THE State spent €1.8m buying three acres of land two years ago even though the building planned for the site was already in doubt. The land in Thomastown, Co Kilkenny is now worth around €40,000.
The site was earmarked for the new Health and Safety Authority (HSA) headquarters as far back as 2003.
But decentralisation plans were already in doubt when it was eventually bought in 2009. They have since been scrapped.
Auctioneers believe there is only a "very slim chance" that the State will now be able to sell the land. It is now likely that it will be rezoned back to agricultural use so it can be rented out to a farmer.
The Irish Independent contacted the Department of Public Expenditure and Reform on Wednesday. But it did not provide any answers on why the sale went through in 2009.
An advance party of 27 staff had moved to an "interim office" in Kilkenny city in 2008 while they awaited transfer following the completion of the headquarters. The bill for renting this office costs €79,000 per annum. It remains to be seen if the civil servants will stay in the rental accommodation.
Labour councillor in the area Michael O'Brien said it was clear in 2008 that the decentralisation "dream" was over.
At the time, he asked the Government to "cut the waffle".
However, the purchase of the three acres of land near Grennan College went ahead.
Other sites purchased for decentralisation projects include a 2.1-acre site in Drogheda at a cost of €12.4m; a three-acre site in Dungarvan for €2.1m; 2.1 acres in Edenderry for €1.5m; 5.3 acres in Mullingar for €8.25m; and three acres in Waterford for €8m.
- Eimear Ni Bhraonain
Monday, November 28, 2011
Landowners targeted for unpaid tax
27 November 2011 by Gavin Daly
The Revenue Commissioners have set their sights on landowners who got hefty payments, sometimes running to tens of millions of euro, from the state under compulsory purchase orders (CPO) during the boom years.
Hundreds of millions of euro were paid out to landowners in recent years when their land was bought under CPOs to build motorways and other infrastructure projects. The tax authority has now started auditing people who received CPO payments to see if they have paid capital gains tax, which is charged at 25 per cent.
According to internal Revenue documents, 50 audits have been completed so far. Just seven out of the 50 resulted in a 'nil yield' to the taxman, suggesting that the majority of those audited made some settlement.
Revenue has started its investigations in the east and south-east region, which covers counties Carlow, Kilkenny, Kildare, Laois, Meath, Tipperary, Waterford, Wexford and Wicklow. Revenue has written to the roads managers in all counties in the region, seeking details of all CPO payments they have made in recent years.
The majority of the country's main motorways pass through those counties. They included the recently-built M3 between Dublin and Meath, the M7 between Dublin and Limerick, the M8 to Cork, and the M9, which serves Waterford.
It emerged earlier this year that Laois County Council paid €54.9 million to 135 landowners along the final section of the M7. The landowners received 2006 prices for their land because the CPO legislation states that the price to be paid is based on land values when a local authority first moves to take possession of the land
THE State's toxic debt agency NAMA has lost a second director in little over two months. Former Bank of Ireland executive Michael Connolly resigned from the agency last night.
In a statement, NAMA chairman Frank Daly thanked Mr Connolly for his service on the board "during an exceptionally busy and challenging period".
Mr Connolly was in charge of NAMA's committee -- which oversees lending by the bad bank and signs off on any deals to roll over loans to developers. Mr Connelly stepped down just two years into a five-year term. He could not be reached for comment last night.
It is the second board level resignation from NAMA after Peter Stewart resigned in October. It is also the second board level resignation since London-based senior banker Michael Geoghegan undertook a wide ranging review of the agency.
The opportunity to fill the slots, combined with the Geoghegan review, may well provide Finance Minister Michael Noonan with a unique opportunity to put his own stamp on the agency. Appointments to the board are at the discretion of the minister.
- Donal O'Donovan
The commercial property market is full of contrasts. On one hand, the occupational end of things is doing quite well, with the levels of take-up reasonably good when compared with 2009 and 2010. On the other, the investment market is at a complete standstill pending the government's decision as to whether it will ban upwards-only rent reviews in existing leases.
Focusing on the occupational markets, the retail, office and industrial sectors all performed relatively well, particularly in prime areas. Vacancy is falling across all sectors in prime locations and, in general, take-up of accommodation is similar to pre-2005 average levels.
Commercial rents peaked in the latter half of 2007 and now seem to be at the bottom of the cycle. Lisney's rental indices show that, on average, commercial rents are down approximately 48 per cent, with office rents down by as much as 55 per cent.
In the office sector, take-up in the first nine months of the year was almost 131,000 square metres, surpassing the level achieved in 2010 as a whole (125,000 square metres). We estimate a year-end figure of over 160,000 square metres, which is in line with the 15-year average, excluding the boom period of 2006 to 2008.
The largest deals during the year include Google's purchase of Montevetro building on Barrow Street, and lettings to Paddy Power in Belfield and Bank of Ireland in Burlington Plaza.
Unsurprisingly, Grade C buildings (obsolete or nearing obsolescence) are only securing a small proportion of market activity. In the first nine months of the year, such accommodation only accounted for 4.2 per cent of all take-up. With rents for better quality buildings so low, occupiers are now able to secure good quality, well-located buildings on excellent terms.
This will lead to some issues towards the end of 2012 when very little Grade A (new and never occupied) stock will remain available. With only 11,100 square metres of new space completed so far this year, the vacancy rate continues to fall, and is likely to maintain this trend given that there are no new schemes planned for completion in the short term. However, vacancy is still at historically high levels, with the overall Dublin market at 21.2 per cent, but with certain suburban areas over twice this figure.
Moving to the industrial market, overall activity levels are similar to 2010, which is good news as it points towards steady demand. We estimate a take-up of between 140,000 and 170,000 square metres this year, depending on whether or not a number of large deals are completed by year-end.
Since the summer months, we have seen an increase in the number of smaller transactions of less than 1,000 square metres. The reason for this seems to be that some small businesses now have a bit more clarity on how their business will perform over the coming year, and are therefore willing to enter into very flexible leases to reflect this.
With the larger transactions, demand is being driven by logistics operators connected with the food and medical sectors, but this demand is not to the same degree as was seen in 2010.
Over the 12 months to the end of September, available industrial accommodation decreased by 2.6 per cent. This figure would have been greater but for a large number of premises coming to the market through receivers. Overall, the vacancy rate for industrial property in Dublin now stands at a rate of about 17 per cent but, as with the office market, there are wide variations across geographical areas.
In the retail market, trading remains tough. Central Statistics Office statistics illustrate that the volume and value of retail sales are still falling, down 21 and 26 per cent, respectively, since mid-2007, while consumer sentiment remains low.
Rents in this sector have fallen by an average of 40 to 50 per cent from the peak of the market, and for the past two to three years, new international retailers to the Irish market have been taking advantage of this and signing deals on flexible terms. Their interest is focused on prime high streets and in prime shopping centres, and examples include Hollister, Republic, Name It, Forever 21 and Abercrombie & Fitch.
A number of transactions were completed on Grafton Street during the year, indicating that the street's decline may have been arrested. Such deals include lettings to Disney and Skechers, and a sale to Brereton Jewellers.
Another notable development during the year was the first round of rent reviews in Dundrum Town Centre, where arbitrators awarded Zone A rental increases of about 50 per cent on initial rents. However, it must be remembered that many of these rents date from two to three years prior to the centre opening.
Single price and supermarket discount retailers are making up a large proportion of market activity as a result of expansion plans by a number of operators, such as 99p Stores (trading as Euro 50 Stores) and Poundland (as Dealz). In the supermarket sector, Iceland is expanding into a number of areas around the country.
Also in the supermarket sector, the Musgrave Group has reached an agreement to purchase Superquinn, which will push its market share ahead of Dunnes (at 22.9 per cent) and just slightly behind Tesco (27.9 per cent).
