Long-Term Impact of NAMA on House Prices

Kawabata

Folks,

I would be interested in your views on the long-term impact of NAMA (assuming it proceeds pretty much as envisaged in the Bill) on residential house prices in Ireland.

There are plenty of other threads about how far prices will fall in general and, separately, on the rights and wrongs of NAMA. But I'd like to focus on the interaction between the two.

Many commentators/economists argue that NAMA is based on the mistaken notions that the current fall in residential values is a temporary dip and that prices will recover in the 7-10 year timeframe. Others state that NAMA is solely there to prevent a permanently moribund banking system and that whether the State ever gets back into the black with NAMA is comparatively immaterial. Separately, posters have been arguing as to when the residential property market bottom will be reached.

Do you think that NAMA will not influence residential values (over the long term at least, whatever about preventing a short-term firesale crash) and will merely (if at all) 'rescue' the banks? Or, alternatively, by preventing firesales, will it maintain some buoyancy in the residential market and reduce the long-term depth of the price fall, so that the absolute bottom of the market (whatever that is) will not be as deep as it otherwise would?

Hope those questions are clear!

Cheers.

BobbyD10

The Department of Finance has issued details in the measures the National Asset Management Agency (NAMA) will take in removing €90 billion worth of toxic debt from the Irish banking system.

According to the Department the steps are as follow:

Step 1

NAMA will buy loans from the participating banks at a significant discount – these loans will be from the riskiest part of the bank portfolios, the land and development loans, as well as certain associated loans.
This will take these riskier loan classes away from the balance sheets of the banks concerned and make the banks safer and more secure for depositors and investors.

Step 2

NAMA will pay the banks concerned for these loans. It will do so on the basis of valuations carried out by experts and in accordance with pre-defined valuation methodology. The banks’ book value of the loans will not be a factor and the banks will have to recognise a loss on their books at the time of the transfer for the difference between the book value and the amount paid by NAMA.

The payment for the loans will be in the form of Government securities and/or guaranteed securities, and the principles of the valuation methodology are set out in the draft legislation and the Minister will be making detailed regulations based on these principles. The valuation methodology along with all other State aid aspects of the NAMA initiative will be subject to approval of the EU commission.

This method of payment will ease pressures on the banks arising from the tighter liquidity conditions that have prevailed for the past year or so, giving them access to cash or near-cash assets in place of the much less liquid property loan assets they had before. Again, this will make for more stable and secure financial institutions, better able to lend and support the domestic economy

Step 3

NAMA will manage these loans, either directly or indirectly, so as to obtain the best achievable return from them. In the meanwhile, it will collect interest due and pursue debts so as to ensure its own income stream and to recoup the Government investment over time.

NAMA in effect puts itself in the place of the bank that originated the loan, and will have all the same rights to pursue debts, where necessary. Borrowers who continue to meet their contractual obligations, of course, have no reason to worry – their rights are fully protected.

Eligible Loan Assets

Eligible assets for transfer to NAMA will include the land and development books and associated loans. Associated loans will be those loans which are not in the land and development category but which are held by individuals/companies that also have land and development exposures or the borrower may be a systemic risk to the financial system. Associated loans will take account of cross collateralisation and other associated loan exposures of borrowers.

Valuation

Valuations by NAMA will be consistent with EU Commission guidelines and will be based on the current market value of the underlying collateral, adjusted to reflect a longer term economic value which the underlying asset could reasonably be expected to attain. Detailed regulations on how the long term economic value is to be calculated are being drawn up by the Minister and will be published in September.

The principal factors to be taken into account in the Regulations are provided for in the draft legislation. There will be an opportunity for institutions to seek a review of the price paid, and any review will be carried out by a valuation panel which will report to the Minister. But NAMA will not be required to take any asset and if appropriate it can refuse to take assets.

---

BobbyD10

It mentions the eligible assets as mainly land banks and development books, so that seems their main interest.

Not sure how this will effect the residential sector to be honest, should free up more cash for the banks to lend, but depends on the numbers that can actually now afford a mortgage and at what price.

I think this story has a long way to run yet, a watching brief is still to be maintained.

patnor1011

all NAMA thing is going to be NAMAGATE a hoax how to protect assets of few chosen. All that money put into NAMA can be used in nationalise banks as they are fallen bussines already and create one-two new state institutions. Instead of saving few rich people who do not care about us state has to save their own people and their children. Jaysus if their bussines fail why should I care and bail them out?:mad:

SparkyLarks

In the US in 1928 that was the view taken that buisness should be left fail. That was one of the main reasons the downturn was so severe leading to a depression, where

100,000 businesses failed.
Stock values fell from $89 billion to $15 billion.
25% unemployment rate [15 million](125 million in the U.S.)
[Unemployment was 3% in 1929.]
Unemployment stayed above 14.3% from 1931-1940.
Average unemployment was 18%
10,797 banks failed out of over 25,000, taking the life savings of 9 million people.
333,000 could not go to school.
Many schools were open only three days a week for eight months.
One million lost their homes.
Housing starts dropped 90%. GDP dropped from $104 billion in 1929 to $56 billion in 1933.

