MyHome\Irish Mortgage Brokers Report

Here‘s a link to an interesting report by Karl Deeter and Frank Quinn on the current state of the Irish residential property market, using data from and the Allsop\Space auctions.

29 replies on “MyHome\Irish Mortgage Brokers Report”

When oh when will yield-focussed property analysts cop on to the fact that yield is simplistically rent divided by property value, and both the numerator and denominator can change. And when you are in a distressed market like Ireland, both do change. That’s why the late Brian Lenihan was talking rubbish in September 2009 when he claimed that historically high yields meant that we close to the bottom. And 2.5 years later, we are 20-30% off November 2009 values.

What will happen to residential rents with the 13% average reduction in subsidy announced by Min Burton in January? What will happen to demand with higher taxes and lower incomes a feature of many households? What happens if the 2011 trend of Dublin population declining (0.7% in a year, according to the CSO) continues?

And regardless of yields, other “hard” valuation methods are relevant – demand:supply, replacement cost, affordability and average wages. But the most significant consideration is perception which is a product of the “hard” methods and everything else including media sentiment.

Oh, and the usual investment comparison for any asset class is the supposedly risk-free national sovereign bond which today closed at 6.97% for the benchmark 9-yr bond.

Below is the most important letter ever written to an Irish newspaper re property;

The analysis may be simplistic but unfortunately it is not flawed. Banks
ask valuers to tell them what the market value/exchange price is at a
point in time and then lend vast amounts over time based on that simple
number. The surveyor gives them that simple number and do not think it
is their job to tell the banks that the question they have been asked is
stupid on its own and what they should have asked for is the underlying
value. It was obvious in 2005 and 2006 that prices in the property
market were higher than could be sustained by any rational cash flow
analysis. But in a culture that rewards individuals for short term
performance rather than longer term perspective, it was in neither the
bankers’ nor the valuers’ interests to stop it. I cannot see anything in
what the UK regulatory authorities have proposed that makes me think
they understand the role of property valuation in driving asset bubbles
and will prevent it all happening again sometime in the 2020s.
Neil Crosby Professor of Real Estate and Planning University of Reading

Neil has been Professor of Real Estate at the University of Reading since 1994 having been previously Professor at Oxford Brookes and lecturer at Reading and Nottingham Trent Universities. Before that he was a practising valuation surveyor in a combined residential and commercial property private practice firm based in Nottingham. He specialises in commercial property appraisal and the commercial Landlord and Tenant relationship and has undertaken a series of major research studies funded by the UK Government and the UK property industry in these areas. In 2002 he was awarded the International Real Estate Society’s annual achievement award for his work in real estate research, education and practice. He has published well over 100 papers on the various topics listed above and the third edition of his textbook on Property Investment Appraisal with Andrew Baum was published in 2007.

Nice letter.
Although I feel you might have overstated its importance Im willing to second the premise, out of comradery, ignorance and a genuine love for letter writing

@ john interesting letter regarding the comparison method as a cause of the bubble, there certainly was a lack of analysis and thats why in the report we are trying to explain the investment method and discounted cashflow approach to property valuation.

@jagdip fair point about the assumption we make that property values will change rather than rental values, although in the dcf we looked at rental falls in 1 model and increases in the other.

Regarding the rate of return for an investment we used 6-7% for the investment method and 6% for the dcf

Appreciate the comments and keep up the excellent work on namawinelake


Yes, property analysts should be forced to manage an equity portfolio for a while. Even the dimmest soon appreciate that that company yielding three times the market average can only do so because the market assumption is that the dividend is not sustainable. Some of the arguments made about valuation metrics are just silly.

Real estate is about the most auto-correlated asset class there is, and in many economies its direction drives part of the real economy, which again reinforces the trend. Add in moronic banking practices…

Not so sure about the risk free rate though. At some point default risk by the sovereign starts to diverge from risk on property as a specific act of a government on its bondholders.