Availability on prime high streets and in core suburban shopping centres is reducing. While it is difficult to track exact vacancy levels, we have sought to monitor prime retail units in the Dublin market where no trading is taking place, ie a 'shutter count', and found that at the end of quarter three, unoccupied units on prime high streets and in prime shopping centres ranged between 1.6 and 5.4 per cent of the total number of units.
Moving on to the investment market, following some improvements towards the end of 2010, yields began to move out again during the year. When combined with some further falls in rents (albeit minor falls compared to previous years), capital values fell further. The IPD indices show that values are down by just over 63 per cent since the peak of the market in 2007.
The retrospective rent review proposal is having a major impact on the market, and will continue to do so until the government makes its mind up. In fact, it is the single biggest issue that has faced the investment market in a generation. We were promised draft legislation after the summer Dáil recess, however at the time of writing this has still not materialised.
At this stage, whether you are for or against the legislation is almost irrelevant - what is important is that something is done immediately, as the government's inaction is creating such uncertainty that the investment market is effectively dead.
During the early part of the year, a number of transactions that were agreed in 2010 fell through because of the proposals, the most notable of these being the sale of the Liffey Valley shopping centre. As the year progressed, potential purchasers sat on the sidelines waiting for the government to make a decision.
For the year to date, there have only been five significant investment transactions, totalling about €174 million, of which 77 per cent relate to special purchaser deals, ie Google and Penneys acquiring the accommodation they already held under a lease (Gordon House, Gasworks House and Chapel House).
In reality, investment turnover is only about €39 million, which is shockingly low. Even given the poor state of the property market, this is an exceptionally low level. Even in 1996 (before the property boom), investment turnover was €250 million, 44 per cent more than the €174 million experienced this year (and 543 per cent more than the €39 million figure). There were 30 more individual transactions completed in 1996.
Looking towards 2012, there are a number of positives to focus on.
Ireland has regained some ground in terms of competitiveness and certain occupiers are now making the decision to commit to Ireland - Google is a prime example of this. In the office sector, we estimate that there are combined occupier requirements of more than 100,000 square metres in the Dublin market, which is excellent news for take-up next year. Most of these companies have a preference for the city centre.
If you consider the prime city locations of Dublin 2 and 4, there are only 78,500 square metres of Grade A space available, and it is understood that much of this is under active negotiation. For larger occupiers requiring 5,000 square metres or more of brand new accommodation in this area, there are currently only five buildings to choose from.
It is likely that this scarcity issue will come to a head towards the end of next year, but the economics of the market are not sufficiently readjusted to make speculative development feasible yet - it may take up to two years for any significant growth to resume.
With industrial property, larger stock is again becoming limited, particularly accommodation greater than 10,000 square metres in the Dublin south-west region. In addition, Ireland is becoming a key location for data centre developments, with a number of high profile operators choosing to locate in Dublin.
During the year, companies such as Data Reality Trust, Amazon and Google secured sites for data centre schemes. With energy and labour costs continually improving, and if the correct investment is made in Ireland's bandwidth infrastructure, the country could become a leading international centre for data providers.
The drop in prime vacancy rates, coupled with an increase in the number of international retailers seeking representation in Ireland, gives cause for some optimism in the retail market. Nevertheless, it is likely that retailers will continue to adopt a cautious approach, with many becoming increasingly innovative and flexible in a bid to drive turnover and margins.
While rents now seem to be relatively stable - at or close to the bottom of the cycle - if the proposed changes to the historic rent review structure are implemented, we may well see yields settle at or about 100 basis points higher than historic levels.
The 20-year average prime retail yield is 5 per cent, and the office yield is 6.25 per cent. Yields settling closer to 6 per cent and 7.25 per cent will have major implications for Irish banks, Nama and pension funds, as it translates into a further 20 per cent reduction in capital values.
All things considered, commercial property performed reasonably well during the year, with perhaps the lack of any real investment transactions being the major disappointment. Hopefully, 2012 will witness further improvements, with renewed overseas interest from both occupiers and investors.
As is probably little surprise to most, house prices fell significantly again in 2011, the fifth year in a row that prices were lower at the end of the year than at the start.
According to Central Statistics Office figures, prices will fall by about 15 per cent in 2011, compared to 10 per cent in 2010 and 20 per cent in 2009. The average house price was down 44 per cent from the peak by late 2011, while the average apartment price was down 57 per cent.
Prices in Dublin have fallen the most - detailed regional information from the property website Daft.ie shows that while asking prices in some rural counties are down by 40 per cent from the peak, those in Dublin are down by more than 50 per cent on average. If the typical buyer is securing a discount of about 10 per cent of asking price, this means that prices have fallen by 55 per cent in the capital.
At first glance, it might make sense that prices in Dublin are falling by more than they are elsewhere. After all, isn't that where prices went craziest during the boom years? But 2011 also saw the first of the fire-sales of residential properties, principally by British auctioneer Allsop.
These fire-sales give us valuable data-points about what the 'sell-it-tomorrow' price of property around the country is currently, and they are telling us that property values are down by about 65 per cent in Dublin, but by up to 75 per cent elsewhere in the country.
So, are prices in Dublin falling by more or less? The answer lies in what economists call liquidity, the ease with which a seller can find a buyer. In markets such as Dublin, there are still some transactions taking place, so a seller is getting some signals from the market.
With lending down over 90 per cent though, there are very few transactions happening in most parts of the country outside the main cities. This means that sellers in provincial markets find it very difficult to gauge conditions when they go out to sell and are thus, given the sums of money involved, cautious on cutting prices.
So Dubliners should not necessarily regard current trends that suggest prices for their homes have fallen by more as a negative sign, or that Dublin will be punished more for its boom-time sins. Instead, they should see it as a positive sign: if everywhere has to fall by, say, 60 per cent, then Dublin is closer to bottoming out.
But just how far do prices have to fall from the peak? There are the "gravity fundamentalists", those who believe that what goes up must come down, in house prices as in everything else. And, in large part, they are right.
House prices in Ireland in 1995, just as the Celtic tiger started, were no higher than in 1975, when records started, once general inflation is stripped out. So by their logic, the average house price will have to fall from €360,000 to about €100,000 before the market bottoms out, or a 70 per cent fall from the peak.
Stagnant house prices in Ireland over those two decades was nothing to do with a stagnant Irish economy. It's probably one of the strongest findings in relation to house prices internationally: once you take account of inflation, house prices don't go up.
For example, over the last 50 years, house prices in the US have increased ahead of inflation by less than half a per cent a year.
It even stretches to a centuries-long perspective: a study of one canal in Amsterdam found that house prices increased by less than 0.1 per cent above inflation between their construction in the 1600s and today. Housing may be very good at fighting inflation and storing value, but it's a terrible investment if you're looking for capital gains.
However, gravity is not the only force at work in property markets. If we want to understand where prices will settle, we need to take account of the huge changes in the Irish economy since 1995. In particular, the typical household has more earners and - believe it or not - each earner takes home a higher disposable income now.
Given that healthy housing markets are almost entirely based on mortgage finance, in turn reflecting a household's disposable income, this matters.
Assuming the underlying multiple of household income hasn't changed since the 1990s, this suggests that house prices need to fall about 60 per cent from their peak.
The income multiple is not the be-all-and-end-all, however. It doesn't reflect migration and the balance between supply and demand, for example. Nor does it reflect the fact that Ireland moved from its own currency to the euro.
To do that, we need to look at interest rates and at the ratio of rents to house prices.
Assuming the troubled euro survives (with Ireland still in it), this means that the average interest rate on a mortgage should be different to what we had under the punt.
The rate might not be the 4 per cent that fuelled the headiest days of the bubble, but it should be less than the 8 per cent average seen in the 1990s. If it's above 4 per cent, but below 8 per cent, you won't go too far wrong in assuming that Irish mortgage borrowers will enjoy an average interest of 6 per cent over the lifetime of their mortgages.
