Saturday September 03 2011
Ireland's epic economic binge was so intoxicating that the ensuing hangover was certain to be a long, painful and humbling experience.
Yet there are encouraging signs that the worst is over. Other countries caught in the eurozone's sovereign debt and financial sector turmoil could learn from the way that Ireland is nursing itself back to health.
To be sure, challenges remain. Unemployment is at its highest level since records began in 1967. Financial distress among home-owners is so acute that more than one in 10 mortgages are either in arrears or have been restructured.
Domestic demand is too weak to propel economic growth, and Ireland's prospects for an export-led recovery will be damped by a darkening global outlook. Lastly, Ireland's banks still rely on large cash infusions from the European Central Bank.
Nevertheless, Michael Noonan, finance minister, was justified in telling parliament on Thursday that Ireland had made "considerable progress" in extracting itself from the emergency that forced it last year to negotiate an €85bn international support package.
Wage cuts and price deflation have restored Irish competitiveness. In contrast to Greece and Portugal, its fellow occupants of the eurozone's intensive care unit, Ireland's current account deficit is moving into a surplus.
The rebound is explained partly by the multinational companies, chiefly US-owned, that use Ireland as a European base. But Irish policymakers have played their part, too.
By honouring its promise to the European Union and International Monetary Fund to cut its budget deficit, Ireland is regaining the confidence of global investors.
The Fine Gael-led coalition government earned credibility after it took power in March by swiftly cleaning up and consolidating Ireland's banking sector. Outside assistance has helped: eurozone leaders acted wisely in July when they eased the terms of Ireland's rescue loans.
All this explains why, despite severe debt market turbulence in July and August, Irish 10-year government bond yields have fallen to less than 9 per cent from over 14 per cent.
The patient is not yet fully on his feet. But Ireland is showing that, under the right conditions, recovery is possible. (Courtesy of The Financial Times)
Irish Independent
Monday, September 5, 2011
Full text of yesterday's 'Financial Times' editorial on Ireland's recovery - Independent.ie
Selling takes off in the Fall | The Post
Though it’s still a difficult market, some houses are selling. But how do you sell your home this autumn in the middle of the downturn?Sale Agreed and Sold signs. We didn’t think anything of them in the boom years, but they’ve been a rare sight across the country in recent times. Home owners today are greatly relieved when, after months, or even years, a neighbour’s weather-beaten For Sale sign is adorned with the word ‘Sold’ in bold capitals.
It means properties on their road are in demand after all. A drive through Dublin’s suburbs suggests a number of properties have indeed changed hands over the summer.
Is this a sign of some much needed movement in the housing market? Perhaps the success of the Allsop/Space auctions of distressed properties earlier this year has stimulated the market. More than €30 million worth of property was sold under the hammer in the first two auctions.
Sellers have their fingers crossed that there is a rise in sales and that buyers are becoming more willing to sign on the dotted line, but all the indicators show property prices are still falling. A decline of about 10 per cent is expected this year. This is likely to continue to deter many potential purchasers.
Estate agents canvassed last week however, said the summer months were surprisingly busy, given that traditionally, the strongest selling seasons are spring and autumn. They said buyers no longer care what month it is when they are genuinely interested in a property.
‘‘Properties are selling," said Robert Finnegan of Dublin-based Vincent Finnegan Auctioneers last week. ‘‘We’re finding plenty of buyers, mainly first-time buyers. It’s all about the price being right - a property has to be competitively priced to find a buyer," he said. ‘‘I can only tell you today that there’s healthy demand for second homes and all that can be is positive."
Many of the agents are hoping, however, that the old norms will apply and homeowners will decide to put their home on the market this autumn, when the children go back to school and the summer holidays are over, as is traditionally the case. They are searching desperately for some new stock to sell. Many of the agencies have been running ads and dropping speculative leaf let s in homeowners letterboxes in the last fortnight offering private consultations and a free valuations.
If want to sell your home this autumn, or unfortunately you have to sell in the next couple of months, how should you go about it? Firstly, you should get valuations from a number of estate agencies before you choose one. But prepare yourself for disappointment - the valuation may not be to your liking.
‘‘If you want to sell your home it’s a no-brainer. It’s all about price,’’ said Felicity Fox of the Dublin city centre agency that bears her name. ‘‘It’s about value for money for the buyers."
She said sales were happening at the lower end of the market and that those sales were happening across Dublin city and county.
‘‘There is no particular area, or areas that are selling better than others . But only those who are willing to sell their home at open market value should attempt to this autumn. They have to be willing to sell it at what it’s worth today,’’ Fox said. Sales at the higher end of the market remain difficult to complete.