That is what we are trying to stop. Action should have been taken by the govt to stop the bubble, but it wasn't. We are now heading in the opposite direction, i.e for a crash, and just as a bubble leads to overvaluation a crash leads to under valuation. The govt is pumping money into the system, trying to dampen tha crash.
that the govt didn't act during the bubble, isn;t a good enough reaon not to do anything now.

Freddie59

SparkyLarks wrote: »

In the US in 1928 that was the view taken that buisness should be left fail. That was one of the main reasons the downturn was so severe leading to a depression, where

100,000 businesses failed.
Stock values fell from $89 billion to $15 billion.
25% unemployment rate [15 million](125 million in the U.S.)
[Unemployment was 3% in 1929.]
Unemployment stayed above 14.3% from 1931-1940.
Average unemployment was 18%
10,797 banks failed out of over 25,000, taking the life savings of 9 million people.
333,000 could not go to school.
Many schools were open only three days a week for eight months.
One million lost their homes.
Housing starts dropped 90%. GDP dropped from $104 billion in 1929 to $56 billion in 1933.

That is what we are trying to stop. Action should have been taken by the govt to stop the bubble, but it wasn't. We are now heading in the opposite direction, i.e for a crash, and just as a bubble leads to overvaluation a crash leads to under valuation. The govt is pumping money into the system, trying to dampen tha crash.
that the govt didn't act during the bubble, isn;t a good enough reaon not to do anything now.

Ah right. So the protection of fifty failed businesses at a cost of €60,000 per household is valid then? This is a scam - pure and simple. It will protect neither the taxpayer , nor the Government.

If these jokers were left go to the wall, what's the worst that can happen? Has anyone actually considered this? NAMA is an attempt to distort a free market. Just as well we're not really capitalists (not now anyway;))

Funny on how we can almost have a referendum about going to the toilet, but yet we cannot on this issue?

It is completely indefensible. Full stop.

MG

Kawabata wrote: »

Folks,

I would be interested in your views on the long-term impact of NAMA (assuming it proceeds pretty much as envisaged in the Bill) on residential house prices in Ireland.

There are plenty of other threads about how far prices will fall in general and, separately, on the rights and wrongs of NAMA. But I'd like to focus on the interaction between the two.

Many commentators/economists argue that NAMA is based on the mistaken notions that the current fall in residential values is a temporary dip and that prices will recover in the 7-10 year timeframe. Others state that NAMA is solely there to prevent a permanently moribund banking system and that whether the State ever gets back into the black with NAMA is comparatively immaterial. Separately, posters have been arguing as to when the residential property market bottom will be reached.

Do you think that NAMA will not influence residential values (over the long term at least, whatever about preventing a short-term firesale crash) and will merely (if at all) 'rescue' the banks? Or, alternatively, by preventing firesales, will it maintain some buoyancy in the residential market and reduce the long-term depth of the price fall, so that the absolute bottom of the market (whatever that is) will not be as deep as it otherwise would?

Hope those questions are clear!

Cheers.

I think NAMA is fairly decoupled from house prices. The only possible prop to house prices I can see is a more orderly fall in economic activity rather than chaotic collapse and which may ease a long term recovery. I see them ending in the same place long term. I don't think any state interevntion, especially by a state with such poor finances, can prop up house prices long term.

leonardjos

Say No to the baNAMA Republic

https://us.v-cdn.net/6034073/uploads/attachments/86210/87149.png

Grand Theft Nama

https://us.v-cdn.net/6034073/uploads/attachments/86210/87164.jpg


It's a pity the IMG tag is disabled on this forum . But take a look at the above links. Circulate the images by email etc to raise public awareness of the Grand Theft Nama

BendiBus

patnor1011 wrote: »

all NAMA thing is going to be NAMAGATE a hoax how to protect assets of few chosen.

I'm obviously missing something here.

Can someone explain to me the mechanism by which NAMA will protect the chosen few?

Official explanations to date are simply that the debtor will now owe money to NAMA rather than their original lender.

What am I missing? I'm not defending NAMA or suggesting it is the correct approach to deal with our problems, but I haven't read a well defined description of how this is a bailout of any sort for developers. Banks yes (albeit at a cost to them), but not developers.

spockety

BendiBus wrote: »

I'm obviously missing something here.

Can someone explain to me the mechanism by which NAMA will protect the chosen few?

Official explanations to date are simply that the debtor will now owe money to NAMA rather than their original lender.

