"NAMA ... [an] attempt to prevent downward price corrections"

nice1franko

345,000 vacant housing units nationwide
Friday, 5 March 2010 08:02

345,000 homes and apartments in Ireland are currently vacant, according to new research from University College Dublin.

The figure represents 17% of all housing stock in the country.

The report says that the National Asset Management Agency could delay the normal market recovery process by seeking to prevent downward price corrections.

Taking out holiday homes, dereliction and factoring in a normal vacancy level to facilitate the rental market and the UCD study finds the country still has 170,000 houses and apartments it does not need.

In excess of one in five homes outside the greater Dublin area are empty compared to around on in 12 in and around the capital.

In a market so blighted by oversupply, the report finds house prices are still at very high multiples of average incomes.

Vendors, according to UCD, are unwilling to reduce prices. But such is the scale of oversupply, the report finds further price falls are inevitable.

It says market interventions like NAMA which attempt to prevent downward price corrections often delay rather than prevent normal market recovery.

It says Government policy aimed at maintaining price levels with so much over supply could prove both ineffectual and wasteful.

- http://www.rte.ie/news/2010/0305/housing.htmlhttp://www.rte.ie/news/2010/0305/housing.html

OK maybe I'm naive (or ignorant... or a bit thick) but can someone explain exactly how NAMA will prevent a downward price correction and if it's an intentional effect?

Victor

Because the pressure is off the banks to force sales by developers.

Cookie_Monster

That is pretty much the whole point of NAMA
The only way it will work is to keep property prices artificially inflated.

If a house "cost" the builder 500 but is now only worth 200, he'll lose lots. If he refuses to sell for less than 400, this becomes the value of the house and this is what his bank gets off NAMA for it (less whatever discount rate) to transfer the loan. Then as far as NAMA is concerned the house is valued at 400 (not 100) and this will be the selling price.

So the only person to lose out in any of this is the guy in the street looking to buy a house.

very basic way of looking at it.
NAMA is an absolute sham

shoegirl

Is NAMA not really a great big glorified debt collector?

NAMA isn't the one advancing unbacked loans to developers at the moment, its the banks themselves that are doing that to create pretend liquidity in the developers balance sheets. What exactly NAMA does and how it manages the mess that is receives remains to be seen.

There will be an enormous conflict of interest in its role as a state agency (at a time of high cost of providing shelter to welfare recipients and some degree of subsidisation of affordable housing) and to protect its buy out of the loans in question. From what I can see however, the emphasis will be firmly on maintaining the values of the assets underlying in order to actually have something to collect. In this way its difficult to see whether NAMA will force the borrower to sell or rent at a lower price in order to collect something rather than nothing, or hold the property off the market or at an unrealistic price in order to artificially inflate its paper value. The latter would only work as long as the loans are being paid for. If they are not, the artificial price inflation - sale or rental - is artificial and unsustainable. I don't think NAMA will actually prop prices up unless state agencies lease these properties for their own use at values above their real values.

Of course the Rental Accomodation Scheme does just this (just as its parent, SWA rent supplement, has played a huge part in artificial price fixing at the bottom of the private rented market), but it has been slow to take off.

beeno67

Cookie_Monster wrote: »

That is pretty much the whole point of NAMA
The only way it will work is to keep property prices artificially inflated.

If a house "cost" the builder 500 but is now only worth 200, he'll lose lots. If he refuses to sell for less than 400, this becomes the value of the house and this is what his bank gets off NAMA for it (less whatever discount rate) to transfer the loan. Then as far as NAMA is concerned the house is valued at 400 (not 100) and this will be the selling price.

Not really true. If the house is now worth 200K then NAMA will value it at 220K. The builder has to make repayments on the 500K. So if for example the builder is paying 3% interest a year then NAMA will earn 15K a year on this property it has valued at 220K or a 7% return.

