Frank Daly on NAMA Providing Finance

NAMA Chairman Frank Daly gave an interesting speech today. NAMAWinelake analyses the speech in detail here.

Daly discusses how NAMA may get sales going in both the commercial and residential property markets. In terms of commercial property, Daly describes how NAMA can provide finance in a simple and clear manner which hopefully will dispell some of the confusion about this issue when it first came up (the point of this post was that it was a very simple issue but that didn’t stop us getting various comments about where would they get the money from, the whole thing being circular and Ponzi schemes and the like …):

To illustrate how stapled financing might work in practice, let us take the case of an investor who wishes to buy a property asset from a NAMA debtor or receiver but who cannot source any funding or sufficient funding from banks even though he is willing to contribute 30% equity. Assuming a purchase price of €100m, the investor would pay €30m upfront to NAMA and then enter into a loan agreement for the residual €70m which would see him repaying the principal on an amortising basis to NAMA over a five/seven year horizon. The original debtor’s outstanding obligations to NAMA would fall by €100m. The net impact for NAMA would be positive in a number of respects. It would have generated a transaction in the market which would not otherwise have taken place. It would have replaced a loan of €100m with what is likely to have been a weaker debtor with a performing loan of €70m with a stronger debtor, thereby reducing and diversifying its credit risk. It would also have a cash receipt of €30m which it could then use to reduce its own debt. In reality, it does not require any new money from NAMA; it is a recycling of existing debt but achieving a significant cash payment upfront.

The comments about selling residential properties are more interesting. Because the maturity of most residential mortgages extends well beyond NAMA’s projected lifespan, they are keen to get involved with the two pillar banks to provide mortgage finance. Interestingly, NAMA appear to be willing to provide funds to insure purchasers against future price declines:

Our aim would be to unveil a product with the two banks in the early autumn which meets a number of key criteria: one which generates sales of property controlled either by NAMA debtors or by receivers yet provides an incentive to purchasers to invest at current prices in the knowledge that there will be a mechanism in place which will offer them protection against the risk of negative equity in the event that prices should continue to fall. Given that NAMA is effectively providing state funds for this purpose and the pillar banks will be largely state owned, it raises a question about whether such mortgages should be offered beyond the limited set of residential properties owned by NAMA.

Finally, this passage will prove popular with many:

A number of debtors appear to be trapped in the old mindset whereby it is they and not the lender who sets the terms on which business is done. It is akin to falling overboard and then complaining to your rescuer about the colour of the lifebuoy that he is about to throw in your direction. Some of them have difficulty surrendering the grandiose lifestyles that they seem to regard as their continued entitlement, even if the rest of us are expected to pay for it through higher taxes and cuts to services in our schools and hospitals. We have and will enforce against such debtors. If the taxpayer is being asked to keep you in business, it would seem to be a matter of basic common sense that you do not seek to maintain a lifestyle that is beyond your means. The taxpayer does not owe you a living and certainly does not owe you an unrealistic lifestyle if you are not in a position to repay your debts.

Tough words. Let’s see if they’re accompanied by corresponding actions.

47 thoughts on “Frank Daly on NAMA Providing Finance”

  1. So,,, is Frank collecting his pension and his NAMA wages at the same time?
    All’s that missing on the man is a collar and a ring…

  2. I wonder what kind of distortion the availability of finance will have if it ends up being available only on NAMA owned properties. The line that it might be rolled out across all markets strikes me as so far outside of the remit of NAMA that it is probably unlikely. So in a market where transactions are continuously down year on year, will the only movement be in NAMA owned properties if banks have a chance to do lower level LTV’s by getting NAMA to bridge the gap financially?

    Brokering just gets more and more interesting every day…..

  3. @Karl Whelan.

    Tough words. Let’s see if they’re accompanied by corresponding actions.

    We have heard word like that before from Mr Daly. Despite being well paid, he still does not seem to realise that he is in charge. He is in the driving seat, for about two years now, I think and he seems to think that he has to get public support to do the job.

    Please remind him, he is not in the Civil Service anymore. He is getting the pension money for that in his bank account every month.