When setting the asking price many homeowners want to inflate it to allow room for negotiation with would-be buyers But Robert Finnigan maintains that this is entirely the wrong way to go about it.
‘‘If a vendor puts a house up at €510,000 they think potential buyers will read between the lines and realise they’ll accept less, but that’s not how it works.
‘‘If potential buyers have an email alert set up with an upper limit of €500,000 then they won’t get notified that the property has come up for sale. They won’t see the listing for the property, never mind consider it. A lot of people rely on technology now. It’s hugely important to selling your home."
Finnegan maintains using technology to your advantage is of the utmost importance in a downturn. Using professional photographs is vital to securing a sale.
Poorly taken photographs uploaded online really irritate househunters.
Not including photographs of the interiors also raises suspicions among savvy potential buyers. They immediately jump to the conclusion that the property is in need of complete refurbishment. ‘‘It’s all about price and presentation. If a property isn’t smartly presented it’s not going to sell as quickly as one that is. People make a decision usually on first impressions. They are creatures of habit," Finnegan said.
If a property doesn’t look smart in the photos they’re not going to view it’’, he said. ‘‘People buy on emotion a lot of the time, so vendors need to do their utmost to ensure their home is neat and tidy."
Darren Chambers, Lisney’s branch manager in Drumcondra, north Dublin, said the average 20 per cent drop in asking prices in the last 12 months has fuelled sales in recent months. ‘‘It’s a massive drop in a year and we’re finding there is an appetite to buy."
He warned vendors not to price the property too high. ‘‘You want a property to sell in the first six to eight weeks. For a successful sale it’s critical that you’ve got offers in the first few weeks. Price reductions tend not to be enough to sell properties. By the time vendors actually agree to reduce the asking price, too much time has passed and they should be reducing it again," he said.
The agents said there was no rhyme or reason as to why some properties were selling compared to others, except for the discrepancy in asking prices.
Gunne Residential’s managing director Declan Cassidy said if the price was right over the summer, properties were selling. ‘‘Some properties have sold within two to three weeks if they’re priced right," he said.
Cassidy, who runs the firm’s Fairview office, said they had sold a mix of properties in the areas of Fairview, Marino, Drumcondra, Killester and Clontarf.
In Marino and Fairview, he said first-time buyers were purchasing three-bedroom terraced houses within walking distance of East Point Business Park and the city centre for less than €200,000.
He said little had changed since the start of the year in the buyer demographic. ‘‘At least 50 per cent of all the properties sold or sale agreed on their books in recent months were first-time purchasers," he said. Trader-uppers are the second largest segment of the market.
The reported improvement in sales is not just a Dublin phenomenon. Catherine McAuliffe, director of Savills in Cork, said there was ‘‘huge activity’’ in the last couple of weeks. ‘‘We’ve had an awful lot of offers, there’s a definite appetite from purchasers who have been looking at the market," she said. ‘‘There’s a realisation that things are not going to change."
The only difference between Dublin and Cork, McAuliffe said was that the capital had begun getting offers earlier in the summer than Savills’ Cork office, and that a lot of their sales were agreed.
‘‘We’re slightly behind. We’re getting the bids now," she said, but added that it was a challenging market and that it was still difficult to get sales over the line. ‘‘There are so many obstacles now from the banks, engineers, surveyors, and solicitors; it takes much longer to finalise."
Depending on your circumstances, selling at auction rather than by private treaty may be a worthwhile option. A feature of the market now compared to the boom time is that cash is king. All of the agents agreed that the market is being driven largely by cash buyers.
Felicity Fox said more cash buyers had been viewing properties and making bids in the last fortnight to three week s than at any other time since the start of the year.
‘‘They’d rather have the bricks and mortar than leave it in the bank. There’s uncertainty there with the banks," said Felicity Fox.
The majority of the buyers at the Allsop/Space auctions were cash buyers and the same is expected at their next auction on September 23 when 74 lots, a mix of residential and commercial properties, will go under the hammer.
Auctions can also be a better option for those requiring a quick sale.
Executor sales and sales by investors can be finalised in much quicker period than by private treaty in most circumstances.
The day before the Allsop/ Space mass auction, Gunne will hold a small auction of two properties, one in Ballsbridge, and the other in Sutton.
Declan Cassidy said that in many cases properties are auctioned because the owners are ‘‘fed up and want them sold’’ or the properties were ‘‘sale agreed a couple of times and fell through’’.
Selling at auction is also an indication that the owners are serious about selling.