If the builder is unable to keep up repayments then NAMA has the option of selling the property. If it reaches current market value of 200K then the loss to NAMA is 20K.

ricman

Well i read that some developers have transfered most of their assets to their wives so they will be protected when the banks ask for the loans to be paid.
AND nama is considering a 30percent haircut of the loan value,which makes no sense cos some land has lost 90percent of its value ,ie a portion of land bought for 13million in athlone is now valued at 600k.
nama is designed to hold on to the propertys for x no of years ,or sell em off gradually.
IF nama doesnt exist the banks would have to foreclose on propertys and sell em for whatever the market dictates, like in the usa.
ie in Detroit you can buy a lovely house for 30k.
Nama is just a ridiculous scheme whereby the banks can shed bad loans and the be able in theory to borrow money on the financial markets to lend to business or individuals .
Nobody knows if it will work,ie cos of the weakness of the economy the banks may only lend to aa plus clients or just people who have high net worth.
Read david mcwilliams in the sunday business post , he says nama is a waste of time and money ,its just a massive transfer of money from the taxpayer to the elites ,ie take from the poor and give to the rich.

beeno67

ricman wrote: »

.
AND nama is considering a 30percent haircut of the loan value,which makes no sense cos some land has lost 90percent of its value ,ie a portion of land bought for 13million in athlone is now valued at 600k.
nama is designed to hold on to the propertys for x no of years ,or sell em off gradually.
.

Again not quite the case. Originally it was estimated that NAMA would pay about 30% less than the original value of the asset. Obviously not all assetts were purchased at peak price. Indeed most probably weren't. The final valuations have not yet been made public (or even completed).

If the land has lost 90% of its value, then that is the value NAMA puts on it and then adds 10%. So in you example above, if the land bought for 13 million is now worth 600K then NAMA will pay 660K for that loan. Obviously the land owner owes interest on the original loan.

D3PO

ricman wrote: »

Well i read that some developers have transfered most of their assets to their wives so they will be protected when the banks ask for the loans to be paid.

ie in Detroit you can buy a lovely house for 30k.

re point 1 :- that wont work unless its the family home and I very much dout its happening anyway. Tax returns have been dwindling every month and ive not read one single report indicating that gift tax or Capital gains tax has increased which would be an indicator that the transaction you refer to isnt happening

re point 2 that you can buy a nice house in detroit for 30k. You can probably buy a nice house in Southill for 30k aswell but would you ???

Comparing Ireland in gereral in terms of a housing market to a blue collar city thats housing stock is 40% derelilct and has the highest unemployment rate of any US state is a little disingenous.

Thats like me comparing house prices from Kensington to a house in Donegal its not like for like.

Highly Salami

beeno67 wrote: »

Again not quite the case. Originally it was estimated that NAMA would pay about 30% less than the original value of the asset. Obviously not all assetts were purchased at peak price. Indeed most probably weren't. The final valuations have not yet been made public (or even completed).

If the land has lost 90% of its value, then that is the value NAMA puts on it and then adds 10%. So in you example above, if the land bought for 13 million is now worth 600K then NAMA will pay 660K for that loan. Obviously the land owner pays interest on the original loan.

I think the last sentence is the one people are having doubts about.

beeno67

Highly Salami wrote: »

I think the last sentence is the one people agree fully with.

Except that wasn't my last sentance. You simply edited what I said.

I should add if the land owner was to pay the full interest owed on this type of loan it would be a fantastic deal. In this scenario NAMA would buy the loan for 660K and receive 400K a year in intrest. I don't expect this to happen but then it doesn't need to.

Tech3

ricman wrote: »

in Detroit you can buy a lovely house for 30k.

Amhran Nua

beeno67 wrote: »

I should add if the land owner was to pay the full interest owed on this type of loan it would be a fantastic deal. In this scenario NAMA would buy the loan for 660K and receive 400K a year in intrest.

Eh so what happens to the upstream lenders that gave the money to the banks in the first place - the ones embraced by the government guarantee?

beeno67

Amhran Nua wrote: »

Eh so what happens to the upstream lenders that gave the money to the banks in the first place - the ones embraced by the government guarantee?