The other piece of the puzzle is rents. Rents reflect disposable income, but also incorporate everything from migration and oversupply to the value of local amenities. Ultimately, the value of a property is determined by its rental value.
This is why what happens in the rental market should be of interest not just for tenants and for landlords, but also for owner occupiers.
Since early 2010, rents have effectively stabilised, particularly in the cities, suggesting some underlying value for accommodation, assuming rent supplement is not distorting the market.
So if we know the level of rents and prevailing interest rates, where will house prices settle? The relationship between house prices and rents is not a straightforward one, but it's easiest to see it thus: annual rent relative to the house price is the equivalent of the interest rate on a savings account.
If someone offered you a 5 per cent annual return on savings, you'd take it in this environment. But if that 5 per cent was on property, which carries greater risk, would you take it? Currently, those buying at the fire-sales are holding out for a 10 per cent return.
This presents first-time buyers with an easy rule of thumb if they want to mimic those fire-sale purchasers: to come up with their offer, they need only find out the annual rental bill of the property and multiply it by ten. It would also, however, mean a 75 per cent fall in property prices from the peak.
Fire-sale prices are cash prices, and a sustained 10 per cent yield on property here would draw in international investors pretty quickly, pushing up prices: rental yields in most European countries are closer to 5 per cent.
Based on what happened in Ireland before the bubble, a market with normal channels of credit should see the yield settle about 6.75 per cent. If the rent-house price relationship does indeed go back to normal, and rents stabilise where they are now, this would suggest that the average house price should be about €150,000, or a fall of 60 per cent from the peak.
The key phrase is "normal channels of credit". As long as there is effectively no mortgage lending in Ireland - lending was down almost 95 per cent by mid-2011 - house prices will not stabilise where they "should" be. They will overshoot down towards the cash-only price we are seeing at the fire-sale auctions. And overshooting is very worrying for two reasons.
The first is the mortgage arrears problem. Contrary to the government's actions so far, variable interest rates of 4-5 per cent don't cause arrears: negative equity and unemployment cause arrears.
And government policy in this area, bullying the banks about interest rates, is not even neutral, it is actually making the problem of arrears worse. Diktats that prevent banks returning to sustainable lending at sustainable interest rates mean they lend less, which pushes prices even lower, making negative equity - and arrears - worse, not better.
The second problem with the lack of any functioning mortgage market is that overshooting on the way down dramatically increases the risk of a new bubble in future. It may seem contrarian to the point of comedy to be worrying about the next bubble already, but the danger is real.
House price expectations are adaptive: this means that people take what happened over the last five years, expect that to happen over the next five and base their decisions on that.
This behaviour is at the core of how buying frenzies and bubbles happen. So falling below a 'natural level' of house prices in Ireland of, say, €150,000 to a credit-constrained price of €130,000 and then rebounding back up is not the same at all as reaching that natural level and staying there.
Ultimately, we must remember that recovery in the property market is about transactions, not about prices. If credit returns at all in 2012, we may see activity return and prices level off in Dublin and the other cities. But credit won't return until banks are told as part of their stress-test check-ups that while they have to deleverage, new lending is a separate category.
If that doesn't happen, prices will continue to fall into 2012 and beyond. Even worse, they may overshoot, making the arrears problem worse and even risking another bubble.
Proposed scheme aims to revive property market
27 November 2011 by Richard Curran
Two Dublin businessmen have come up with a proposal for a scheme to encourage more house purchases without costing the state any money. Basil Good, joint owner of Isaacs Hotel and Property Group, and former Dublin City Centre Business Association chairman Paddy Monaghan, believe their proposal is better than the one put forward by the National Asset Management Agency (Nama) last week.
Nama announced plans to sell 5,000 houses as part of a scheme where the agency will guarantee the purchaser against the value of their house falling by up to 20 per cent over five years.
According to Monaghan, his scheme would actually bring in revenue for the exchequer.
Under his proposed Irish Residential Value Protection Scheme (IRPS), where a house is bought for €200,000, the insured risk would be 20 per cent over three years, equal to €40,000.
The government would guarantee up to €16,000. The seller would put €14,800 on deposit with his bank for three years, which would be called on if the house value fell.
This money would be refunded in full plus interest after three years if not called on.
The bank would have to put €5,200 into the scheme if the house value fell.
The purchaser would pay €111 per month for up to three years into a bank account to cover his/her share of the loss if called on, equal to €4,000. This would be fully refunded if not needed after three years.
Monaghan argued that there is a financial incentive and benefit for all four parties to carry out the transaction, despite all four of them sharing some of the potential risk.
"The banks would see more mortgage business and it would help stop house prices from falling, which affects the value of loans they already have," he said. He argued that, while vendors were taking a risk with up to €14,800, they had a better chance of getting a sale through under the scheme.
Monaghan argues that his proposal was better than Nama's because the state was only carrying 40 per cent of the downside risk, instead of all of it under the Nama scheme. He also argued that this scheme could be available for all houses, new and secondhand.
Monaghan and Good have put the proposal to a variety of industry groups, and to environment minister Phil Hogan and finance minister Michael Noonan.
Negative equity protection may simply distort house market - The Irish Times >>>This will lead to a further drop in prices as private vendors drop prices NOW to compete!
SHOULD THEY or shouldn’t they? The National Asset Management Agency seems determined to press ahead with its scheme to start selling residential properties with negative equity protection. The first 750 are due to go on sale in the new year and, if things go well, then up to 5,000 properties could be put on the market.
Under the proposal, the agency will absorb any fall in value of the property for five years after the sale up to a maximum of 20 per cent of the sale value. A mortgage based on the full sale price will be arranged through a bank, but will be adjusted after five years based on the market price of the property.
It’s a simple scheme and would seem to be a creative response to the fear holding back a normalisation of the market. It also chimes well with the notion of Nama trying to marry its commercial mandate with some sort of wider social brief.
The Government, however, or parts of it at least, is not convinced of its merits. In particular, the Department of the Environment and former minister of State with responsibility for housing Willie Penrose. They are reported to oppose the scheme on the basis that it represents an intervention in the market and may put a false floor on prices.
This new-found respect for the omnipotence of market forces is understandable given the events of the last decade, but arguably a bit simplistic. The property market at the moment is probably every bit as dysfunctional as it was in 2007, but this time fear has displaced greed.
The case for intervention at this stage on the way down – with prices off by 50 per cent –can be made in much the same way as the case for intervention on the way up long before 2007.
The other point to bear in mind based on recent experience is that if prices really have much further to fall, then the release of 750 properties backed by some sort of negative equity protection scheme will not make much difference.
This, however, leads on to what is the more interesting point: what happens to the market and prices if every seller is forced to offer negative equity protection.
It is not really clear if this point has been thought through, but it seems pretty obvious that if you are trying to sell a property on the same street as Nama and they are offering negative equity protection then you have not really got a hope.
If you want to sell your house you will have to offer something similar and there is at least one similar negative equity product on the market through a specialist financial services company – but to date take-up has been low.
What would be a game changer would be if the three banks that are earmarked to operate the negative equity protection scheme for Nama – Bank of Ireland, AIB and Permanent TSB – were to voluntarily offer the same product or a variant of it to private sellers at reasonable cost. This assumes they are interested in lending in the residential market in the first place. Which is another issue.
It would be even more interesting if the Competition Authority decided to get involved and force them to do so. Which it should do because, viewed from the narrow competition policy perspective, Nama is – with their assistance – abusing both its massive financial fire-power and its market dominance.