There is a reference in the covering commentary to the report to Ireland’s “complex property market”. This supposed complexity is a function of deliberately organised obfuscation by many interested parties. Information on all sales prices is available for 2010 and 2011 through the Revenue Commissioners. The necessary legislation is in place – largely courtesy of the Troika – to establish a property price register, a facility taken for granted in other jurisdictions, but it seems we have to wait until June before it appears (if it does!).

In the meantime, we have endless pointless delving in the obfuscated entrails of a collapsed market.

John Corcoran has spelt out the other enormous distorting factor, that of upward only rent reviews in the commercial property sector, a problem which is being approached as gingerly as that of actually allowing a duped citizenry to find out what the houses on their street or locality are actually selling for.

@Jagdip Thanks for the critique, we’ll try to incorporate some of your thoughts in order to make future work better.

On the ‘Govt. Bond’ proxy comment, this is ‘residential property investment’, typically carried out by private individuals and not institutions. In previous reports we did look at government bonds as a pricing comparison, but – and I’m wearing my practitioner hat here – for your average private individual the risk free rate is actually not a bond, it’s a deposit account; there was a trade off between academic acceptability and reality, we opted for the latter.

Bonds are used by institutions because they have that option available in a more tax efficient manner, on the individual front people don’t see the ability for capital values of bonds to fall (or rise) as being ‘risk free’ and the taxation is effectively like regular income. If we were looking at some other asset class the obvious choice would be bonds, in this one I don’t think it is.

Yields are dynamic as you mention, but any market/future earnings/asset class tends to suffer from the same fate. Currently in equities you might look at the sustainability of US company earnings, or even today the positive car sales figures – which are actually not based on sales but on cars ‘on the lot’ (they changed how they gauge it recently – and those figures went from c.580k to 650k+ since Dec. meaning it isn’t really that good at all) and rubbish future potential on the same grounds.

What we did do is work with a net yield rather than a gross one as you seem to have implied – this gives a more conservative read and should help to avoid an overly positive skew.

@John Corcoran “But in a culture that rewards individuals for short term
performance rather than longer term perspective, it was in neither the
bankers’ nor the valuers’ interests to stop it. I cannot see anything in
what the UK regulatory authorities have proposed that makes me think
they understand the role of property valuation in driving asset”

Oddly enough, I wrote a paper decrying valuations & remuneration in finance & offering alternatives(particularly for property lending) to the CB back in 09′ – didn’t make a damn bit of difference! I am a believer in property cycles and think the mid 2020’s call will be an accurate one.

@Kark D

“for your average private individual the risk free rate is actually not a bond, it’s a deposit account; there was a trade off between academic acceptability and reality, we opted for the latter.”

Term the thing that even for retail investors makes bonds pertinent. What was the avarage deposit term you considered?

@ John corcoran

Why is it that ISME have been so dismally ineffective in organizing rent and rates strike to reverse the UORR and commercial rates? Have they even discussed it? They strike me as being the goody too shoes afraid to cross swords with the a government who have stitched up the private sector good and proper with there self serving Croke Park ‘deal’. NAMA, basically told the government the sky would fall in if they got rid of these leases. NAMA deliberately decided that the value of their loans and the colateral they were based on were much more important than jobs or businesses failing. Perversely, they keep repeating the mantra that “we have to get the best value for the tax payer”. Now, who exactly does NAMA think the tax payer is and what might the tax payers view regarding “best return” on the assets that NAMA is supposed to be managing on their behalf? Also, NAMA legislation is not in the constitution. It is a piece of legislation and if it no longer suits it can be changed by a government that has an overwhelming majority.