    The approx €150,000 he is getting for his current job is to sort out the developers that ruined the country. That job is not the civil service job. It does not require a slow boat consensus approach. It required somebody that was prepared to let the developers know who was in charge two years ago.

    By that score Mr Daly has failed and failed miserably.

    As to the NAMA bank idea, it beggars belief. As has bee said on another blog comment:
    “NAMA is like a dog whose digestive system is the wrong way round. It Consume s***e loans and serve up good mortgages from the rear end.”

  4. @ Joseph

    I don’t agree with your “NAMA bank” comments.

    There is nothing strange about people selling stuff taking payment over time, which is what is being proposed. People who say this is NAMA setting up a bank must not know what a bank is.

  5. @ Brian

    In the case of the commercial property sales, why can’t this just be viewed as a useful way to sell the stuff?

    I really don’t get why everyone is so determined to see this as complex or malign. To my mind, the question is why this wasn’t the clear operating principle from the start.

  6. @Karl

    IMHO it is would be just passing the parcel. Namawinelake has asked the question as to why prime property in Dublin is almost twice as expensive as prime Belfast property. Surely, we want the market to settle at a sustainable and competitive level which helps employment prospects rather than solves Nama’s problems.

  7. @karl Whelan.

    People who say this is NAMA setting up a bank must not know what a bank is.

    The past few years have been insightful in learning just how many people there were in the country that didn’t know what a bank was. In fact some of these people are now well paid advisors to NAMA or in fact work for NAMA.

    That said, I do appreciate that the “NAMA bank “comment quoted above were not tasteful.

    Nevertheless as far as I can see, NAMA has been and is a failure.
    It will of course generate some cash flow and because of its cash and size will have huge clout in the economy. This is all the more resaon that its raison d’etre, its policies, its costs, everything about NAMA should be subject to vigorous scrutiny.

    My understanding is one of the principal roles of a bank in a modern economy is to allocate the available savings of that economy towards productive capital that will provide a return.
    NAMA is attempting to allocate excess funds but is allocating those funds to enterprises/ventures that other lenders will not touch.

    Therefore as far as I am concerned NAMA is acting like a property lending bank and setting out on its road as a bank with its very first act being the mis-allocation of resources to ventures that are fraught with risk. And to a sector that as a country we should be diverting resources away from.

    In fact the whole NAMA thinking is completely wrong.

    NAMA’s policy should be
    1.To rent/lease all finished property on short term lease/ rent only. It should not sell finished property unless and until it beats the yield rental.
    2. Give all unfinished property away for virtually nothing, with the condition attached that the properties be completed within two years with the funds being lodged up front by the developer. The problem properties in the ghost estates etc should be developed to tourist standard and used as such.

    The NAMA bank policy or “stapled finance” policy if we want play with semantics is the wrong policy for the country.
    I am surprised and disappointed that the proposal is getting still on the agenda and still getting support.

  8. @Karl Deeter

    Do you know whether the Ulster Bank “Secure Step” mortgage scheme, which offered limited safeguards against negative equity, was a success?

    The scheme seems to have been withdrawn now.

  9. This is just more absurdity – granted it might clear the market a bit.

    But why do such organisations cover the blushes of CB crimality ?

    They blew up bubbles on the way up and now just walk away claiming it was not me guv .
    I for one have had it with such venality.
    We should embrace failure of this market as it brings us closer to the true culprits day by day billion by billion.

    In the final analysis this is a unproductive commercial subsidy of dead assets.
    Just let cash clear the market and be done with it.

  10. This is the most hair-brained, illogical, and feckless financial proposal since the government guaranteed Anglo-Irish Bank.

    NAMA is proposing to artificially re-inflate the housing market with even more borrowed money, effectively to subsidise members of an increasingly desperate property industry which has been unable to afford new January BMWs for over two years now. Taxpayers, buyers, renters, and ultimately the economy can expect to pay more for the privilege of this latest NAMA scheme. Landlords, solicitors, and estate agents meanwhile, can expect handsome windfalls.

    What’s next? NAMA offering 100% mortgages!?