The normal competitive oversight of the banking sector has, of course, been set aside under the extraordinary powers the Minister for Finance has taken on to sort out the mess that is the banks. And presumably the authority can be told to back off, should it have the temerity to enter the debate. But as the Government discovered in the recent stand-off with the banks over passing on European Central Bank interest rate cuts, lack of competition can compound problems even in a banking industry as badly broken as the Irish one.
It is an interesting paradox. If you introduce a level playing field in which every vendor must be able to offer negative equity protection – at a reasonable cost to themselves – in order to be able to compete with Nama, then such deals will quickly become the norm.
What have you done then? Have you orchestrated massive – and in theory pointless – intervention in the property market or come up with a radical solution to a market paralysed by fear?
LANDLORDS WILL be prevented from putting properties up for rent if they fail to meet energy efficiency standards, Minister for Energy Pat Rabbitte has said.
Publishing the national Affordable Energy Strategy yesterday, Mr Rabbitte said he also intended to review fuel allowance schemes to prioritise “colder homes”. However, he said the schemes would not be changed in the upcoming budget.
Some €2 billion had been paid by the State in fuel supports in the last 10 years, while less than €200 million had been spent in bringing houses up to energy efficiency standards. Around 20 per cent of households are experiencing energy poverty but social welfare fuel payments had been “largely ineffective” in tackling the problem, Mr Rabbitte said.
“To be perfectly honest, with some of the money you may as well be throwing it into the furnace because it’s going up the chimney.”
He said the Department of Energy planned to work with energy suppliers, community groups and local authorities to identify areas at risk of energy poverty.
Households would be offered benefit entitlement assessments and advice on energy-efficiency measures. Economies of scale could be achieved through group home upgrade schemes being adopted.
Grants for retrofitting measures will be replaced by a pay-as-you-save scheme where the cost of the installation is factored into regular energy bills.
The extent to which some landlords had allowed the energy standards of properties to deteriorate was “one of the ugly faces of the boom”, Mr Rabbitte said.
“Some landlords care little for energy standards because they’re not the ones paying the heating bills.”
In future landlords would not be able to rent properties without building energy rating (BER) certificates, and by 2020 regulation would remove properties with a rating of E, F and G from the rental market.
The Society of St Vincent de Paul said there were “serious gaps” in the strategy, few firm commitments and a failure to mention the domestic oil sector.
“There is precious little regarding specifics or timescales in terms of future measures in the strategy. Specific and time-bound actions need to be named in order to adequately tackle energy poverty for those we assist in a humane and timely manner,” said John-Mark McCafferty, head of social policy and justice at the society.
Once the Landlord is in a position to be realistic with rental levels, there are numerous businesses looking to improve their location or increase the size of their trading area. We are receiving lots of enquiries from start-ups also. If costs can be controlled and a good service/product being offered, then business is possible and viable, even in this challenging environment.
These lettings have all taken place in the last fortnight.
Best of luck to all!
Wednesday, November 23, 2011
Irish banks’ asset quality will likely weaken further as mortgage arrears rise and a bottoming out in house prices hasn’t yet occurred, according to credit ratings agency Moody’s.
“We have been highlighting for a couple of years now that we expect mortgage arrears to rise substantially. That now has started to come through,” said Ross Abercromby, a London-based
analyst with Moody’s. “From a capital position, we think the banks have the capital but without doubt asset quality is likely to continue to deteriorate for a while. There doesn’t seem to be any floor yet in house prices.”
While Irish banks have enough capital under Moody’s “current stress scenario,” things could change given “everything going on in the euro area,” Abercromby said.
The banks, which remain highly reliant on central bank funding, are unlikely to regain access to the public debt markets before the sovereign, said Abercromby.
“We can’t really see that happening until the deleveraging process has very much worked its way through,” said Abercromby in a phone interview today. “We think it’d be difficult before
the government’s back in the debt market again.”
In the meantime, banks may continue to be able to issue small amounts of secured debt in private placements. With bank deleveraging plans set to run through 2013 and the government
aiming to be in the market by then “if everything went according to plan, then probably around that time” banks may be able to re-enter the public debt markets, he said.
Moody’s said in a report issued today that the outlook for Ireland’s banking system remains negative citing the banks’ weak funding and liquidity profiles, a very challenging operating environment and the rating agency’s view that profitability will remain weak.
“The substantial weakening in the funding and liquidity profiles of the banking sector is a key driver of the negative banking system outlook,” Moody’s said. “The banks continue to rely on short-term central bank funding from the European Central Bank and in some cases from the Central Bank of Ireland.”
Moody’s said that through its support for the troubled banking sector in recent years, the
government has significantly weakened its own credit profile.
“The banks now have to deal with the implications of this as the government aims to reduce its debt burden and restore its financial flexibility,” it said in a statement.
“In our opinion, the substantial reduction in the government's net spending between 2011-2015 is likely to place considerable pressure on the country's recovery prospects. This will have a significant impact on banks' profitability and is leading to a weakening of already poor asset quality,” it said.
The banks' credit exposures to Irish sovereign debt and to government-guaranteed debt issued by the National Asset Management Agency also contributes to the negative outlook on asset quality, it said.
“However, Moody's views the raising of substantial capital in 2011, mainly from the Irish government, as credit positive. The four domestic banks that are supported by the government now have the capital resources to cope with loan losses anticipated by Moody's stress-case scenario,” it said.
AN ANNOUNCEMENT on the future of Government plans to end upward-only commercial rent reviews in existing leases is to be made “shortly”.
Upward-only rent reviews were banned by the last government and legislation to effectively remove such clauses from existing leases is being examined by the Attorney General. The proposal would mean tenants who have an existing lease and who can demonstrate their rent is higher than the market dictates can appeal to their landlord and ultimately the courts to have a new rent set.
Minister for Justice Alan Shatter has previously indicated he would introduce the required changes as part of the Landlord and Tenant (Business Leases Rent Review) Bill 2011, the heads of which were published this year. Further details of the legislation are due to be published by the end of this month.
Asked about the timetable for the introduction of the changes, a spokesman for Mr Shatter said yesterday the Minister would “make an announcement shortly” on the Government’s intentions.
The comment follows a meeting between members of Retail Excellence Ireland (REI), which represents the State’s retailers, and officials of the Department of the Taoiseach. At the meeting, a number of issues such as VAT and the rent-review legislation were raised in the context of the forthcoming budget. It is understood officials were unable to give a fixed date for the introduction of the necessary legislation to end upward-only rent reviews.
David Fitzsimons of Retail Excellence, who attended the meeting, said it was not understood the legislation had been shelved.
“That would be an incorrect interpretation of what happened,” he said. “We understand the Attorney General is looking at some difficulties and there is a very large legislative programme, but we were not told it had been dropped.”
Mr Shatter’s press spokesman said he was not in a position to expand on the issue other than to say the Minister would make an announcement “shortly”.
Mr Shatter has told the Dáil the legislation was forwarded to the Attorney General “for further examination and development, having regard to the complexities attendant on dealing with existing leases”.
He had received representations from property interests “including the Society of Chartered Surveyors, Jones Lang LaSalle, DKM Economic Consultants, Retail Ireland, Retail Excellence Ireland and the Irish Association of Investment Managers”.
While the differential in prices will rise, sagging cross-Border trade could be hit by weakening euro
COULD A two percentage point VAT hike in the next Irish budget really propel more shoppers through the doors of retailers in Northern Ireland?
Major high street stores and supermarkets will certainly be hoping for more than a VAT hike south of the Border to boost their takings if latest industry research is anything to go by.
New figures from the British Retail Consortium show there has been a major slump across the board in the number of shoppers crossing thresholds. Jane Bevis, from the Northern Ireland Retail Consortium, says the number of people going into local stores dropped sharply in the three months to October.
Overall, Northern Ireland suffered a 5.5 per cent drop year on year in footfall between August and October. Not only did the number of shoppers drop sharply but there was also a major increase in the number of empty retail premises, Bevis says.