The pension funds did the same lobbying of government. The legality of these leases are highly, dubious to say the least of if. Let’s face it, they were negotiated within a market that was totally rigged. If one lunatic decided he just had to open on Grafton Street no matter what, then everyone else’s rents were benchmarked off the lunatic! If the lunatic went broke and many of them did the benchmarking go into reverse? No! Upwards and Onwards as if it was the land of Narnia. It was a Ponzi scheme and it is another open abscess that the government are too cowardly to address. So, what is the answer? The answer is that they must be forced to address it. It is really that simple. I cannot think of enough ways to say how how downright rotten and corrupt these leases were and there is no way anything will be done with them until businesses or those that purport to represent businesses stand up and are counted.

While I am at it, why are businesses tied into paying commercial rates which bear little or no relationship to current market conditions? The farmers can lobby to have septic tanks fees reduced but ISME just talk endlessly while their members get shafted. What are they waiting for?

@Robert Browne

If you want access to the political liars you have to be an appeaser or a collaborator.

21st February 2011

Dear Mr Corcoran

I am very aware of the strength of feeling on the subject of commercial rents and Fine Gael has addressed this subject in our manifesto as part of a drive to cut business costs by strengthing competition in sheltered sectors.

Specifically, in our manifesto we have committed to pass legislation to give all tenants the right to have their commercial rents reviewed in 2011 irrespective of any upward-only or other review clause.
Please do not not hesitate to contact me if you have any queries in this regard.

Best wishes
Yours sincerely

Sean Barrett TD

@Karl Deeter
@Frank Quinn
I enjoyed reading your report critiqued by Ireland’s most distinguished property academic Tom Dunne Head of The School of Real Estate and Construction Economics DIT Bolton Street.

We have just experienced the greatest property crash in the history of mankind. As outlined in my above letter to the Irish Independent “Bubble values” dated 29th February,I believe the valuation model was an absurd nonsense.

Where were these valuers educated? Who were their lecturers?
Has anybody apologised to the Irish people or resigned?

@ John Corcoran

“Has anybody apologised to the Irish people or resigned?”

Of course they have not, surely you jest. They are still hiding out under the banner of the Croke Park agreement, writing all sorts of ‘erudite’ papers. There is no need to face the realities that businesses the length and breath of this country are facing they simply go to their ATM’s and withdraw Troika money.

@ John Corcoran

Yes, that was/is a very good article. Sooner rather than later you are going to be vindicated. However it will take a rent and rates strike. There is little if anything to debate on this issue it is just a question of whether NAMA and the pension funds can insist that these unfortunate businesses can be kept “in harness” with these leases that were carefully crafted by these smart ass legal experts in the glory days of the celtic tiger. Once businesses are sucked into mock “debate” you will be played for fools as indeed these businesses have been. Only, one thing this government will respond to and that is we are not paying and our members are not paying until this is sorted.

Since the government took over. they have spent almost 12,000 a month of our money on media performers who flood us with meaningless sound bites and tiresome meaningless gesticulations.

I go back to my original question. Why are small and medium businesses paying money to be members of ISME when the very toothless existence of this body practically guarantees that they will get nowhere? The two tier market you and Andrew McGukian of Fry’s mention just has to go, full stop. Otherwise, it is more unemployment more emigration, more empty buildings and another bailout.

ISME and Patrica Callan, should call for a series of protests starting the week after next. They should assemble in O’Connell Street outside the GPO. Employers and employees should march to the Dail where they should announce that their members will no longer pay unjust rents and commercial rates. I am not just talking about the mad UORR now banned in the future. I am talking about proper benchmarking of all rents and rates back down to the reality of the shrunk economy where money is not being lent and where consumer confidence is still evaporating. Actually, rate refunds should be made as the money has been extracted under false accounting practices which would not be condoned anywhere in the EU. Even the government is pitching its “yes” vote campaign around the reality that we are going to need access to more bailout funds of course we are they are driving people out of business.

@Robert Browne

It was the Fine Gael Landlords Association who made the decision, with the aid of comrade Gilmore,the landlords friend. The state colluded with the commercial property cartel and destroyed our economy. The cartel could not have existed without the state’s collusion.

