linked to NAMA debtors.  NAMA is funding out of its own resources, through its debtors and receivers, the cost of urgent remediation work (estimated at €3 million) and significant progress is being made in this regard.

I am also advised by NAMA that it plans to invest substantial funding over its lifetime in preserving and enhancing the assets that secure its loans, including significant investment in assets located in Ireland, and that a substantial portion of its cash reserves will be used for this purpose. The Chairman of NAMA recently announced plans to invest €2 billion in this area by 2016. To end-March 2012, the Agency had invested over €1 billion in the preservation, enhancement and completion of property assets underlying its loan portfolio. Over €500 million of this had been committed to assets in Ireland and this is helping to secure the direct employment of thousands of employees in small and medium trading businesses located throughout the country, in addition to substantial additional direct and indirect construction and property related employment in general building works including re-fit, refurbishment and up-grade of NAMA-controlled properties.

NAMA has indicated its intention to rollout other innovations to support the resumption of more normalised activity in our property markets.  It has committed, for instance, to sponsor the launch at least one Qualifying Investor Fund (QIF) by the end of 2012, a proven mechanism for leveraging institutional investment. NAMA advises that it has identified over 3,000 residential units as being available and potentially suitable for social housing and it is working with housing authorities to determine the suitability of these units for the provision of social housing within their functional areas.”

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Just over a week ago, NAMA announced its first bulldozing: a 12-apartment single block on the Gleann Riada estate in Longford is to face the wrecking ball. Apparently there is a protected bird species obstructing the NAMA wrecking ball and it might be some time before the birds are re-housed before NAMA gets to work. Meanwhile 300-400 families in Longford are on the housing waiting list, some for more than five years. Despite the prominent announcement by NAMA of its first demolition, the Agency was tight-lipped about the details of its decision-making. We now have more details.

Yesterday, in the Dail the Sinn Fein finance spokesperson Pearse Doherty asked for details about the demolition. The full exchange is shown at the bottom of this blogpost. This section breaks up the component questions and answers.

Q: if he will provide details of the type of apartments involved
A: two-bedroom duplex units and three-bedroom apartments

Q: the present condition of the property, as well as the condition of the property; when NAMA acquired the underlying loans on the property
A: poorly constructed, had been subject to continuous vandalism and anti-social behaviour, including the removal of all fixtures and fittings

[Note, the Minister implies but does not make clear, the damage was done before NAMA took over the loans. Given NAMA’s previous explanations on a range of subjects, you might be right not to conclude when the damage was done, before or after NAMA took over the loans]

Q: the steps taken by NAMA to protect and maintain the property, including the amount of money spent on the property
A: No answer provided

[The implication from the response to how much has been spent on the property to date indicates that NAMA took no steps involving a financial layout to protect and maintain the property in the last two and half years, since the loans were taken over]

Q: the sales and marketing activity undertaken by NAMA to dispose of the property
A: NAMA advises that the investment required to bring the property to a habitable state and to the point that it could be sold, in the unlikely event that a willing buyer exists, would be such as to make the investment uneconomical and that it is questionable whether structurally such works could in fact be undertaken.

[In other words, no marketing of the property has apparently taken place]

Q: if NAMA considered a sales contract which would oblige the buyer to put the property in a sellable rentable condition;
A: No answer provided

Q: if he will explain the reason the property was not made available for auction
A: No answer provided

Q: the costs NAMA expects to spend on the property in future, including an accounting for the demolition costs
A: NAMA further advises that it has expended no monies to date on the apartment block other than monies incurred in the general remediation and upkeep of the overall development in which it is located; and that it has made a provision of €150,000 for all demolition and remediation works relating to the block

Q: if he will provide details of NAMA’s efforts to make use of the property for social housing in the context of the waiting list of 335 families in Longford
A: the onus is now on housing authorities to determine the suitability of these units for the provision of social housing within their functional areas