“Obviously trading is tough; Northern Ireland recorded one of the highest vacancy rates in the UK of 12.9 per cent, which is very significant.
“There is evidence that cross-Border trade has fallen off a bit this year. Major retailers and supermarkets have invested heavily in shopping locations close to the Border and obviously they would like to see an uptake in the numbers again.
“I think a VAT rise could cause a major leakage problem for the Irish Government particularly around Border locations,” Bevis says.
She believes that it is not just the large British multiples that might benefit from a rise in VAT rates in the Republic.
“Smaller retailers and shops also enjoy an associated benefit from any increase in footfall – the more shoppers going into shops the greater the benefit for the whole economy.”
But not everyone is convinced. Northern Bank chief economist Angela McGowan acknowledged the proposed VAT rate rise to 23 per cent – as opposed to the current 20 per cent in the North – will “widen the consumption tax” but she said cross-Border trade is heavily influenced by exchange rate movements.
“Although the euro has fallen only very slightly against the pound during of the ongoing sovereign debt crisis, any further weakness in the euro could easily erode the VAT incentive for people in the Republic to shop north of the Border,” McGowan warns. She believes the current economic backdrop is radically different to 2008 and 2009 when the cross-Border shopping boom was at its height.
“The exchange rate is not quite as favourable. The North’s inflation rate is significantly higher and there remains a significant differential in the VAT rate for the tourism sector – the level of VAT tourism in the North is much higher than the new 9 per cent rate for tourism products in the Republic.
“The last differential serves to remove the incentive for southerners to take a weekend shopping break in the North,” McGowan says.
According to Northern Bank, the North’s retail sector has been one of the hardest-hit local sectors in the economic slowdown. In its latest quarterly sectoral forecast report this week, it estimates there will be growth of just 1 per cent next year and possibly 2.3 per cent for 2013.
It also warns that the odds of the North slipping into recession have increased – to 20 per cent – and that risk could rise depending on how the euro crisis plays out.
The tightrope the economy currently walks is never more evident than in Newry, once regularly glancing over its shoulder at the Celtic Tiger and still the capital of cross-Border shopping. The city is successfully nurturing local exporting successes, such as Norbrook Laboratories and First Derivatives while trying to tend to casualties from the construction crash.
Conor Patterson, president of the Newry Chamber of Commerce and Trade, said the city “like the rest of Northern Ireland, Britain, Ireland and Europe” is trying to find a way out of the economic fog.
“We are not focusing on VAT rates or the like in Newry just now. Times are tough in Newry – it has been a tough 11 months so far and, like the rest of Northern Ireland, we are just battling to hold on to business.
“We have some great manufacturing and local tradeable services companies who are very successful exporters so in one sense it is a mixed bag for us.
“We’re focusing on Newry standing on its own merits – whether or not there is a VAT rise in the South.”
PROPERTY PRICES continued to decline last month, showing the biggest monthly fall in more than two years.
New data from the Central Statistics Office revealed the average price for residential property declined by 2.2 per cent in October, and dropped by an average of 15.1 per cent over the year.
The pace of decline has accelerated from September, when a fall of 14.3 per cent was recorded.
Home prices in Dublin have been more severely affected, falling by 3.1 per cent last month and 17.5 per cent over the year. House prices in the capital dipped by 3.2 per cent in the month, while apartment prices were 2.3 per cent lower. Over the year, house prices declined 17.1 per cent, while apartments were 21.2 per cent lower compared with the same period in 2010.
The rest of the country saw an overall fall in residential property prices of 2 per cent in October, and 13.8 per cent over the year.
Property prices have now fallen 45 per cent since their peak in early 2007. A recent survey of economists by Reuters predicted that house prices would continue to decline for some time, with a 6 per cent fall in 2012.
“Even allowing for the new initiative by Nama to offer a limited amount of mortgages with protection against price falls, as well as lower interest rates from the European Central Bank, the short-term risks to house prices remain to the downside in our view,” Bloxham economist Alan McQuaid said yesterday. He predicted a fall of about 14 per cent for 2011, with a 9 per cent decline next year before prices start to pick up in 2013.
“Dublin house prices are likely to lead the recovery when it does come given that the capital has the biggest concentration of people. But, the reality is that Ireland’s banks, recently faced with a fresh €24 billion bill to bolster their balance sheets, are currently focused on raising capital and selling assets rather than expanding their mortgage books,” he said.
PROPERTY TRANSACTIONS in China’s largest cities have fallen to dangerously low levels.
According to documents obtained earlier this year by the Financial Times, the China Banking Regulatory Commission (CBRC) ordered domestic banks to weigh the impact of a 30 per cent decline in housing transactions in “stress tests” aimed at determining the health of the Chinese financial system. While Beijing has been trying to rein in sky-high property prices, a China property slump would have a big ripple effect on the global economy. Construction of property accounted for more than 13 per cent of China’s economy last year.
In April, the CBRC told banks to test their loan books against a 50 per cent fall in prices, and also a 30 per cent fall in transaction volumes. In October, however, property transactions fell 39 per cent year on year in China’s 15 biggest cities, according to government data. Nationwide, transactions dropped 11.6 per cent, up from a 7 per cent fall in September.
The fall-off in transactions has affected developers’ cash flows and, in some cases, their ability to repay bank loans.
Rising defaults after a lending surge in 2009 and 2010, much of which ended up in the property sector, were cited by the International Monetary Fund this month as one of the Chinese financial sector’s biggest risks.
The CBRC has not released the results and declined to comment. But one analyst who reviewed the stress-test documents said they did not take into account the impact fewer deals and lower property prices would have on bank collateral.
The weaknesses in the Chinese scenarios echo earlier problems with stress testing in the EU, where regulators underestimated the potential impact of a sovereign debt crisis. – (Copyright The Financial Times Limited 2011)
THE NATIONAL Asset Management Agency is planning to press ahead with controversial plans to put 750 homes on the market early next year as part of a negative equity protection scheme.
The agency does not need Government approval to proceed, but says it “wants to bring all relevant stakeholders into the process”.
Informed sources say Nama is finalising plans on how the scheme will operate with special mortgages available through three banks, AIB, Bank of Ireland and Permanent TSB.
While it is piloting the sale of 750 homes, the agency has signalled that it would like to sell up to 5,000 homes. The plan created controversy after former minister for housing Willie Penrose expressed concern it was contrary to Government policy and could artificially inflate the property market before it hits the bottom.
The scheme works by waiving 20 per cent of the purchase price of a home if its value continues to fall over the next five years.
For example, if a couple bought a home from the banks via Nama for €200,000, the agency would defer payment of up to 20 per cent – or €40,000 in this instance – of the property’s current value.
The couple would only have to make this payment in five years’ time if the value of the property stays the same or increases. However, if the property is worth less than €200,000, Nama will waive up to €40,000 and repayments would be altered accordingly.
In recent weeks, Mr Penrose wrote to Minister for Finance Michael Noonan warning that providing incentives to buy houses would run counter to Government policies. The housing policy launched earlier this year identified tax incentives for housing as a driver behind the bubble.
While Nama is preparing to launch the scheme early next year, informed sources within Government say it has yet to be signed off. Mr Noonan said the details were being “reviewed” and he would respond to Nama. He noted the scheme had been approved by Nama’s board.
The scheme has attracted criticism. OECD economist Christopher Andre told a conference recently that providing incentives had proved to be “counter-productive” in other countries.
Nama, for its part, insists the scheme is a short-term measure and will not interfere with the market. Officials point out that the move would bring in more taxes. If 5,000 houses or apartments were sold for €200,000 each, this could raise €135 million for the exchequer through VAT receipts.