Many of the state’s landlords are insiders and politicans buddies and donors. Some cabinet members families are large state UORR landlords.
It had nothing to do with Nama. The cartel spun that story and even named a DoF official as the patsy. It was all orchestrated by the political liars and their financial backers.

Labour are very concerned about jobs—that decision will destroy tens of thousands of sustainable jobs and businesses.

There was no constitutional issue that was a lie.
Below is a legal opinion from one of the country.s leading legal expert’s

This is a summary page of a legal opinion obtained on the issue ;
“In summary, therefore, I am of the view that:
A. Any legislation which rendered void pre-existing contractual commitments providing for upwards-only rent review would deprive the landlords of a valuable contractual right without compensation. This, however, is not a dispositive consideration, since legislative interference with contractual rights along these lines is
not uncommon, i.e., the very point which Costello J. made in Cafolla.
B. The critical question is rather whether such legislation would be proportionate and objectively justifiable. For the reasons set out in this opinion, there are far reaching policy reasons why the Oireachtas might think that the prohibition of such clauses is
necessary in the public interest. Not the least of those reasons is that the Oireachtas might consider that such clauses artificially maintain unrealistically high rental levels in the retail sector, thus hindering the recovery of the retail sector. Of course, given
the high importance of the retail sector to the volume of economic transactions and consumer confidence, the economy as a whole cannot fully recover from an economic crash without the recovery of that sector.
C. In my view, any such proposed legislation is no different in principle from many other forms of legislation which preclude or render void pre- existing business practices provided for by contract. The proposed legislation satisfies the proportionality
test in that –
i. It is rationally connected to an objective of sufficient importance (i.e., recovery in the retail sector) to warrant interference with a constitutionally protected right and, given the serious social problems which they are designed to meet, they undoubtedly relate to concerns which, in a free and democratic society, should be regarded as pressing and substantial.
ii. Such legislation would also impair those rights as little as possible and their effects on those rights are proportionate to the objectives sought to be attained in that it would simply provide a mechanism whereby rents could be assessed by reference to prevailing market conditions and deflation.
iii. Critically, such legislation would not attack the essence of the contractual right, namely, the right to receive a market rent and, unlike cases such as Blake, it would not involve one sector of society (namely, landlords) being expected unfairly to bear the burdens from other sectors of society are exempt.
D. No difference in principle can be drawn between the proposed legislation and the FEMPI Act. Certainly, if the Oireachtas can constitutionally take steps drastically to interfere with existing contractual rights of service providers and public servants without compensation (as the High Court has already held in the JJ Haire case), then the proposed legislation of this kind would equally seem to be constitutionally valid.

Colm McCarthy had provided the government with his report stating they must ban UORRs or they are destroying our economy.
The cartel ,The Fine Gael Landlords Association and comrade Gilmore decided to destroy tens of thousands of sustainable Irish businesses and jobs .

on December 29, 2011

Justice Minister Alan Shatter speaking to Property week magazine on 20th May 2011

However, Shatter believes values for private landlords and the state-supported NAMA (National Asset Management Agency) would not fall.

“In assessing capital values in the market, it is more complicated that just looking at the rent roll. I think it is a very foolish buyer that looks at the rent roll in isolation, and doesn’t consider the economic backdrop and the likelihood of the continued receipt of rent at that level,” he says.

@ John Corcoran

Thanks, for your hard work in exposing this.

I think you have shone a very bright light upon a putrid matter, one that stinks to high heaven for justice and one which brings into question the very essence of law as it is purported to function in this battered economy it questions the very nature of who “Really runs Ireland” and for whom.

These ‘contracts’ must, by any measure of considered jurisprudence, be uninforceable contracts. The whole basis for the “contracts” was/is for bought and paid for legal hit men, to write gobbledegook legal terms and conditions into contracts, so that one party, no matter what transpired in the real economy, the real world, could not (would not be allowed to) loose.