    So, we now have the government spending billions in an effort to reanimate zombie banks, and NAMA spending even more billions in an effort to reanimate a zombie property market(Not to mention the billions being sacrificed to honor the pensions of “zombie”(retired) public sector workers). And every cent of it borrowed at excessive interest rates! Only in Ireland, the financial Voodoo Capital of the Globe!

  11. There seem to be two distinct elements to this, the first of which relating to straightforward swapping of loans to developers for loans to new investors appears difficult to argue with.

    The second though is troubling.

    “Our aim would be to unveil a product with the two banks in the early autumn which ………………….. provides an incentive to purchasers to invest at current prices in the knowledge that there will be a mechanism in place which will offer them protection against the risk of negative equity in the event that prices should continue to fall”

    The “insurance” or “put option” would be provided, presumably by the state – or purchased by the state from a third party.

    A straightforward insurance against negative equity for an 80% Loan to Value would not kick in unless the price fell by 20%, so the purchaser would still have a downside, have to think carefully about a decision to buy, and the 20% hurdle would provide some significant protection for the state.

    However, NamaWL understands the insurance element might be intended to be similar to the withdrawn (presumably because prices are falling rapidly and the insurance was going to end up being expensive for Ulster Bank) Ulster Bank product that would totally protect the purchaser from the entirety of the price decline – up to a limit of a 15% price decrease (after 5 years).

    Effectively here, if the state follows this format, it will be giving away to the purchaser of the property an at the money put option, whilst holding a put option with an exercise price 15% lower – for partial protection. The difference between the value of those two options would be the value of a subsidy by the state to the purchaser of the residential property.

    If government policy is to massage the property market by skewing it in an upward direction with subsidies to buyers then this mat achieve that aim. To the extent buyers purchase at higher prices than without the subsidy, there will be an offset – if the state was the party selling the asset.

    Big stamp duty payments used to be a source of funds from property transactions. It would be ironic if these were to be replaced by an additional liability to the taxpayer.

    There is another kite being flown here though:

    “Given that NAMA is effectively providing state funds for this purpose and the pillar banks will be largely state owned, it raises a question about whether such mortgages should be offered beyond the limited set of residential properties owned by NAMA.”

    A taxpayer subsidy to purchasers of Nama properties is one thing – as claw-backs by Nama from the largely nationalised banks may be reduced as an offsetting effect. An extension to ALL residential property transactions amounts to a charge for the insurance facility against the taxpayer, for the benefit of private sellers of houses (by inflating the eventual selling price) and a benefit to the purchaser (the value of the insurance provided, less any extra he was enticed to bid for the house because of the insurance facility).

    This would quite literally be replacing a boom-time capital tax revenue for the state (stamp duty) with a bust-time cost to the state per transaction in order for the Irish state to provide another blanket guarantee aimed at manipulating a market.

    This time an Irish government would be putting its taxpayers on the hook for a hunch the market was unduly pessimistic about house prices. Last time it was an Irish government putting its taxpayers on the hook for a hunch the market was unduly pessimistic about the banks.

  12. We will have to go back to the land and the sea – to hell with farming credit – that industry is over.
    The best investment the goverment can make is to buy half a dozen corvettes from the British so that we can defend our resourses against a new Spanish armada.
    Lets get real here.
    Globalisation is over – lets go into defensive mode and do something destructive to be constructive.
    This quaint Irish liberalism is now a liability – the bullshit games are over – lets pay the Brits rent and get on with the business of governing this bog.

  13. @ Joseph Ryan

    is this not the same as vendor financing, a serivce provided by many large product sellers like Phillips or GE or Sony etc?

    “My understanding is one of the principal roles of a bank in a modern economy is to allocate the available savings of that economy towards productive capital that will provide a return.”

    NAMA, as far as i’m aware, is not allocating any of our savings to anyone. In fact, by requiring the fresh equity, isn’t it looking for the opposite? NAMA’s “loans” will in fact decrease the overall Ireland Inc leverage, which is surely a good thing.

    With the banks broken, it doesn’t seem like the worst idea in the world. It should be noted that many large corporates are in the process of setting up financing type units due to their fears that banks will only provide anaemic levels of credit in the coming years for various financial system reasons.