The most the State could lose, according to Nama, is about €65 million. This is the difference between the amount raised in VAT from the sales and the €200 million which might be waived.
The Construction Industry Federation says it provides a template that could be adopted
Monday, November 14, 2011
Grehans can't pay €300m each and blame NAMA for cheap sale of assets - Independent.ie >>>Agreed! NAMA is a disaster!
RAY Grehan has said that he and his brother Danny are not in a position to pay the €300m they each owe NAMA.
The brothers, who moved to the UK six months ago to start another business, will consider all options for the future. This could include filing for bankruptcy in Britain, he said.
The brothers, with addresses at Bateman's Row, Shoreditch, London, and Prince's Park Parade, Hayes, Middlesex, consented to the judgments being entered against them at the Commercial Court by Mr Justice Peter Kelly yesterday.
A barrister for the developers said that given the extremely large sums involved, they were anxious to take legal advice and had decided the "better course" was to consent to judgment despite having "genuine concerns" in relation to the sums sought.
Ray Grehan told the Irish Independent that the brothers were "disappointed" at the outcome.
He was also highly critical of NAMA, saying its actions against them were not in the taxpayers' best interest.
"We will have to take it on the chin, pick ourselves up and carry on," he said.
Now that the Grehans have agreed to the massive judgments against them, NAMA can pursue them to take their assets. The bad bank can seize valuable properties and assets they own.
If they declare bankruptcy in the UK, which is a shorter process than here, NAMA would have a fight on its hands to recover monies from them and would join the other creditors. It could also object to their bankruptcy application and to them being discharged from it after a year.
The brothers gave personal guarantees to lenders for loans taken out by their development company, Glenkerrin Homes, and for personal borrowings that amount to €49m which triggered this court action.
NAMA did not comment on the case yesterday. Earlier this week it secured a court order to have Glenkerrin Homes and another company wound up.
The Grehans must provide a statement of the companies' affairs to the High Court next month. Should they seek bankruptcy in the UK, NAMA will be amongst their creditors.
The brothers had built up a portfolio of properties in Ireland and the UK, including a new tower next to Canary Wharf. Their highest-profile deal in Ireland saw them pay €171m -- a staggering €84m an acre -- for the former Veterinary College in Ballsbridge in 2005.
For many years the Galway-born brothers' Glenkerrin Homes was a major house builder in Ireland.
Mr Grehan said NAMA sold three of its UK properties recently for "€50m less" than it had agreed to sell them. This shows its "lack of expertise" in managing valuable properties for the benefit of taxpayers he said.
"This is a major issue for the Government," Mr Grehan said.
The NAMA claim arose on foot of personal guarantees they gave to AIB for personal and company loans that include Mr Grehan's personal borrowings of €27m and his brother's €22m worth of personal loans.
The Grehans have been on a collision course with NAMA for many months. They initially signed a memorandum of understanding with the agency that would have allowed them to continue running the company with a view to paying off their debts in the longer term.
But tensions emerged when NAMA wanted to appoint former Bank of Scotland executive Harry Slowey as a non-executive chairman of their company and they objected.
NAMA subsequently moved to appoint a receiver to their companies which the Grehans challenged in court. NAMA ultimately won the day.
A barrister for the developers told the court that given the extremely large sums involved, they were anxious to take legal advice and had decided the "better course" was to consent to judgment.
The Grehans previously argued that AIB had loaned substantial monies on short-term facilities in the knowledge they could not be repaid in the short term. It was argued that AIB wanted to lend on short terms so as to avoid the due diligence required for more formal loans and the totality of the relationship with the bank should be examined.
- Siobhan Creaton and Aoife Finneran
Mansfield says group collapsed over bank's failure to honour loan agreement - The Irish Times - Fri, Nov 11, 2011
HOTELIER AND developer Jim Mansfield is opposing Bank of Scotland’s claim for summary judgment for €206 million against him on grounds including that the bank’s failure to honour an alleged agreement to lend him more money to complete the Citywest convention centre led to the collapse of the Mansfield group.
The claim that this “magnificent empire” collapsed because of the bank’s refusal to provide additional funds in 2008, when most of the Mansfield group loans were in “serious and repeated default” with more than €200 million owed to the bank, was “extraordinary” and unsupported, Paul Gallagher SC, for the bank, said.
Mr Mansfield’s case was “utterly fanciful” and among the most “far-fetched” to have come before the Commercial Court, Cian Ferriter SC, also for Bank of Scotland, said.
They were outlining the bank’s case for summary judgment against Mr Mansfield arising from his personal guarantees of debts on various of his companies.
Mr Mansfield, Tasaggart House, Saggart, Co Dublin, represented by Patrick Leonard, contends he has an arguable defence to the bank’s claim requiring the court to refuse summary judgment and allow the matter to go to a full hearing.
The hearing of the bank’s application concluded at the Commercial Court yesterday before Mr Justice Peter Kelly who reserved judgment. The case relates to loans provided by Bank of Scotland to HSS, Jeffel and Park Associates Ltd – of which Mr Mansfield is a director – to buy lands and develop a conference centre, offices, a golf course, residential units and a hotel.
The bank appointed a receiver to HSS in July last year.
Among various claims, Mr Mansfield has alleged business was conducted between him and Bank of Scotland via verbal agreements on funding with the paperwork put in place later.
He was not in court yesterday.
Sean Quinn, an Irish property mogul who parlayed a gravel pit into a sprawling business empire, on Friday declared bankruptcy in a Belfast court, unable to pay the €2.8 billion he owed to a troubled lender that Ireland nationalized in 2009.
By declaring bankruptcy in Northern Ireland, which is part of Britain, Mr. Quinn will have to wait only a year before he can start another business — a more lenient standard than in Ireland, where the waiting period is 12 years.
Mr. Quinn, 64, sharply criticized the Irish bankers who presided over Anglo Irish Bank, whose toxic debts were taken over by a state-backed “bad bank,” the National Asset Management Agency, and transformed into the Irish Bank Resolution Corp. that is now pursuing him for unpaid loans.
“I am certainly not without blame,” he said Friday. “I am not in the business of pointing fingers or making excuses.”
“However,” he added, “recent history has shown that I, like thousands of others in Ireland, incorrectly relied upon the persons who guided Anglo and who wrongfully sought to portray a blue-chip Irish banking stock.”
A court spokesman confirmed that the court had declared him bankrupt, Reuters reported.
Once dubbed the “Mighty Quinn,” Mr. Quinn started a gravel quarry on his father’s farm in 1973 and built it into the Quinn Group, an international conglomerate with interests in cement, plastics and glass, insurance and hospitality. He resigned from the company’s flagship, Quinn Insurance, in 2008 after the insurer was fined for breaching financial rules.
His fall came after he secretly invested in derivatives based on shares in Anglo Irish Bank, a strategy that went sour in 2008. These “contracts for difference,” or C.F.D.’s, enabled Mr. Quinn to bet on the bank’s shares without buying them outright, meaning he could win huge tax-free profits or take enormous losses.
Since then, Mr. Quinn and his family have taken legal action to contest the validity of his bank debts, arguing that the €2.8 billion, or $3.9 billion, was lent for the “illegal purpose” of propping up Anglo’s own share price.
With the bankruptcy filing, Mr. Quinn and the bank intensified their ongoing struggle. The bank is now evaluating Mr. Quinn’s residency and bankruptcy claim in Northern Ireland.
Mr. Quinn said he made the bankruptcy application in Northern Ireland because “I was born, reared and worked all my life in County Fermanagh.”
For years, Mr. Quinn shunned the limelight, living with his wife near the landmark Slieve Russell Hotel, which he owned. But while declaring bankruptcy, Mr. Quinn expressed some regrets about that strategy.
“I have never sought publicity,” he said in his statement. “Sadly, this now seems to have worked very much to my disadvantage, especially when compared with the sophisticated and massively expensive publicity campaign operated for and on behalf of Anglo.”