NAMA silent on pursuit of transferred assets | Irish Examiner
NAMA is unable to say how successful it has been in dealing with developers who transferred mansions, helicopters and other valuable to their wives.
The agency promised a tougher stance on the practice last year, vowing to pursue 30 highly indebted builders who were still living millionaire lifestyles after being bailed out by the state.
But since making its pledge, not a single case has gone through the courts this year using powers in the NAMA Act. The law allows the agency to force a reversal of asset transfers that were aimed at putting valuables beyond NAMA’s reach.
Despite its displays of bravado about actively pursuing these developers, a spokesperson for the agency would not answer questions on whether it has reversed any transfers this year.
The Government is considering a move to include NAMA in the Freedom of Information Act and making the agency more answerable to the taxpayer.
The problem of asset transfers to wives, partners or other family members, was first raised in October 2010 when the then Finance Minister, Brian Lenihan, told the Dáil that NAMA and the banks were "examining spousal transactions and ensuring they are set aside".
Mr Lenihan said that laws setting up the agency contained a provision for "setting aside any transaction where assets are transferred to a spouse for the purpose of defeating the rights and just claims of creditors".
The phenomenon of developers continuing to live luxury lifestyles after their bad loans were taken over by the taxpayer was highlighted again in Prime Time documentary last December.
In its response at the time, NAMA said there were already three cases where transfers to developers’ wives had been reversed.
It confirmed that the "majority" of the top 30 developers in the agency had transferred assets, including mansions and large tracts of land, to their spouses.
The agency said it identified a number of cases where it "disagrees" with transfers and would seek to reverse them, firstly through discussions with developers, but also in the courts if necessary.A spokesperson for the Department of Finance said last night it was confident that the agency had been successful in pursuing developers, but that it had no obligation to inform the department of its progress.
Changing rent reviews will have serious consequences - The Irish Times - Mon, Sep 05, 2011
Moving to end upward-only reviews for existing leases must be fully debated
THE PREVIOUS government abolished upward-only rent reviews (UORRs) in new contracts but left existing ones untouched upon advice from the Attorney General that interference with them would be unconstitutional.
This Government proposes to go further, and has committed, in the programme for government, to “legislate to end upward-only rent reviews for existing leases”.
Draft legislation is due shortly, and the general expectation is that commercial property tenants will be allowed break contracts and reduce their annual rent bill.
Such legislation would be among the most radical ever introduced in this country, yet has had little or no debate or analysis. It has potential to transfer a huge amount of money from taxpayers to people who do not need it.
The basic issue is similar to mortgage debt forgiveness – to distinguish between those who need and do not need rent relief.
Economic consultants DKM undertook a study for the Irish Association of Investment Managers (IAIM), but its contents are more guarded than the third secret of Fatima and the major property interests have been silent, in public at least.
A report by Colm McCarthy for Retail Excellence Ireland argued all costs and rents need to fall as Ireland seeks to regain competitiveness, and noted the Government, a major renter, would gain. So far, the running has been made by a small number of high-profile Grafton Street retailers and retail bodies which have taken out newspaper ads reminding the Government of its commitments.
A brief look at the background helps to contextualise the debate.
Retail property values rose six-fold between the mid-1990s and 2007 – see Chart 1.
Since that year they have fallen by two-thirds, reversing all gains since 1999, and with a further 20 per cent decline in prospect if UORRs are banned. The latter calculation is by Investment Property Databank (IPD), which produces global property indices.
Movements in retail rents have been less extreme – they merely tripled – but have since fallen by 36 per cent. If they, too, were to fall by another 20 per cent, values and rents would have merely matched inflation over the past decade and a half, with no rise in the real value of retail property, a remarkable rollercoaster ride.
The McCarthy report opens by saying prime Dublin rents rose by 240 per cent between 2000 and 2007 – this is based on CBRE data for prime quoting rents for Grafton Street, which is not representative of the country. IPD data show an average 71 per cent rise in retail rents in that period.
The experience of the other commercial sectors has been less extreme. Office rents increased by less during the boom but have fallen by more and are now unchanged in inflation-adjusted terms by comparison with the mid-1990s. Industrial rents rose least, fell the most, and are now back where they were in 1995, a 50 per cent fall in real terms. The problem, if there is one, seems to be in the retail sector only – the Government’s intention is to ban UORRs in all three sectors.
Rents in the retail sector have fallen sharply, but this will only be reflected in new contracts as existing ones may have years to run and will have UORR clauses which will prevent reductions in the absence of agreement between the landlord and tenant and/or a decision to quit.
The most controversial claim so far has been the Retail Excellence Ireland contention that altering existing UORR retail contracts could create 20,000 jobs and/or save 30,000 jobs.