I am sorry, I am ashamed to be Irish and as a citizen I utterly reject the drafting of this banana republic, toilet tissue contracts and the fact that they were not struck down at the first available opportunity, never mind 2012, illustrates to me that we are destined for an even greater fall than most people can imagine.

So Ken Rogoff and Carmen Reinhart’s thesis was essentially wrong, because in Ireland, “This Time Really Was Different” and from a landlords perspective, fully backed by political acolytes doing their bidding they really were/are masters of the universe! This is precisely why the economy is down the pan and why it will remain there.

This has to be one of the most bizarre, blatant closing of ranks at all levels; political, legal, judicial by the connected against the common good, against decency and against the legal standards applied to all similar leases in civilized countries of which we are not one. Countries coincidentally that are not at the heart of EU contagion as we are and will remain so.

This is the very sort of legalised theft that primes the collapse of economies and common standards of decency that underpin a properly functioning society. In Ireland, we have removed the underpinning at numerous points and any engineer will tell you what is going to happen next.

Strikes are the only weapon left in your armory.

@John Corcoran

Has anybody been fired or resigned or apologised ?

You bring up a lot of pertinent issues which you handle very well.

I assume you are Irish and are aware of our clannish or herd methods of conducting business. Consensus is reached and provides a protective umbrella for members of the group as well as members of related groups. It would not be possible to pick out fifty to a hundred individuals to charge with dereliction of duty because tens of thousands of like minded people would be equeally guilty. The Judges and the juries with the exception of a few malcontents would not convict people for doing what they consider to be normal. Our culture is one where absolution is readily available to everybody which means nobody can be held accountable. A lot of money was donated to the “cause” of protecting commercial property landlords. And the TD’s, god bless them, delivered.

Things will have to get a lot worse before we elect a government empowered to govern responsibly. To start with there are three times as many TDs as the country needs and can afford to support. The political machines are suffocating the country nationally, regionally and locally. In few other countries are political parties involved in County Council and Town Council politics. CCs and TCs should be 50% funded by local property taxes with matching inputs from the national gov’t. The whole system is dysfunctional in the extreme and will continue like that as long as people vote for the TD that can deliver the goodies locally as opposed to ensuring the whole country is prosperous. In reality we do not have a Taoiseach and TDs we have a Head Waiter and Waiters and the results over the last ninety years speak for themselves..

On the 15th November 2011 the Grafton Street tenants notified the Directorate-General for Competition of the European Union(ref no.2011/121371) and the Irish government,of a cartel in the Irish commercial property market.
This cartel had imposed on all Irish commercial tenants,the most anti-tenant commercial lease law in the world i.e.upward-only rent reviews(UORRs) tied to long leases. Tenants bought into these leases which implied commercial rents would be set by independent parties. This process was arbitrary,not capable of objective justification,did not comply with data protection laws and was clearly anti-competitive as organised by a cartel. Our government either colluded with the cartel or was criminally negligent by signing these ruinous leases,and wasting its citizens money. No other member country of the eurozone tolerates this ruinous lease law. Reckless Irish banks lent tens of billions against these ruinous leases not against the properties. In 2008 Grafton Street became the fifth highest rented street in the world. On 28th February 2010 the Fianna Fail led government banned this ruinous UORRs lease clause in all future commercial leases. The tenants continued to lobby TDs to reform this feudal lease law in legacy commercial leases. In the general election of 2011 both Fine Gael and Labour included the reform of existing UORRs leases in its’ election manifestos. In it’s program for government the new government pledged “We will pass legislation to ban upward-only rent reviews in existing commercial leases”. This reform was designed to stop the unnecessary destruction of thousands of sustainable Irish retail businesses and jobs. The Irish people had spoken, democracy had triumphed.