I am not sure what you mean. Basically the banks take the hit. They are selling their loans for market value plus 10%. So they are 10% better off than if they sold their loans on the open market. However they loose some well performing loans.

Amhran Nua

beeno67 wrote: »

I am not sure what you mean. Basically the banks take the hit. They are selling their loans for market value plus 10%. So they are 10% better off than if they sold their loans on the open market. However they loose some well performing loans.

The stated intention of NAMA is to restart credit flowing again. This isn't going to happen. The IMF has said NAMA won't get credit moving again. Assorted economists have said NAMA won't get credit moving again, including a nobel prize winning one who went so far as to describe it as "criminal", in that its proponents should be locked away for the good of society. The originators of the idea in Sweden have said NAMA won't get credit moving again. Even the banks themselves admit that NAMA won't get lending moving again.

Its a tortuous roundabout route to ultimate nationalisation, which is what should have been done in the first place along with a debt for equity swap renegotiation of the government guarantee with senior bondholders. We'll end up having to recapitalise the banks even further on top of the NAMA funds, with a shower of bankrupt developers on one hand and a permanently collapsed property market on the other.

Speaking of which, given the a) unfavourable rent to value ratio b) enormous volume of unsold stock (minimum five years worth and we're still building) c) rising interest rates and d) general unwillingness of the public to be fed to the mortgage machine any longer, what do you reckon are the odds that the vaunted "long term economic value" will be achieved within this generation? Despite which this generation and the next will end up having to pay for it unless the agreements get derailed somewhere down the line.

ricman

Re detroit low prices, eg good houses going 4 30k, the point im trying to make is that theres no nama in the usa ,prices are allowed to reach their own level ,many banks have gone out of business .
Our childrens, children will be paying the debt for nama .I,M NOT SAYING lets all move to detroit and buy a house for 30k.
IF nama takes over say 70 thousand houses maybe they could offer them to charitys ,county councils for people on the housing list .THE hse is paying millions for rent allowance, ie i know a woman with 1 child lived in a house 4 6years ,her rent was 950 euro per month payed by the hse.
Anyway when nama takes over those houses will be in public ownership.
Also the rent allowance system is keeping private rents higher than necessary .

Firetrap

An article in the Irish Indo recently says that the banks now want a single person taking out a mortgage to have €1,500 left over after paying their mortgage and other bills each month :eek:

Victor

Yes, because interest rates are going up and while you may be able to afford you repayment at €X, can you afford it at €X+1000?

The_Conductor

ricman wrote: »

Anyway when nama takes over those houses will be in public ownership.

The loans are in public ownership.
The assets underwriting those loans- are not- unless the loans are in default, and NAMA, as lender, decides to liquidate the assets on which those loans are backed.

The_Conductor

Victor wrote: »

Yes, because interest rates are going up and while you may be able to afford you repayment at €X, can you afford it at €X+1000?

Related to this- it must be mentioned that 'normalisation' of interest rates- would infer current rates would increase by between 3.5 and 4% ontop of current levels- aside from margin increases which are already forecasted for the Irish lending sector (of at least a further 1%- and possibly more, depending on borrowing costs for the Irish lending institutions).

beeno67

Amhran Nua wrote: »

The stated intention of NAMA is to restart credit flowing again. This isn't going to happen. The IMF has said NAMA won't get credit moving again. Assorted economists have said NAMA won't get credit moving again, including a nobel prize winning one who went so far as to describe it as "criminal", in that its proponents should be locked away for the good of society. The originators of the idea in Sweden have said NAMA won't get credit moving again. Even the banks themselves admit that NAMA won't get lending moving again.

Its a tortuous roundabout route to ultimate nationalisation, which is what should have been done in the first place along with a debt for equity swap renegotiation of the government guarantee with senior bondholders. We'll end up having to recapitalise the banks even further on top of the NAMA funds, with a shower of bankrupt developers on one hand and a permanently collapsed property market on the other.