  14. Where in the NAMA legislation were we told that NAMA would give out mortgages, in order that the SPV could be relieved of the cash for trash assets it was acquiring?

    I remember, as I am sure you all do, the bit about “getting credit flowing”. I even remember the bit about LTEV’s and being told that finance would be made available to finish developments, if prudent. However, we were not told that NAMA would be financing the purchase of units in these developments, though many of us guessed they would. The new plan…. NAMA is going to compete with the nationalized banks in the mortgage market. It will periodically flood the market, as the nationalized banks try to implement the MOU by deleveraging 72bn by 2013? If by some miracle the market tries to recover, NAMA steps in with some nice new mortgage product sourced at ultra low ECB teaser rates and the market flops some more as the lender of last resort wrestles with it? Some plan!

    Reality, is starting them in the face. They know they cannot sell the loan book. NAMA is subject to interest rates hikes like everyone else on “tracker” mortgages but that too will be ignored.

    Their assets continue to deteriorate, yet it has the gall to suggest that it will offer teaser mortgages and “guarantee” those buying properties against negative equity? This is supposed to be a great new idea? God help us. This “plan” is being hatched when the very life blood of working capital is being drained out of real businesses the length and breath of the economy? NAMA is not a real business and the people running it are not business people.

    This is not ordinary prudential lending by a bank this is the funding of sub prime mortgages which will be even more sub prime down the road when even more jobs evaporate especially when taxes have to be ratcheted upwards for debt servicing requirements. We are in the bankruptcy court please stop this madness.

  15. In Frank Daly’s speech,

    It would have replaced a loan of €100m with what is likely to have been a weaker debtor with a performing loan of €70m with a stronger debtor, thereby reducing and diversifying its credit risk.

    Yeah, until we find out in a few years time, that the local credit union who took on this ‘sure thing’ in the property industry for €100m, now has a black hole in it’s balance sheet of indeterminate proportions. Is this one of those times, where something appears fine in theory? What we are talking about, is transferring parts of the cancer from the detached limb, and putting it back into healthier parts of the system, and hope that no warning lights will flash again, for another few years. It is yet another TIME-BUYING exercise, another recipe or way for CAN-KICKING wipped up by the Irish. Don’t we know, that external observers can see this for what it is? You can’t simply take cancerous limbs, and re-attach them back onto the body. They should be burned, and burned a second time, to make sure they don’t come back and re-infect anything all over again. Are we gone completely around the bend? BOH.

  16. I think NAMA will have some legal and other hurdles (eg EU approval) to overcome before the staple financing and new mortgage product can be launched in practice.

    However, when the history of NAMA is written, I think there will be a chapter on initiatives to prevent prices dropping below long-term averages or “hard” values which would be normal when a bubble bursts. And both these initiatives, whilst potentially problematic, seem innovative and confirm that NAMA is at least considering market cycles and the role of credit.

    NAMA was always going to distort the property market because of its role and objectives. A “wine lake” was always going to be created. The question was really how deep it would get, that is, how far off of clearance fire sale prices would NAMA prop up prices and for how long would the distortion last, months, years or even a decade.

    Both credit measures for the commercial and residential markets will distort prices. But by how much and for how long?

  17. @D_E

    A fair point. And ultimately, all the “hard” valuation methods can be undermined (eg construction or land costs fall, rents fall, population reduces, society refuses to accept past “affordability levels, wages fall). But with most bubbles, it seems to be accepted that prices in the bust will overshoot the “appropriate” value. It seems that NAMA is trying to minimise this overshoot by distorting the market with credit support.

    Is the distortion acceptable? I guess it depends on how much and for how long.

  18. @Bond. Eoin Bond.

    NAMA, as far as i’m aware, is not allocating any of our savings to anyone. In fact, by requiring the fresh equity, isn’t it looking for the opposite?

    By selling a property for €100 million onto the market in the method proposed the following is true:

    1. The State/ Nama will get a down payment €30 million in respect of surplus property. But there will now be €30 million less to allocate to non-property investment.
    2. The same applies to the balance of the €70 million except that there is a further credit risk attached.
    3. The raison d’etre of Nama, ie to take property off the bank balance sheets and to prevent a rash of firesales has then been reversed. The State is now reinvesting 70% of the approx values paid right back into the property market.