The cartel responded immediately and began to mobilise the oligarchs. Ireland First and Property Industry Ireland(PII),aka the Fine Gael Landlords Association,were the cartel lobbyists,among others,to ensure this reform would never be implemented. PII was established in June 2011 and many of it’s directors were Fine Gael grandees and large party donors including a former Fine Gael Taoiseach’s son Mark Fitzgerald MD of Sherry Fitzgerald auctioneers a cheerleader of the property bubble,and the Cork based developer Michael O’Flynn. Kieran McGowan Chairman PII and David Went Chairman of the Irish Times,who together had presided over the bankrupting of Irish Life and Permanent Plc,agreed that the Irish Times would arrange the propaganda. The income from property advertising is a very significent part of it’s business model. The property editor Jack Fagan organised Bill Nowlan(W.K.Nowlan and Associates),Ann Hargaden(Lisney),Duncan Lyster(Lisney),Pat McArdle(economist) and CBRE, half page opinion pieces every wednesday. These were the cartel’s mouthpieces. Nowlan referred to the over-rented tenants as chancers and made the Zimbabwe,Banana Republic,Armageddon comparisions.

In July,Deputy Ciaran Lynch(Labour) began leaking proposed legislation to the Sunday Times,outlining the complexities of qualifying tenants,qualifying landlords,sunset clauses,landlords compensation,tenants compensation,receivership light etc. The u-turn was underway. The Grafton Street tenants met Minister Shatter on the 27th July. This meeting was designed to deaden expectations and prepare tenants for the u-turn. My response to this devastating meeting was to hang a banner on our Grafton Street store to remind Fine Gael of their election manifesto’s solemn pledge. The government and the cartel agreed on the spin,it was to blame Nama and the Department of Finance. The cartel was spinning the name of a specific DoF official who was to be the patsy. It was agreed budget day would be the least bad day to make the announcement. Minister Noonan mentioned landlords compensation to get Minister Shatter off the hook. Gerard Hogan SC had dealt with this point in his legal opinion,landlords were entitled to market rents,but not to compensation. In May 2011 Minister Shatter had stated to the Irish and international media there was an emergency job crisis and under article 43.2.2 of the constitution,in the “exigencies of the common good”, banning UORRs in existing commercial leases was vital. Furthermore Minister Shatter stated it wouldn’t effect Nama’s valuations. He had a copy of the esteemed senior counsel Gerard Hogan’s opinion and Colm McCarthy’s report to support this position. Democracy was overturned,the cartel had triumphed.

John Corcoran
M.Sc. Economics London School of Economics and Political Science

Comrade Gilmore delivered the decision and destroyed tens of thousands of sustainable Irish businesses and jobs.
The cartel, the oligarchs and their media facilitators were well pleased.

@John Corcoran


Support your views. Keep fighting as market forces and common sense will bring these idiots to eventually see the futility of their arguments.

How many jobs have this government destroyed since they got into power by not dealing with the UORR issue? The jobs initiative is just more lies and reflects this governments cowardice in not confronting the vested interests. Retail Excellence Ireland produced stats to say 4% have achieved rent reductions. Let the LIARS lead on…..

For all those who are massively over-rented and been bled dry by the most anti-tenant lease law in the world–the work goes on-the cause endures -the hope still lives -and the dream of market rents will never die.

We will not be silent.

NAMAWINELAKE February 15th


Who-Shot -The -Tiger

“one paragraph says it all. He states we will become Zimbabwe(without the sun) if we legislate retrospectively for short term political gain”. “If it happens there will ne nobody left in employment in the country to turn out the lights–no matter what the retailers say”

SF ca
The blog on the rent review question and the excellent comments by all may be the most important issue that has ever been addressed on the site.
We are where we are,but we are discussing a new government policy,which could lead to the total collapse of the Irish economy and Irish society.
We all need to make contact with senior figures in the Fine Gael party and try to explain the consequencies of the proposed rent review legislation.

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