[So apparently no effort was made to see if this block might have been used to help house the 300-400 families on the Longford housing list. In fact more effort has been made to rehouse the birds presently lying between the block and the NAMA wrecking ball]

Deputy Pearse Doherty: To ask the Minister for Finance following the announcement by the National Asset Management Agency of its intention to demolish a block containing 12 apartments in Longford; if he will provide details of the type of apartments involved and the present condition of the property, as well as the condition of the property when NAMA acquired the underlying loans on the property; the steps taken by NAMA to protect and maintain the property, including the amount of money spent on the property; the sales and marketing activity undertaken by NAMA to dispose of the property; if NAMA considered a sales contract which would oblige the buyer to put the property in a sellable rentable condition; if he will explain the reason the property was not made available for auction; the costs NAMA expects to spend on the property in future, including an accounting for the demolition costs; if he will provide details of NAMA’s efforts to make use of the property for social housing in the context of the waiting list of 335 families in Longford..

Minister for Finance, Michael Noonan: I am advised by NAMA that it acquired loans secured on this property in December 2010; that the property, comprising two-bedroom duplex units and three-bedroom apartments, was poorly constructed, had been subject to continuous vandalism and anti-social behaviour, including the removal of all fixtures and fittings; and had become a significant source of concern for neighbouring residents.

I am further advised by NAMA that the property is located on a flood plain and in the middle of an industrial estate. As a result of its condition and location, NAMA advises that the investment required to bring the property to a habitable state and to the point that it could be sold, in the unlikely event that a willing buyer exists, would be such as to make the investment uneconomical and that it is questionable whether structurally such works could in fact be undertaken. In any event, NAMA advises that Longford County Council, in detailing the Category 4 remediation works to be taken as part of the agreed site resolution plan in respect of this development, set out a requirement that the apartment block be demolished.

NAMA has advised me that to undertake the necessary remediation on this development, including the proposed demolition of this block, it had first to take enforcement proceedings over the property, which was a protracted process involving the reinstatement of anIsle of Manholding company. NAMA further advises that it has expended no monies to date on the apartment block other than monies incurred in the general remediation and upkeep of the overall development in which it is located; and that it has made a provision of €150,000 for all demolition and remediation works relating to the block.

NAMA advises that decisions relating to the provision of social housing are a matter for the relevant housing authorities; that it has identified over 3,000 residential units as being available and potentially suitable for social housing and that the onus is now on housing authorities to determine the suitability of these units for the provision of social housing within their functional areas.”

UPDATE: 9th July, 2012. Fianna Fail deputy Robert Troy whose constituency  is the setting for Gleann Riada claims that for €150,000 the block which comprises 12 x 2 and 3-bed apartments could be made habitable.

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With the introduction of the House Price Database which should ensure all transactions – cash and mortgage – are publicly available, now kicked back to the end of 2012 it will be some months yet before we can finally wave “Goodbye and Good Luck” to asking price and estate agent valuation indices in Ireland. Personally I will be happy to see the back of them, or at least their supplanting by the House Price Database, because of the mish-mash of presentations which makes the assembly of the table below far more difficult than it should be. Sherry FitzGerald produce analysis of real – excluding inflation – and nominal prices and it isn’t always clear which is which – the others look at nominal only. DAFT produce an analysis of Dublin prices by Dublin region, but don’t seemingly publish an overall Dublin figure and it has to be requested every quarter. Myhome make their report available on their website some time after the results are released to the media. You’d almost think they wanted to obstruct analysis and comparison of their results, but that’s probably being overly sensitive.

As always, the accompanying narrative is interesting and, in particular, this quarter’s DAFT report coincides with a major piece of work to analyse price trends over the past five years, but it is still faintly ridiculous to have so much analysis of what are asking prices or valuation estimates. DAFT says prices in Longford fell by 13% during Q2, 2012 (after a rise of 10% in Q1,2012) – no doubt, that’s what asking price data is saying, but does anyone believe it?