    4. The policy makes sense for NAMA but it makes appalling sense for the country.
    5. Coincidentally Coillte policy of clear felling trees , which now appears to be in place throughout the country for the past two planting seasons is in the same category. Good for Coillte but very bad for the country, with significant loss of employment involved.

    What is wrong with NAMA getting an income stream from the lease/ rent of the existing properties?
    This policy is good for Nama, good for the employees of Nama, good for the advisors to Nama. But it is not good for the economy.
    There is a difference.

    @Robert Browne
    +1.

  19. Would his really artificially inflate the market more than not having a functioning banking system has artificially deflated it? Would agree with Karl Whelan it seems a useful enough way to sell the stuff, no more. I have sympathy with suspicions of NAMA broadening its remit though.

  20. Protecting investors ‘against’ negative equity? Any proposal like this puts an artificial price floor under NAMA properties. Surely the last thing Ireland needs are more property investment incentives.

    What the NAMA proposal promises bluntly is: buy through us and your investment can only go up in value. Guaranteeing any buyer, landlord or otherwise, that they have made a win-win bet on property seems crazy.

    NAMA’s ‘no negative equity’ pledge is dangerous and perverse.

    If the same argument was pushed by a broker regarding equities and commodities, no loss purchases, there would be serious concerns about its wisdom and possibly ts legality.

    In addition, what happens to the second hand market in NAMA properties?

  21. @ Joseph

    I’m confused – do you think NAMA should hold onto all the properties for the long term?

  22. This method of selling commercial property seems eminently reasonable.

    It also has the added benefit of cleansing assets of all legal issues surrounding the original loan and the enforceability of the original security.

    This legal cleansing together with the more transparent LTV and the more credit-worthy new borrower will make it much easier for NAMA to dispose of the new loan to another institution.

    Might some people be a teensy-weensy bit prejudiced against NAMA?

  23. Houses that sold for between 1.2 and 1.3 million in 2006/07 were put on the market yesterday for 495k to 595k depending on mid or end of terrace. That is 60 percent down. The developer, Gannon Homes at the start of the year, said he would not sell homes in a depressed market yet it seems NAMA have decided that he will.

  24. @ Joseph Ryan, State will get a better return through staple financing than through open market sales on commercial and it takes them off the books. It’s a five-year to seven-year loan instead of a 10-year workout so state exits market faster. Who’s going to buy anything on a short-term lease?

    Nama seems to be desperate to get the ressie stuff off their books and rightly so. It’s bitty, time consuming and returns are difficult. REIT is way to go in some cases, social housing gets rid of others, the problem is what’s left. The proposal as presently formed would appear to raise competition and European Commission concerns. There’s an idea there but it needs further thought and a different structure.

  25. @zhou – presumably there will still be sums outstanding on the original loans, or do NAMA only sell for the price they bought stuff for. If so I wouldnt be a buyer no matter how sweet they made the deal.

  26. @The Alchemist
    “In addition, what happens to the second hand market in NAMA properties?”
    Yep. Or indeed the second hand market in any other properties that an FTB might be interested in?

    There’s no chain of transactions in this. The overall housing market will continue its decline. There will be no resale market for the NAMA properties as financing is only going to be available to get them off the NAMA books.

    It is less than a zero sum game, it will draw capital from everywhere else to offload these properties from NAMA short of NAMA offerring 100% mortgages as OMF alludes to above. Another generation tied in to 40 year 100% IO mortgages does not fill me with great joy.

  27. @hogan

    “There will be no resale market for the NAMA properties as financing is only going to be available to get them off the NAMA books.”

    Hang on, didn’t you see the kite…….

    ” Given that NAMA is effectively providing state funds for this purpose and the pillar banks will be largely state owned, it raises a question about whether such mortgages should be offered beyond the limited set of residential properties owned by NAMA.”

    have a look at the second bit of
    http://www.irisheconomy.ie/index.php/2011/05/19/frank-daly-on-nama-providing-finance/#comment-148165

  28. @George

    NAMA will sell the new loans with new borrowers.
    The old security will be released and the new security will be the only charge.
    Whoever buys the new loans from NAMA will not have to concern themselves with the old loans.