Speaking of which, given the a) unfavourable rent to value ratio b) enormous volume of unsold stock (minimum five years worth and we're still building) c) rising interest rates and d) general unwillingness of the public to be fed to the mortgage machine any longer, what do you reckon are the odds that the vaunted "long term economic value" will be achieved within this generation? Despite which this generation and the next will end up having to pay for it unless the agreements get derailed somewhere down the line.

I am not sure why you quoted my previous post before you went on this rant. It has nothing to do with what I said.

With regard to "long term ecconomic value" being achieved. Well if the assetts outside Ireland rise with inflation over the next 10 years, which would seem reasonable, then the property in Ireland doesn't have to rise at all.

Also it is not all about rising property prices it is also about managing the loans. So in the example above, where a field was bought for 13 million and is now worth 600K. If NAMA buys that loan for 660,000 they can renegotiate with the property developer. So they say to him give us 700,000 and your 13 million loan disappears. He sells the field for 600,000 sells other assets (if he has them) for 100,000. Now he has removed a 13 million noose from around his neck allowing him to carry on in business (assuming he still has a viable business) and NAMA has not only reached the "long term ecconomic value" of this loan but also made a profit on top of it.

Treehouse72

beeno67 wrote: »

.Also it is not all about rising property prices it is also about managing the loans. So in the example above, where a field was bought for 13 million and is now worth 600K. If NAMA buys that loan for 660,000 they can renegotiate with the property developer. So they say to him give us 700,000 and your 13 million loan disappears. He sells the field for 600,000 sells other assets (if he has them) for 100,000. Now he has removed a 13 million noose from around his neck allowing him to carry on in business (assuming he still has a viable business) and NAMA has not only reached the "long term ecconomic value" of this loan but also made a profit on top of it.

What?????? And what happens to the original €13m debt? In your schema, it just disappears! That loan is on the banks' books for crying out loud! This hole will have to be filled by the taxpayer, absent their having capital or investors to do it. My God, and you also think there is an upside to all this in that the developer can stay in "business"??!! Doing what exactly? Building bloody apartments to sell to young professionals??? I cannot believe what I'm reading.

Beeeno, do you not realise that your post is just about moving bits of paper around? By some strange alchemy, this process destroys debt. Do you not get it yet? You cannot make "money" (i.e. create wealth) by moving around bloody property loans so much that they eventually just disappear. You are totally, 100% absolutely stuck in Bubblesville. It is quite astonishing.

I also looked back at an earlier post of yours:

beeno67 wrote: »

Not really true. If the house is now worth 200K then NAMA will value it at 220K. The builder has to make repayments on the 500K. So if for example the builder is paying 3% interest a year then NAMA will earn 15K a year on this property it has valued at 220K or a 7% return.

If the builder is unable to keep up repayments then NAMA has the option of selling the property. If it reaches current market value of 200K then the loss to NAMA is 20K.

Exactly the same thing. The €300,000 difference between NAMA's selling price and the cost of the loan - that has just disappeared! And this not to mention that the developer by definition cannot pay back the €15k a year - he's in NAMA because he's busto because his loans were non-performing!

Sorry for all the exclamation marks, I just despair.

gurramok

A magic wand Treehouse

Thats a key phrase "Now he has removed a 13 million noose from around his neck"

Developer debt has been moved onto the taxpayer. The developer escapes responsibilty. The money still has to be paid back and in this case it was probably borrowed off the international money market by the developers bank.

I reckon an indebted mortgage borrower(whether their fault or not for over-borrowing) would be scathing at your post beeno as they would be asking for their bail-out too.

beeno67

Treehouse72 wrote: »

What?????? And what happens to the original €13m debt? In your schema, it just disappears! That loan is on the banks' books for crying out loud! This hole will have to be filled by the taxpayer, absent their having capital or investors to do it. My God, and you also think there is an upside to all this in that the developer can stay in "business"??!! Doing what exactly? Building bloody apartments to sell to young professionals??? I cannot believe what I'm reading.