What is noteworthy with this quarter’s reporting, is the effort to fashion a message that Dublin is stabilizing or indeed increasing whilst most of the country generally is still in decline. But if you examine the quarterly results, only Sherry FitzGerald shows an increase and that is just 0.1% – both DAFT and Myhome show declines for Dublin of 1.2-4.7%. DAFT shows all regions in Dublin declining over the quarter except Dublin city centre where prices were flat at 0.0% change. According to Myhome, there was a quarterly decline of 4.7% which would equate to a decline of 20% annualised and this is far from stable! Property markets can of course be segmented by area, even down to street or part-of-street level, and there can be a difference in type of property, apartment and house for example, or construction, new versus second hand. And prices within segments can differ from the market generally. The narrative from all sources is that transactions are taking less time to complete – though of course we still don’t have final prices generally – and that stock is declining.

We now have the three quarterly surveys from DAFT.ie, Myhome.ie and Sherry FitzGerald. There is a fourth quarterly Irish residential report from Lisney but its publication is out of sync with the others though it usually shows the same information.  Here’s the overview.

(1)  At a national level, prices dropped 1-3% in quarter two of 2012 and 12-15% in the last year and are now 49-57% down from peak.

(2) In Dublin, prices fell 1-5% according to DAFT and Myhome, but according to Sherry FitzGerald were up 0.1% in the quarter. Annually Dublin prices are down 10-18% and are down 56-60% from peak.

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

(3a) DAFT.ie says that for Q1, 2012, Longford recorded the biggest quarterly decline with prices dropping 13%. On the other hand, prices in Carlow rose by 9.8% in the quarter.

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 andDublin 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)

In addition to the above surveys, Ireland has two actual sale price series, one from the Department of the Environment Housing and Local Government which is an atrociously crude average of mortgage transactions and is issued six months after the event; the other is from the CSO and is issued monthly and is an hedonic index but only based on mortgages at eight Irish lending institutions. The Bill giving legislative effect to House Price Database  – called the Property Services (Regulation) Bill – has now been approved and should see a Database available from late 2012 and it will have historical prices from 2010.

In terms of outlook for property prices, who knows? This blog’s predictions for 2012 are here. These are the latest predictions/projects captured on here which I believe to be a comprehensive reflection of reported predictions and projections, though if you feel there is any omission, please contact me so that I can update the table; house price projections in Ireland can be a vexed subject!

 

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When the NAMA chairman Frank Daly made a speech last year to the Licensed Vintners Association, there were a few raised eyebrows at why NAMA would be speaking to a small group of pub-owners. This morning, Minister for Finance Michael Noonan was present at an occasion organised by an equally small organisation, Property Industry Ireland, in which Minister Noonan held forth on the state of, and prospects for, the Irish property industry.

The speech is here, there’s nothing really new in it, but there will be a few snippets of interest to the audience on here.

(1) It seems that NAMA is providing up to 75% of purchase prices through its vendor pricing scheme. The Minister said two weeks ago that it was 70%, but that was at odds with NAMA’s own statements on the scheme.

(2) “Banks have stated [presumably to Minister Noonan] that they have significantly increased the number of mortgage approvals given, however, mortgage drawdown remains low. They [the banks] cited two factors for this: In the country – uncertainty about house prices, and inDublin– house prices moving above the expected sale price.” That’s a strange turn of phrase – “house prices moving above the expected sale price” and presumably means that buyers aren’t buying property they think is too expensive.

(3) Under the heading “[Measures to stimulate property market] – [Initiatives]”, Minister Noonan says his “Department is taking a lead role in returning the property market to normal” though little detail is provided

(4) There is an awkwardly worded call for private sector involvement in new construction and development – “Private sector investment is now needed to complement these initiatives by the State and NAMA initiatives, including for instance vendor financing, which can help leverage increased private sector appetite for property-related investment in Ireland.”