    The old loans attaching to the same property to the old borrowers will be valueless so NAMA will not sell them.
    Any amounts outstanding on the old loans will presumably still be due by the old borrowers to NAMA. NAMA will pursue enforcement at that stage.

    Another benefit is that enforcement will be a lot cheaper once the more valuable assets have been removed from enforcement picture through sale to the new borrower.

  29. State guaranteed residential mortgages were a tool the US previously used to good effect. Unfortunately, they didn’t wrap it up in time.

  30. @grumpy
    “have a look at the second bit of”
    I did. It terrified me. Thanks for bringing it up again, I was trying to block out the prospect.

    The Irish state has sometimes, due to the influence of the vintners on politicians, been accused of being a state with a pub attached. It looks like an estate agents has been added to the pub… finance available, talk to our ‘independent’ financial advisor…

    It is a revival of Home Choice Loans with an extra twist. If HCL was a bad idea, this is worse.

  31. @paulr

    If my recollection is clear those houses were selling for approximately 2% Gross equivalent rental yield at the time they went to market in 2006.

    i.e. 1,250,000 * 2% = €25,000 rental income gross per annum

    Per Daft rental income has dropped by approx 30% from the peak i.e. €25,000 * 70% = €17,500 Gross

    A house earning €17,500 Gross rent per annum would in a normal property market be valued at:

    €17,500 * 92%/0.07 = €230,000

    So the drop from the peak is €1,250,000 to €230,000 i.e. 81.6%.

    Todays asking prices (€545k avg) are still approximately 58% overvalued on a long run rental yield of 7%.

    Nice.

    Way to go. Asking prices of

  32. The commercial property staple financing plan seems sensible. The plan for NAMA writing residential price insurance (underwritten by the taxpayer) and including this hidden put opion in the residential sales price seems a troubling prospect. It is the type of hidden-liability financial engineering that failed spectularly in US markets in 2007-8 (not exactly the same but similar in style). At a minimum, the two assets should be un-bundled – NAMA should sell the residential property at whatever is a market-clearing price and then (if it is really necessary) also sell residential price insurance as necessary, sold at a separate market-clearing price. Then the risk profile is clearer and the contingent liability of the taxpayer is not hidden inside an over-engineered package.

  33. @Bond.Eoin Bond.

    I’m confused – do you think NAMA should hold onto all the properties for the long term?

    Yes. Take the rental/lease income for 10/20 years if necessary on finished properties. Cash flow from rent/lease is as good as any other cash. This proposal by Nama is a credit fuelled attempt to drive up demand. We have had enough of those, don’t you think.

    The original idea of Nama was to take the loans of the banks and hold on to the properties until a stable market in a stable economy could re-absord them using private sector funds. [The banks meanwhile freed from the non performing property loans would spring suddenly into life…..]

    We are nowhere near that point yet. In fact we are a good deal farther away from it. As for the banks, lets no go there. Nama was not a good idea to begin with. This idea is dreadful.

    Refer to @Grumpy re the State underwriting the downside again.

    This is the exact same as a contingent promissory note to NAMA, for its venture.

    But let me give you an out here. If the idea is so good. How about this.
    Let all NAMA board members/staff/advisors etc cuts their pay/fess by 50% and take the equivalent 50% out of the final profits to be made on the whole NAMA operations, including this one. The profits be assessed 7 years from now. If they make the cut, then pay a 25% bonus on the salary / fees withheld.
    Let the proposers here put their own money on the table for once.

  34. @Neil Callanan

    Nama seems to be desperate to get the ressie stuff off their books and rightly so.

    We need to look at the bigger picture. Nama books should not be the priority. But, and you have hit the nail on the head here, this proposal is exclusively to help NAMA books.
    But a plus for Nama will equal the minus to the State (State in the broad sense of that term, not State finances per se)

  35. NAMA looked into the future and THOUGHT that in 10 years time property would be on the mend. I think now they see it as a diminishing return in that time frame. Sell now, by any means possible, or get less later is how I see their reasoning for the NAMA ‘bank’ idea.