Beeeno, do you not realise that your post is just about moving bits of paper around? By some strange alchemy, this process destroys debt. Do you not get it yet? You cannot make "money" (i.e. create wealth) by moving around bloody property loans so much that they eventually just disappear. You are totally, 100% absolutely stuck in Bubblesville. It is quite astonishing.

I also looked back at an earlier post of yours:




Exactly the same thing. The €300,000 difference between NAMA's selling price and the cost of the loan - that has just disappeared! And this not to mention that the developer by definition cannot pay back the €15k a year - he's in NAMA because he's busto because his loans were non-performing!

Sorry for all the exclamation marks, I just despair.

But that is the point of NAMA. The banks take most of the hit. The money doesn't disappear. It is a loss to the bank.

Also developers are not in NAMA because they are bust. Everyone with a loan greater than 5 million (even if he has assets of 500 million) will be in NAMA.

I despair of all the people on this site, who are so critical of NAMA yet seem to have no idea about it. I am afraid you are in this group. I am not particularly impressed with NAMA but it is the only show in town. I have no problem with people being against NAMA but please inform yourself first

SkepticOne

nice1franko wrote: »

OK maybe I'm naive (or ignorant... or a bit thick) but can someone explain exactly how NAMA will prevent a downward price correction and if it's an intentional effect?

The official purpose of NAMA will never be to prevent a downward pricing correction however those running NAMA will have have some control over supply of property to the market due to developers going bust and NAMA taking over the properties. They will try and prevent lots of it coming to market at once and will hold as much of it back as possible.

This will have the effect of slowing a correction but not stopping one.

The large overhang of properties held by NAMA will have a dampening effect on the market (who will buy when there's all this supply that must eventually be released) and this will prevent a bounce.

In general NAMA is bad news for a) for those who have bought and are in negative equity. They will be waiting much longer; b) those waiting for a 'bottom' as this will take much longer to happen and c) everyone else due the huge expense of it all.

gurramok

beeno67 wrote: »

But that is the point of NAMA. The banks take most of the hit. The money doesn't disappear. It is a loss to the bank.

Also developers are not in NAMA because they are bust. Everyone with a loan greater than 5 million (even if he has assets of 500 million) will be in NAMA.

The banks can't write that off on their own. They need a few billion from us the taxpayers via our FF govt to help them there. Can you not see that?

Pittens

those waiting for a 'bottom' as this will take much longer to happen

Not really, because although housing is set at the margins, emigration and may make more housing outside NAMA marginal, and NAMA housing unsellable.

if the banks are now looking for people to have Euro 1,500 after mortgage, out goings and taxes, and taxes inexorably increase, and wages fall, the whole thing continues to slide.

The NAMA properties may never sell. We may destroy them. Of, give them away as social housing. Something like that.

Anyway, nobody is buying anything unless the banks start lending. If they keep the 1,500K limit even as interest rates rise then housing collapse even more.

I have no idea if they change their limit as interest rates approach historically highs, or likely highs - I do know that during the boom the "stress test", if there was one was to add 2% to the APR, regardless of where interest rates where at the time. Of course when interest rates were at 2% or lower that was certain to be breached sometime during the loan.

m5ex9oqjawdg2i

ricman wrote: »

Re detroit low prices, eg good houses going 4 30k, the point im trying to make is that theres no nama in the usa ,prices are allowed to reach their own level ,many banks have gone out of business .
Our childrens, children will be paying the debt for nama .I,M NOT SAYING lets all move to detroit and buy a house for 30k.
IF nama takes over say 70 thousand houses maybe they could offer them to charitys ,county councils for people on the housing list .THE hse is paying millions for rent allowance, ie i know a woman with 1 child lived in a house 4 6years ,her rent was 950 euro per month payed by the hse.
Anyway when nama takes over those houses will be in public ownership.
Also the rent allowance system is keeping private rents higher than necessary .