A version of this article appeared in print on November 12, 2011, in The International Herald Tribune with the headline: Irish Real Estate Tycoon Declares Bankruptcy in Belfast.
FORMER DEVELOPER John Fleming handed over his home and virtually all his personal assets to his creditors in the course of his bankruptcy, which was discharged this week.
The Fleming construction and property group went into liquidation in March 2010 owing just over €1 billion to banks, including the now State-controlled Anglo Irish and AIB, as well as KBC and Bank of Scotland.
Southend County Court in England this week discharged Mr Fleming from bankruptcy. He had been declared bankrupt in November 2010 following proceedings which he himself initiated.
His discharge means he has a clean financial sheet, and creditors such as the Irish banks cannot pursue him further. It also means the National Asset Management Agency (Nama), which took over some of the loans secured against Fleming group assets, cannot pursue him for any shortfall between what it realises from the assets and the loans.
Documents from the case show he handed over most of his personal assets to a group of Irish creditors that had secured judgments against him ranging from €15 million to €26 million. The creditors accepted these assets under terms of the bankruptcy settlement adjudicated by the court.
Assets handed over included his family home in west Cork, a number of properties and personal investments, and a series of family trusts. He was allowed to keep two cars, one for his wife’s use, clothes, valuables and cash, worth €49,000 in total.
The documents show in July 2010 he handed over assets worth €3-€4 million to Tom Kavanagh, liquidator of one of his main group companies, JJ Fleming Holdings, in settlement of a €15 million judgment. The company had unlimited liability and as a shareholder he was responsible for its debts.
Mr Fleming lives in Essex, where he moved in February 2010, which entitled him to apply for bankruptcy in Britain, where the law allows bankrupts to be discharged after one year. The period in the Republic is 12 years.
Mr Fleming’s business was based in Bandon. He began his construction business in 1975. The company worked on projects across industry, energy and pharmaceuticals, and earned a strong reputation for the quality of its work. It ran into trouble after it bought and began developing the Sandyford site, centred around a partially built 14-story block, known as the Sentinel.
Tivway paid €245 million for the 11.3-acre site in Sandyford in early 2006, just as the property boom was reaching its peak. Three years later, Tivway went to the High Court to seek protection from its creditors, and to have an examiner appointed.
The court appointed George Maloney of accounting firm Baker Tilly Ryan Glennon. The rescue plan put forward in late 2009 involved the sale of the building contract business to a new company, Donban, and handing over the Sandyford property to the banks, which could recover value as the market returned
Property - Society of Chartered Surveyors Ireland Property and Construction News - Mortgages missing key documents
Mortgages missing key documents
by Sunday Business Post 13.11.11
Mortgages missing key documents
13 November 2011 by Jon Ihle
More than one in ten mortgages held by the four remaining domestic banks is missing key loan documentation data such as property valuation, location or a property identifier, according to information in a technical paper published last week by the Central Bank.
More than 78,000 mortgages out of 688,000 loans surveyed for the study are missing key bits of documentation, which meant they had to be excluded from the Central Bank's detailed analysis of negative equity and arrears in the Irish mortgage market.
The loans represent €8.2 billion worth of mortgage debt out of nearly €87 billion held by AIB, Bank of Ireland, Permanent TSB and EBS.
The poor data quality could complicate the banks' ability to take security on the loans in the event of a default or voluntary surrender.
It could also give rise to legal challenges from borrowers who are involved in the repossession process or other legal resolutions of their debt problems.
Similar issues with bad loan documentation led to greater haircuts for the banks when Nama transferred billions in assets in 2009 and 2010, while banks in the US have been stopped from pursuing delinquent borrowers where loan data was incomplete or missing.
The gaps were discovered as part of an analysis by Central Bank researchers who were producing a paper for a conference on the Irish mortgage market on October 13. They found 10,094 loans lacked a property identifier, 35,044 had no initial valuation, 15,413 had no valuation date, and 18,628 specified no geographic location.
The news comes as BOI, KBC and PTSB have all reported a spike in arrears due to selected repayment of unsecured debt over mortgage debt in the wake of policy debates over debt forgiveness and a new bankruptcy and non-judicial debt settlement regimes.
Ireland may be watching its young graduates leave their homes behind in search of work, but many Britons are peering across the Irish Sea looking for a property bargain.
With prices at an all-time low, investors hope that the market has hit the floor and want to snap up cheap homes while they can.
Interest on the online property portal Rightmove Overseas in Irish property began to rise when the debt crisis hit the headlines, but now there are 39,000 searches for Irish property every month, making it the 11th most popular country on the site.
"Property prices in Ireland are at their lowest since 2003, so now is a great time to think about putting money into a renovation project or a newly built property before prices start to rise," says Tom Whale from Rightmove Overseas.
House prices in Ireland have been in a slump for four years and fell by 14.3 per cent in the year to September, according to the Central Statistics Office (CSO), based in Cork.
From their peak in 2007, average house prices are down by 43 per cent. Owners of flats in Dublin have been hit hardest, seeing a 4.8 per cent drop in September prices and a 59 per cent collapse from the highs seen during the Celtic Tiger years.
Prices are keen, but how do you get your hands on an Irish bargain?
"The first thing to say is that the Irish system is almost identical to the English system. Contract law is basically the same so if people have bought property in England it is really the same process," says Ronan O'Driscoll from estate agent Savills Ireland.
"What is different, however, is the extent of the collapse in value, which depending on the category of property, is down about 50 per cent but could be down by as much as 70 per cent from the peak. The official stats say prices have fallen on average by 43 per cent but that is understating the reality."
Mr O'Driscoll says that in a prime Dublin location such as Ballsbridge in the city centre, a typical two-bedroom flat in a quality development costs about €300,000 (£256,000). The peak value for this property was €700,000. In Docklands Dublin, also in the city centre, a similar flat might cost only €200,000, a 60 per cent reduction from its €500,000 peak price tag. Outside of Dublin he points to even bigger bargains to be had with three-bedroom semi-detached houses in a Midlands area such as Mullingar going for as little as €90,000 down from €250,000.
As many Irish homeowners struggle with arrears, banks will be unloading an increasing number of repossessed properties at auction. In April, Ireland held the first multiple-lot auction through auctioneers Allsop Space, and its success paved the way for two even bigger lots this year and another to follow at the end of this month. Residential lots likely to entice overseas buyers include a detached four-bedroom house in Shercock, County Cavan with a reserve price of €50,000.
"We have eight city apartments in Dublin city centre being sold with tenants and the reserve prices – one beds for €92,500 and two beds for €135,000 – are reflecting a 12 per cent rental yield," says Robert Hoban, director of Allsop Space.
Most properties in these three auctions exceeded their reserve prices, but in Allsop's September auction, a ground floor two-bed unit at Shelbourne Park in Dublin had a reserve of €130,000 and went to a buyer from England for exactly that.
Rental yields are by no means guaranteed, however, and there is a risk that rents are artificially inflated as a leftover from the boom time and may well falter at some point. There may be some cheap properties in the more rural areas and in the greater Dublin area but this is because those places were overdeveloped as people were forced to move further away when prices rocketed to unaffordable levels. Those values have now been damaged particularly badly and are attractive but these homes could prove too difficult to rent out today. There are thousands of empty flats clustered around the outer M50 motorway, but in the city centre, where tenants want to live, there is far greater rental potential.
"If people from the UK are considering investing in the Irish market they must be careful where they choose to buy," says Mr O'Driscoll. "Keep in mind the general neighbourhood, and transport links are critical. The nearer to the city centre the better because they don't have the oversupply."