(5) Minister Noonan claims that property – presumably both residential and commercial – is competitively priced – “due to the property crisis, property is currently extremely competitive in international terms.” The National Competitiveness Council, in a report published earlier this year, would seem to disagree…

(6) The Minister points out that there are varying vacancy levels across the State, which is true enough, but his conclusion might strike some as odd – “based on these figures, care is needed to ensure that there is a sufficient supply of houses in areas of growing demand such as Dublin, as the last thing we need is a surge in house prices.” It’s as if he is calling for speculative residential development inDublin.

As for Property Industry Ireland, it is not exactly clear what the raison d’etre of this organisation is; it appears similar to the Construction Industry Federation (CIF). The only news item on PII’s website is an article in the Irish Times by Bill Nowlan which begins “Ireland’s economy depends largely on property” Minister Noonan described the group this morning as a “think tank”, though there doesn’t seem to have been much publishing “thinking”since the group was formed a year ago.

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It’s been over two years since the NAMA CEO Brendan McDonagh told an Oireachtas committee that NAMA may eventually have to bulldoze constructed property, and this afternoon, the Agency has made its first demolition announcement – 12 apartments in a single apartment block on the Gleann Riada estate off the Strokestown Road in Ballyminion  Longford are destined for the wrecking-ball, it seems. NAMA says that the site is currently being prepared for demolition which is scheduled to take three weeks.

The Gleann Riada estate was built by Northern Irish developer Alastair Jackson and his company Eassda Ireland Limited, formerly known as Keygo Properties Limited. Alastair has since been declared bankrupt in the UK and his companies have agreed a €4m tax settlement with the Revenue Commissioners.

It is only the one apartment block that is affected by NAMA’s announcement this afternoon, and there are 90 other properties – all houses – on the estate  which are not affected. The 12 apartments are in one block, and NAMA says “none of which have been sold and which have fallen into disrepair”. Lisney has been the property receiver. NAMA claims that its decision to bulldoze is driven by a need to make the estate safe for other residents.

NAMA says that it is “involved with a relatively small number of so-called Ghost Estates (about 10%) and our priority in those where we do have an interest is first-and-foremost to make them safe for residents.  Where it is uneconomic to finish-out an estate or a part of an estate or if the Local Authority deems it to be structurally unsafe we will invest our resources in demolishing the relevant structure and ensure that it is made safe for other residents.  This will benefit residents of those estates and make the estate safe from a Health and Safety perspective”

A list of questions was submitted to NAMA including details of the apartments and their state of disrepair, sales and marketing efforts made and the cost of the demolition work which NAMA says it is funding. If there is a response, it will be posted as an update.

Allsop Space is selling another partly finished estate in Kerry in its auction next week; last month it sold an incomplete estate in Ballyjamesduff,countyCavan.

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Fresh from covering itself in poop last week when it took the “unprecedented” step of removing from its website, a working paper which showed that a significant number of Irish households would be better off on benefits, Frances Ruane’s government-funded ESRI this morning published its quarterly economic forecast. Often an outlier when it comes to projections, this mornings publication is very much in line with recent government forecasts with GDP forecast at (with last February’s forecast in brackets) 0.6% in 2012 (0.9%) and 2.2% in 2013 (2.3%) and GNP forecast at 0% for 2012 (0.1%) and 0.5% for 2013 (1.0%). Of course, none of us has a crystal ball but it is difficult to see, with ongoing difficulty in the UK, the rest of Europe and the US, how we will have GDP growth this year, and I would not be surprised if the Central Bank of Ireland quarterly outlook report due in July 2012 reflected that.

On Friday last, we had a bit of a laugh at Mark Fitzgerald of Sherry Fitzgerald’s musings on the recent Moody’s assessment of Irish property. Who knows if the Fitzgeralds enjoy a Sunday dinner together, but today, Mark’s brother John Fitzgerald and another ESRI researcher, David Duffy published a special report on the Irish housing market, in particular supply and demand, which makes the simple points that the over-construction in the last decade was more pronounced in some areas than others, and that in Dublin today, although the vacancy level is still above that in 2002, there is closer matching between supply and demand.