I couldn't read this shít, less of that text speach crap please... what a fcuking eyesore...

Pittens

Dont be upsetting the text speak guy, he got an A in honours English and a first from Trinity in Neuroscience.

What are your academic achievements.

Treehouse72

beeno67 wrote: »

But that is the point of NAMA. The banks take most of the hit. The money doesn't disappear. It is a loss to the bank.

I see. The banks take most of the hit. Well, that's just grand then.

And just to clarify for all the world - you know of no problems that this would present?

beeno67 wrote: »

Also developers are not in NAMA because they are bust. Everyone with a loan greater than 5 million (even if he has assets of 500 million) will be in NAMA.

100% correct.

But a question: if their loans are not being transferred to NAMA because they are bust, then why are their loans being transferred? Why would you transfer the loans of non-bust borrowers into an asset recovery vehicle? I'd appreciate if you could help me out on this.

beeno67 wrote: »

I despair of all the people on this site, who are so critical of NAMA yet seem to have no idea about it. I am afraid you are in this group. I am not particularly impressed with NAMA but it is the only show in town. I have no problem with people being against NAMA but please inform yourself first

Sorry, I've done some additional reading and I get NAMA now:

> Developer has €100m loan
> It is transferred into NAMA, who pay €70m for it
> The developer continues to repay this loan
> The developer's business continues as a profitable entity, and the loan is paid off and no one is worse off.
> If the developer can't repay, NAMA sells the property behind it for €75m and makes a €5m profit


Best.

Plan.

Evar.

The_Conductor

Guys- just a warning- refute each other's posts by all means, but don't personalise it.

Regards,

SMcCarrick

Amhran Nua

beeno67 wrote: »

I am not sure why you quoted my previous post before you went on this rant. It has nothing to do with what I said.

I was cutting to the chase, as it were. There seems to be a fundamental misapprehension of the purpose and function of NAMA on your part which others here have pointed out, which is more or less what my post was about. You can't just handwave away the level of debt that NAMA is ostensibly an effort to deal with, that paper must be satisfied one way or the other. It would appear very likely at this time that it will be the Irish taxpayer who will be footing the bill for the bad judgement of corporations like the banks, which is not an acceptable solution.

beeno67 wrote: »

With regard to "long term ecconomic value" being achieved. Well if the assetts outside Ireland rise with inflation over the next 10 years, which would seem reasonable, then the property in Ireland doesn't have to rise at all.

Can you give us a breakdown of these assets, the growth potential and proportion of NAMA managed assets they represent? More than half? Ireland wasn't the only place with a property bubble - Poland, Bulgaria, Spain, the UK, quite a lot of the US, its an extensive list.

And even if the majority of NAMA managed assets were foreign, and these foreign assets were to rise with inflation, that is no guarantee that inflation will match or exceed the interest due on those loans.

If property in Ireland were to stay at the same price in this scenario, however, what are the chances it will reduce or remove any gains from these hypothetical foreign assets, since it is effectively losing value at the rate of inflation?

And you haven't in fact addressed any of the points I raised about property in Ireland.

beeno67 wrote: »

If NAMA buys that loan for 660,000 they can renegotiate with the property developer. So they say to him give us 700,000 and your 13 million loan disappears.

Again, as others have pointed out, thats not how it works. Irish banks didn't produce this money to lend to people from thin air, if they "vanish" it the money has to be accounted for somewhere down the line. Which means recapitalisation and effective nationalisation (although Minister Lenihan has been very careful in the language he uses there), no doubt with an attendant renegotiation of the government guarantee. Which is what some have been saying should have been done from day one.

Property is dead as disco, beeno67. We have to fund our own domestic export based industries in order to move the country forward. The bubble wasn't business as usual, it was an extremely unfortunate aberration, regardless of the efforts from the Publican Party to resuscitate it.