    I’m fine with that but how they go about setting value is where I have concerns. As George noted, if NAMA puts a set value, I would see few willing buyers accepting NAMA valuations but if they auction them off with no reserves, then go for it. Let the true market forces place value on the properties!!!

    Oh and one other criteria….none of the NAMA developers are allowed to purchase property in the sales.

  36. @FlyOver

    Oh and one other criteria….none of the NAMA developers are allowed to purchase property in the sales.

    Are their wives allowed to purchase!

  37. Gregory Connor says,

    Then the risk profile is clearer and the contingent liability of the taxpayer is not hidden inside an over-engineered package.

    The problem with the package I think, is that it is a package that has been shoe horned together by the very same parties whose philosophy and thinking valued properties at many times over and above their rental earning capability, with respect to the mortgages. It is that simple. We haven’t found a method of finding out a true rental value for anything property wise in Ireland as we speak. I have no idea, therefore, what these folks in office buildings with computer screens such as NAMA are doing. You look at stretches of prime core real estate in many Irish towns and cities (granted much of it old property now in need of a strategy), but so much of it is occupied by €2.00 shops selling dodgy superglue and scrubbing brushes. I mean, its a complete joke. You turn the corner, down another street and you are into about twenty ground floor coffee, cafe shops, to fill the ground floor units. That is the parts of the property market, where there is some activity. It only gets more ghostly as you move out of town and into the periphery. We don’t know why there isn’t any uptake or activity in commercial property, because the building stock is too old and doesn’t work. Or if it did work, and was re-built, if the rental market in Ireland even functions for the needs of modern tenants. I am truly shocked, that 2-3 years after the crash in Ireland now, this is still where we are. Shocked. And it’s precisely the same brains that made all of this, is expected to generate the answer? BOH.

  38. @ All,

    I don’t know if you fine folk heard that ‘rap song’ about the Keynes vs. Hayek, second throw down, with the new moustaches and so on. It is a catchy tune, with some good lines in it which I like. But it also serves as a useful way in which to look at NAMA and the property work out, which the government are trying to do. I liked one particular line from the rap song:

    Plans by the many, and not by the few.

    You have to say it aloud with real pump and ghusto to get the full effect needed. The thing about property, is that it naturally lends itself to a Keynesian approach rather than a Hayek, more organic one. If we had total organic freedom in property, we would lose an awful lot of the environment which we seem to value, very quickly. There would be a lot of problems with going to that extreme. But there is also a problem in Ireland, for quite a while now, in sticking to the pure Keynesian approach. Too many of the policies associated with planning or financing, or regulating of property and leasing in Ireland come from the top, rather than the bottom. Another line I remember from the song was something like:

    There is no it, all there is is us.

  39. In a functioning market I’d say that it does not matter who provides the finance so if NAMA did it, then the ones suffering would be its competitors.

    However, the Irish property market is not even close to be a functioning market & signing up for a long term commitment (20-40 years) with the entity providing the biggest distortion of the market does seem risky.

    Negative equity insurance? There is no reliable property price database in Ireland today -> Nobody knows the current prices but somehow without this knowledge someone would be willing to estimate what property prices will be in the future? A properly priced insurance might be so expensive as to be prohibitive.

    Nice symmetry though:
    People in NE now are blaming the banks (&the state) for allowing them to borrow to purchase something at inflated prices, now other people who are denied funds from the banks are asking for state intervention to get support them to borrow to purchase something which may or may not still be at an inflated price. Central planning does seem to be preferred over market economy 😉

  40. @paulr – “That is 60 percent down”

    Statistics tell one story but I think the reality is more like 60% too. I know for sure that houses in my street (all the same) were going for actual selling prices of over 400k in 2007 and they are now going for – asking prices – less than 200k.

  41. @Joseph Ryan – “Are their wives allowed to purchase!”

    It’s always been my fear that they would find a way of dumping overpriced stuff in the front door and picking it up cheaply at the back door.

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