There is little reference to the availability of credit or construction costs or indeed very little on emigration, which almost criminally for a country historically scourged by emigration, is not routinely accurately monitored by either the CSO or the ESRI. However the conclusion is that we will need about 20,000 dwellings per annum to cope with household formation until 2015 even after “assuming significant emigration”, though there is little information given on what assumptions were made. Somewhere in Sussex, an hirsute Dutchman is choking on his chips with mayonnaise!

Somehow – and perhaps this is hypersensitivity – I get the impression the report wants to suggest an imminent flattening and rebound in prices. Its conclusion that the large numbers who have started renting since the 2006 Census may switch to buying seems to ignore what might perhaps be a just-as-likely possibility of renting numbers growing as existing households escape from under-water mortgages and contemplate an economy where it is expected we will still have 12%-plus unemployment in 2015. And the wording used in the conclusion – “when expectations change it is likely that the recent sharp fall in house prices will be halted” – is odd, given the recent two-month-running increase in prices in Dublin, does the ESRI that expectations have now changed because the “recent sharp fall” has “halted”, at least for two months running? Would have been great to be a fly on the wall during the dessert course at the Fitzgeraldses yesterday.

 

And lastly, for all the flak that was directed, by the ESRI and others, at the trio who produced the working paper “the cost of working” which was removed by the ESRI last week, today’s publication tells us that in 2001 Ireland had “total dwellings per thousand adult population” of 467 and “occupied dwellings per thousand adult population” of 467 also. Elsewhere the report says that there was an Irish vacancy rate of 9.8% in 2002 which seems reasonable. Never mind “peer review” just a common-sense second pair of eyes might have picked up on that clanger.

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This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for April 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 (April 2011)
  • the start of this year (end December 2011)
  • last month (March 2012)
  • this month (April 2012)

The CSO’s indices areIreland’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 ofIrelandgroup), 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: there is increasing concern that although the CSO captures data from the mortgage market, it omits cash transactions. The latest figures from the Revenue Commissioners are for 2009 which show that just 6% of transactions (by volume) were in cash. In February 2012 , estate agents DNG claimed that cash made up one third of the market. At the start of January 2012, Sherry FitzGerald said that 29% of its registered buyers were cash buyers, and mortgage expert Karl Deeter said on here that “what Mark Fitzgerald [of Sherry FitzGerald] said at the AIB meeting in December (we were at the same table) is that 30% of purchases were cash – I’d take that as being completions unless this is a case of crossed wires”. In addition, the Sunday Independent reported the former acting-CEO of the Irish Auctioneers and Valuers Institute saying that “I would say a quarter of deals at present are being done in cash”. The Allsop Space auctions won’t be representative of the general market but the latest analysis from them says that almost three quarters of its auction transactions were in cash. The CSO still hopes to have monthly data from the Revenue Commissioners from mid-2012 and it expects that it may subsequently be able to show the market size with its monthly release of the residential index. The perception is that cash transactions will be at keener prices than mortgage transactions because the buyer can move quickly and doesn’t need credit. If that perception is correct then the CSO may be understating – and potentially, understating substantially – the decline in prices. NAMA, which is not an honest broker in this discourse, said recently “the index indicates a decrease of 48% overall but we believe the market has decreased by 57% or 58% on average. The index simply has to catch up because the transactions on the market reflect that.” NAMA in particular seems to believe that prices outsideDublin have fallen significantly further than the CSO index suggests. A recent enquiry to the Property Regulatory Services Authority which will administer the new House Price Database asked about the launch date and the response was that it would be implemented as soon as practicable – sources suggest that will be Q4,2012. The CSO continues to hope that it can introduce supplementary property price statistics over the summer which will show the overall size of the market including cash transactions, which will give a solid basis for assessing the cash/mortgage elements in the market.