Whether you pick a hot spot or not, property investment is still all about timing. International buyers with an interest in Ireland may be won over by the idea of buying an idyllic seaside property in Cork or a trendy new-build in Dublin on the cheap but there are some significant risks.
First of all, investing in property is an expensive game with stamp duty, surveys and legal fees to factor in so it isn't to be entered into lightly. And because property is so illiquid it should be treated as a long-term investment. The market could be in the doldrums for some time and Irish banks are in no position to lend. Cash buyers looking for a quick sale may find they have no one able to buy.
Above all, British buyers must be aware of the danger of investing in euros. Not only do they have to consider the exchange rate when buying and converting any rental income but also, because if the Irish bail out of the euro and their currency devalues, it could be devastating for anyone holding euro-based investments.
"Investing now presents real risks and is only for the very brave," says Simon Webster from independent financial adviser (IFA) Facts & Figures. "Anyone with any doubt should talk to someone who bought in Spain five years ago and now cannot sell for love nor money – even at a huge discount. With the increasing risk of a complete or partial unwinding of the euro (including Ireland's possible exit and subsequent devaluation of its own currency) I would look for property bargains outside the eurozone."
Tom Whale, Rightmove Overseas
"The interest in Irish property from the UK has increased dramatically over the past 12 months, as UK buyers realise that there is a surplus of properties at low prices all over Ireland. UK buyers and investors are purchasing with future price increases in mind, as well as looking to rent out the property to short-term holidaymakers and long-term local residents. With local Irish buyers finding it increasingly difficult to get on to the property ladder, rental yields can be very attractive and there is the potential for a good return on your initial investment."
AS a result of the expected 60pc peak-to-trough decline in residential property prices, Irish households are enduring an unprecedented collapse in wealth levels.
Although we don't have the data to detail its composition, it can be safely assumed that first-time buyers who purchased property close to the peak will bear the brunt of this collapse.
As a result, households have now switched to "debt deleveraging" mode. While this is the correct decision from an individual household's point of view, paying down debt en masse is resulting in what can be described as a "balance sheet recession", which will continue to affect household spending and investment levels for some time to come.
There is little by way of historical precedent for the scale of collapse in asset prices, but the performance of the Japanese economy following its collapse in asset prices in 1990 is instructive. The circa 90pc collapse in commercial property prices there created an imbalance between Japanese corporation's assets and liabilities that could only be closed by paying down debt. This created contractionary forces which were the root cause of the weak economic growth that persisted for over a decade. In contrast, Ireland is not in the midst of a corporate balance-sheet recession, but a household one.
The troika largely dictates the policies that Ireland must implement in the coming years. Internally, fiscal consolidation, banking sector deleveraging and private deleveraging are all contractionary forces. For example; banking sector deleveraging/restructuring has already heaped enormous losses on to the Irish taxpayer because private sector creditors have, by and large, been repaid in full. Fiscal consolidation also increases the difficulty for household deleveraging due to hits to disposable income. While Ireland has returned to growth, it is heavily dependent on exports. However, this is now very much under threat as the international economy, particularly the eurozone, heads towards recession in 2012. Ireland has received many plaudits recently, but growth may well fall short of expectations over the coming years, throwing plans off course.
The question, therefore, is whether the current policy direction is the right one and should it change to give Ireland a better chance to grow over the coming years? Given that Ireland continues to have one of the largest budget deficits in the euro area, it would be politically impossible to argue that fiscal consolidation should be slowed. In the case of household deleveraging, the process is largely wealth driven, which is difficult to influence.
Given that the majority of the banking system is still in government control, policies can be implemented to slow the process of deleveraging in this sector. The current policy states that the banking system must reduce its loan-to-deposit ratio (LDR) to 122pc by the end of 2013, through a process of asset sales and deleveraging.
The fact that much of the developed world's banking system is in deleveraging mode means it will be difficult to achieve competitive prices on Irish bank assets. Deleveraging is supposed to on "non-core" activities within the Irish economy, but the LDR targets provide perverse incentives for the banks to reduce the size of their loan books. An easing of the LDR targets would remove this incentive but this would require further assistance from the ECB.
Were it not for the insistence of the ECB, costs associated with the banking system would probably have been shared with private sector creditors by way of deeper burden sharing. The Irish Government did not, however, attempt to put the wider European banking system at risk by going down this route. This is particularly frustrating in the context of the proposals to cut Greek sovereign debt by 50pc and the recent payment of Anglo Irish bonds.
Given the continued downward momentum in domestic spending and the international threat of slowdown, that is unlikely to remain the case. Further European assistance in relation to the restructuring of the banking sector is required.
Dermot O'Leary is chief economist with Goodbody Stockbrokers. Maeve Dineen is away.
- Dermot O'Leary
Thursday, November 3, 2011
The Tipperary North deputy lobbied a government minister as part of Mr Mansfield's desperate plan to raise €250m to stop his Citywest hotel going into receivership.
The project to turn a disused shopping centre into a school for students from Saudi Arabia was spearheaded by former Mansfield Group chief executive Sean Whelan. It is thought that Mr Lowry's involvement with the project stems from his network of contacts in Saudi Arabia, which he has developed from travelling to the kingdom in connection with his refrigeration business.
Mr Lowry's involvement will raise questions about the TD's role in the matter.
The Citywest Institute of Education project was announced in February last year by Unicorn PR, the same company hired to promote a planned casino development in Tipperary, also backed by Mr Lowry.
The Saudi Ministry of Higher Education immediately denied it was sending students to the school.
Records obtained from the Department of Education have revealed Mr Lowry's intervention on behalf of the Mansfields in the Saudi school plan, the ultimate collapse of which led to the family's companies being placed under receivership.
Then-minister Batt O'Keeffe's diary shows how he met Mr Lowry at Citywest in October 2009 to discuss the ambitious scheme that would have created almost 300 jobs and seen 750 Saudi students learning English at the proposed school.
Mr O'Keeffe has told the Irish Independent how he "explained quite clearly" to Mr Lowry, the "serious issues" he had with the project.
The former minister said he didn't know why Mr Lowry was involved, adding: ". . . nor did I ask".
On the meeting at Citywest, Mr O'Keeffe said: "I made it quite clear at the time my dissatisfaction in relation to what was being proposed."
He said he didn't feel that the proposal offered diversity or integration for the students or "quality in terms of international education".
Previously released departmental records show how, months after this meeting, Mr O'Keeffe wrote to Mr Whelan at the Mansfield Group in March 2010 saying that his department's position on the Citywest school was being "misrepresented".
He warned: "The proposed model, as constituted . . . has the potential to damage Ireland's reputation as a provider of international education."
Mr Lowry's involvement in the scheme is reminiscent of his lobbying on behalf of businessman Richard Quirke who planned to build a casino, to be known as the Tipperary Venue, near Two-Mile-Borris in his constituency.
Valerie O'Reilly of Unicorn PR, who handled public relations for Mr Lowry's 2007 general election campaign as well as media queries for him in the wake of the publishing of the Moriarty Report, was hired to launch the Tipperary Venue and the school at Citywest.
However, both projects have since stalled.
Mr Lowry's involvement in the Saudi school planned by the Mansfield family will raise questions about the TD's role in the matter. Mr Lowry claimed that he was to have received no personal benefit from his involvement in the casino project, arguing that it would bring jobs to his constituency.
It is unclear why he took on his role in the promotion of the Citywest Institute of Education.
Despite attempts since Thursday to contact Mr Lowry, he did not respond to phone calls or questions sent to him by email. Staff at his office said he was away.
The news comes after Jim Mansfield was ordered last month to pay €74m to the National Asset Management Agency on foot of personal guarantees he gave for loans to two companies.
Mr Mansfield, who is in poor health, did not respond to requests for comment by the Irish Independent.
Former Mansfield Group CEO Sean Whelan could not be contacted.
- Cormac McQuinn