Chart 2 shows trends in retail sales and employment since 1998. It is obvious that one tracks the other and that the fall in retail employment – 15 per cent, or 38,000 jobs – is fully explained by the decline in turnover.
That employment should track sales is no surprise, particularly as rents are a small percentage of turnover – McCarthy quotes 15 per cent, employers’ group Ibec say up to 20 per cent, but industry sources put it at 3 to 7 per cent.
The impact of rents on employment is not discernible at the overall industry level, though undoubtedly they were important in some reported cases, notably Carluccio’s restaurant in Dublin, which had to close briefly before the landlords realised a lower rent is better than none at all.
It is fantasy to suppose the proposed changes could offset the bulk of the job losses recorded to date in the absence of a recovery in turnover to previous levels.
The costs associated with the proposal are major. Some years ago, unguarded comments from Michael McDowell on stamp duties caused a freeze in sales in residential property. Something similar has now happened to commercial property.
The number of transactions bottomed out at 13 in 2009 – see Chart 3 – but recovered to 29 in 2010 as investors perceived value.
Many of these were foreign, in contrast to earlier years when purchasers were exclusively Irish – in 2010, foreign purchasers accounted for almost one-third of the spend. The uncertainty due to the proposed legislation snuffed out the recovery, and the first half of 2011 saw three transactions – with two being tenants purchasing the premises they rented.
The biggest known casualty so far has been the Liffey Valley Shopping Centre deal. UK investors were bidding €350 million, but it fell through because of the prospect of lower rental income. There were others.
Retrospective changes to contract law are controversial. Differing legal opinions are no great surprise, but amendment of UORRs is so radical and potentially costly that it would be challenged in the courts, thereby engendering further delay.
It is by no means certain the Government would win such a case. If it failed, it would have to compensate landlords for lost rent, exposing it to a €1 billion to €2 billion annual cost. I am not sure whether claims for loss of capital would be entertained; if they were the hit could be much greater – one report suggests the total fall in values could be as high as €14 billion.
Whether the Government won or lost, there would still be huge costs for taxpayers because of further falls in the value of what is effectively State-owned property.
In May 2010, the chief executive of the National Asset Management Agency (Nama) wrote to the then minister for finance pointing out a change in the law would mean they had overpaid banks for assets bought. It has been reported a further 20 per cent fall in Irish property prices would cost Nama, and therefore taxpayers, another €2 billion to €2.5 billion.
Also, Anglo and the other State-owned banks have large exposure to Irish property, which could cost several billion more. The stress tests have allowed for extra falls in commercial property prices, any generalised scheme could quickly erode existing capital buffers in the banks to the ultimate detriment of taxpayers.
Pension funds and insurance firms are big property investors. Pension funds have €5.5 billion in Irish property. Their assets would fall by more than €1 billion in value and their annual income by a few hundred million euro.
Nobody would argue with McCarthy’s contention that costs should fall in the interests of competitiveness. However, his argument is diluted by the fact retail is the least internationally exposed sector, and his view that Government would gain from a lower rent bill is overwhelmed by the vastly greater costs incurred.
The consequences are so extreme that a retrospective amendment of existing UORRs should only be entertained if it is necessary on hardship grounds. Yet the retail industry lobby has ignored this matter, focusing instead on unrealistic job claims.
I did find one attempt to shed light on this area. CBRE surveyed 136 retail properties in Wexford, a typical country town. It is a pity they did not do Grafton Street as well. They found 45 per cent of businesses were owner-occupied, so for them the UORR debate was in one respect irrelevant. In another respect, a ban would reduce the value of their property by another 20 per cent.
Another 25 per cent were on new leases, at open market rent, while a further 13 per cent had not sought rent reviews.
Wexford is atypical in that few multinational retailers are located there. This is another category, size unknown, but substantial, that does not need rent relief.
The second finding by CBRE was that 80 per cent of the tenants who sought relief had been given it, with only three cases, 2 per cent of total retail units, refused.
This indicates landlords are taking a pragmatic approach, irrespective of the law. It has been reported that Nama also found rents had been reduced on the properties transferred to them.
So, the only, evidence available indicates some tenants are having difficulty with fixed rents but the percentage is in low single digits.
What is needed is a mechanism to quickly bring recalcitrant landlords to their senses and, failing this, an effective appeals/arbitration scheme.
General provisions that would have the effects of benefiting a majority of tenants not requiring such support, that would damage pension funds and insurance companies, expose the legislation to constitutional challenge, further damage the reputation of Ireland as a place to do business and expose the taxpayer to large potential bills should be avoided.