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, inDublin in April 2007 at €431,016 and outsideDublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI figures as sound and comparable to the CSO series, then these would be the average prices today:

Nationally, €157,360 (last month €159,044, peak €313,998)

In Dublin, €186,827 (last month €185,866, peak €431,016)

Outside Dublin, €143,148 (last month €146,061, 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 resumed their downward trend after being flat in the previous month. Prices outside Dublin continue to decline whilst for the second month running, prices in Dublin have shown growth, particularly apartments which were up 2.6%, though Dublin houses were up just 0.2%. Perhaps the long-awaited equalizing of declines betweenDublin and elsewhere is beginning.

 Are prices still falling? Yes and the index declined by 1.1% in April 2012 after remaining flat in March 2012 following a 2.2% decline in February 2012, 1.9% monthly decline in January 2012 which was also up from the 1.7% decline in December 2011 and 1.5% decline in November  2011 but in the same range as the 2.2% decline in October 2011, the 1.5% decline in September 2011 and the 1.6% decline in August 2011.

How far off the peak are we? Nationally 49.9% (52.4% in real terms as inflation has increased by 5.2% between February 2007 and April 2012). Interestingly, as revealed here,Northern Ireland is some 45.2% from peak in nominal terms and 52.6% 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 are now down 29.6% from November, 2009.  The latest results from the CSO bring the index to 817 (22.4%) meaning that NAMA will need see a blended average increase of 22.4% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index. Irelanddoes not yet have a publicly available register of actual sale prices, but one is expected in late 2012 following the passing of legislation this – read the latest on the House Price Register here. There are four other residential price surveys, based on advertised asking prices or agent valuations (see below, details here) – Phil Hogan’s Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end and not hedonically analysed – it is next to useless.

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Fact: NAMA claims that it controls loans underpinning 10,000 houses and apartments in the Republic of Ireland. It told an Oireachtas hearing in September 2011 “We believe that we have 10,000 residential units in our portfolio. Fewer than 2,000 of these would be regarded as houses, whether detached or semi-detached. We have approximately 8,000 apartments.”

Fact: NAMA says that the value it placed on Irish residential related loans was a total of €3.69bn, comprising €2.31bn worth of housing inDublin and €1.38bn for outside Dublin. The NAMA valuation includes an average of 10% Long Term Economic Value premium.

Fact: NAMA says that residential prices had dropped 50% from peak to 30th November, 2009, the NAMA valuation date – you’ll need take my word for this claim as NAMA has now removed from its website the transcript of its chairman, Frank Daly’s speech to the Licensed Vintners Association in March 2011.

So, taking account of the above three facts, this means that the average value of a home in the Republic of Ireland acquired by NAMA was €332,100 in November 2009 – €3,690,000 less 10% Long Term Economic Value divided by 10,000 – and that represented 50% of a peak value of €664,200.

This doesn’t look realistic, particularly when you consider that NAMA says that 8,000 of the 10,000 “residential units” under its control are apartments. NAMA was asked for a comment on its claims but there has not yet been a response.

For quite some time, the position on here has been that NAMA does not have the dominant position in Ireland’s residential market widely accorded to it. There are 2m homes in Ireland, of which 290,000 are vacant, of which 60,000 are holiday homes leaving 230,000 non-holiday home vacancies. The National Institute for Regional and Spatial Analysis believes that the overhang of vacant homes in Ireland is 80-100,000. “Overhang” means an excess over the long term average vacancy. The Republic of Ireland’s vacant housing rate is 14.5%, which is twice that of Northern Ireland.

So 10,000 homes subject to NAMA’s loans is significant but out of an overhang of 80-100,000 it doesn’t give NAMA a dominant position, unlike the Irish commercial property market where NAMA control 15 times the size of the total market in 2011. However the figures above indicate NAMA has either control over relatively expensive housing or it controls more than it is letting on.

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