What am I missing? I'm not defending NAMA or suggesting it is the correct approach to deal with our problems, but I haven't read a well defined description of how this is a bailout of any sort for developers. Banks yes (albeit at a cost to them), but not developers.

Once the debt has been shifted to NAMA, unlike the banks who answer to shareholders who give a crap about their investment, NAMA acting on behalf of the political elite will not seek to do anything which would in any way damage the big developers. (i.e. by chasing down the debt, forcing firesales, etc.)

They know that NAMA can draw the pain out over 50 years by making us, the tax payer, shoulder the losses that the property bubble created. Unlike bank shareholders, the tax payer in this country will bend over and take it like the good patriots we are.

We will pay for it all eventually by;

a) Increased taxes to pay for the payout to rescue the banks

and

b) banks making money available again as part of the deal for suckers to get 40 year mortgages on 300K shoebox apartments that NAMA will now own

What we can therefore see is that for b) to work, it's imperative that the property market be propped up artificially as much as is possible. Horrifyingly, they may actually be able to make a good stab at this if NAMA is the biggest property broker in the state, as NAMA can control the rate of release of new accomadation onto the market, etc., in order to try and fix the market.

patnor1011

BendiBus wrote: »

I'm obviously missing something here.

Can someone explain to me the mechanism by which NAMA will protect the chosen few?

Official explanations to date are simply that the debtor will now owe money to NAMA rather than their original lender.

What am I missing? I'm not defending NAMA or suggesting it is the correct approach to deal with our problems, but I haven't read a well defined description of how this is a bailout of any sort for developers. Banks yes (albeit at a cost to them), but not developers.

Ill tell you what you are missing here. If developer will fail to pay to bank he might end up in prison and all his company property like unfinished projects and so on will end up on auction of some kind. He will end up poor and might be in prison.

With NAMA this CONAMA will pay bank, hold on to developers property and might be eventually sale that to him back again for small price when he will be paying to NAMA some silly amount weekly as repayement of loan. If CONAMA will sell that property for small price he will accuse them of devaluating his property and making him unable to repay whatever he owed them. If you want to set up something that important and make it bulletproof you need dozens of experts working on matter and laws for years and not in few weeks or months. jaysus they themselws dont know how to answer 90% of questions yet they are talking their mantra that "all will pay back" again and again...
not true, just another and the most severe lies... i will be no surprised when people start leaving ireland again to protect their kids not to pay for fun of few super-mega-mostlyFF-busineSSmans

bangersandmash

spockety wrote: »

We will pay for it all eventually by;

a) Increased taxes to pay for the payout to rescue the banks

and

b) banks making money available again as part of the deal for suckers to get 40 year mortgages on 300K shoebox apartments that NAMA will now own

What we can therefore see is that for b) to work, it's imperative that the property market be propped up artificially as much as is possible. Horrifyingly, they may actually be able to make a good stab at this if NAMA is the biggest property broker in the state, as NAMA can control the rate of release of new accomadation onto the market, etc., in order to try and fix the market.

It is quite horrifying when you actually think about it. Tom Parlon let the cat of the bag last week when he said the main raison d'être of NAMA is to prevent further falls in property values.

So soon we may be looking at...
1. Tax-payer funds NAMA
2. NAMA works to artificially prop up values
3. Tax-payers pay property taxes calculated based on artificially supported values, to pay for step 1

dan_d

WHEN are we going to realise that the last 10 years of property prices are called a bubble for a reason....THESE ARE NOT NORMAL PRICES. Therefore we should NOT be expecting prices to "return to normal", ie, go back to what they were in 2006. What is happening now is normalisation (ignoring the politics and swindling). An economy CANNOT be sustained by it's construction industry. How long is it going to take to get that into people's (Fianna Fail and related politicians) thick heads? They've screwed up the entire economy by their lack of any kind of action in the last 5-6 years, and now they're going to screw it up even further by the vague attempts at action for the next 50-60 years. About all they're going to achieve out of this is increased emigration. Course they won't cop that til it's way too late and we're back to exporting people, like we were in the 80s. At this stage for a lot of young people, it's a question of when you go, rather than if. But as long as the bankers and developers are happy, that's all that matters.

Sorry for venting, but it's so frustrating when you look at the corruptness of the whole thing.

spockety

Given the scale of the impact this will have on people's lives compared to Lisbon, aside from legal/constitutional issues, it's bizarre that we are voting on one and not the other.

I wonder what the public would tell Lenihan if he put NAMA to a referendum. It would be very interesting at any rate to see a full scale full blooded public debate on it, tough questions etc.

BendiBus

spockety wrote: »

NAMA acting on behalf of the political elite will not seek to do anything which would in any way damage the big developers.

So the success or failure of NAMA hinges on whether or not it is governed by political interference.

Are there any options that don't suffer from the same risk?