"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.

beeno67

Treehouse72 wrote: »

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?

As I have previously pointed out I am not particularly a fan of NAMA. I am pointing out the errors people are making when discussing NAMA. People go into automatic when discussing NAMA as has been apparent tonight.

Treehouse72 wrote: »

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.

They have to. Developers cannot choose. The banks cannot choose. To enter NAMA the banks must agree all or none.

Treehouse72 wrote: »

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 developer has loan for 100 million and the loan is funding itself then it is very unlikely the value would be 70 million but if it was then what you say is correct

Treehouse72 wrote: »

> If the developer can't repay, NAMA sells the property behind it for €75m and makes a €5m profit


Best.

Plan.

Evar.

No again here you are wrong. Perhaps you need to read a little more. If NAMA paid 70 million and the developer cannot make repayments then NAMA can reposess property and sell on open market. As NAMA will have paid market value plus 10% that means it will sell for 64 million (assuming property hasn't fallen further). So it will make a loss of 6 million. No one is happy. Bank will have lost 30 million, developer will have gone bust and NAMA will have lost 6 million.

Treehouse72

Beeno, I am not trying to win an argument here or score cheap points. I am genuinely trying to show you how massively, massively mistaken you are in your understanding of NAMA.

Take the final example above. The bit that you are completely missing is that the difference between the original €100m loan and the amount NAMA pays for it - say €70m - stll has to be found from somewhere. You keep on stating that once NAMA buys the loan, that's it, the loan has gone from being a €100m problem to a €70m problem. This is incorrect...there is €30m missing in the middle.

You say that this cost is bourne by the banks. But that's the heart of the problem: the banks do not have the capital to cover that cost and there are no private investors to provide it either. If they did, there would be no need for NAMA, right? So the state needs to step in and fill the hole. We are on the hook for that €30m. And that is before we allow for the possibility we might not even get €70m for the asset - it could be worse than a €30m hit. There is a shrinking pool of people with €70m to spend on anything in this country.

The other issue is the developers. You must understand that developers remaining in "business" is not a solution to anything. After all, what can developers do? Build and sell gaffs. For crying out loud, surely every person in the country by now understands that buying and selling gaffs does not create wealth. The opposite, it destroys wealth in an unproductive asset, transaction costs, opportunity costs and god knows what else.

Carawaystick

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?

Why pick a fixed constant? surely if Interest rates can increase by X + deltaX
the deltaX depends on the remaining amount.

If you're paying a mortgage of 490pm then 1500pm is a large overhead. if you're paying 4,900pm then 1500 is a wee bit less as a proportion

Fixed numbers are bollicks, well anything above 3xDole are anyway.

beeno67

Treehouse72 wrote: »

Beeno, I am not trying to win an argument here or score cheap points. I am genuinely trying to show you how massively, massively mistaken you are in your understanding of NAMA.

Take the final example above. The bit that you are completely missing is that the difference between the original €100m loan and the amount NAMA pays for it - say €70m - stll has to be found from somewhere. You keep on stating that once NAMA buys the loan, that's it, the loan has gone from being a €100m problem to a €70m problem. This is incorrect...there is €30m missing in the middle.

You say that this cost is bourne by the banks. But that's the heart of the problem: the banks do not have the capital to cover that cost and there are no private investors to provide it either. If they did, there would be no need for NAMA, right? So the state needs to step in and fill the hole. We are on the hook for that €30m. And that is before we allow for the possibility we might not even get €70m for the asset - it could be worse than a €30m hit. There is a shrinking pool of people with €70m to spend on anything in this country.

The loss is borne by the banks. You obviously believe that they will be unable to do this and will need additional government money. Perhaps you are right. The market seems to disagree with you with regards to AIB and BoI anyway. AIB is writting off its losses over 2009 and 2010 and will probably have a 6 billion loss over these 2 years. They intend to sell assets to make up for this loss and perhaps a rights issue. The market believes them and feels the chances of the government taking a significant extra stake has reduced. As a result AIB's share price has increased 50% in the last few days since the results and future plans were announced. As I said they may be wrong and you may be right. However there are other opinions out there than those you read on boards.ie
.

Treehouse72 wrote: »

The other issue is the developers. You must understand that developers remaining in "business" is not a solution to anything. .

I never said it was. However I believe it is better for any viable business to be able to continue than go bust. Obviously if they are not viable then they will go bust. This is the typical reaction here. As I said before, once NAMA is mentioned people go into automatic mode and don't consider what has actually been written. Same goes for the words "property developer". You see the word and go into automatic mode. You use ridiculous phrases like "you are living in bubblesville" as if there are only 2 types of opinions either property is going to drop to 0 or return to 2006 levels. Like Amhran Nua's comments which have nothing to do with anything I said eg
"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. "


Well there are a huge amount of opinions in between. My opinion for what it is worth is that if a business can keep going and pay as much of its debts as possible then that is better for everyone including taxpayers than it going bust.

Amhran Nua

beeno67 wrote: »

Like Amhran Nua's comments which have nothing to do with anything I said eg
"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. "

As mentioned, that's jumping to the end result of about five pages of back-and-forth. This discussion has been had before, many times.

beeno67 wrote: »

Well there are a huge amount of opinions in between. My opinion for what it is worth is that if a business can keep going and pay as much of its debts as possible then that is better for everyone including taxpayers than it going bust.

You are quite right in that. However you do need to look at the businesses in the context of the wider economy and longer term trends, and balance it against various social issues as well - what you're talking about here is making them sustainable through the taxpayer paying their bills, which isn't sustainable in any sense. And if the taxpayer has to take up the shortfall via bank recapitalisation after NAMA, thats exactly whats happening.

What you are saying might only marginally make sense if inflation adjusted property prices were restored to 2006 levels, ergo making these businesses "sustainable" again. Would you see that as being a likelihood?

beeno67

Amhran Nua wrote: »

As mentioned, that's jumping to the end result of about five pages of back-and-forth. This discussion has been had before, many times.


You are quite right in that. However you do need to look at the businesses in the context of the wider economy and longer term trends, and balance it against various social issues as well - what you're talking about here is making them sustainable through the taxpayer paying their bills, which isn't sustainable in any sense. And if the taxpayer has to take up the shortfall via bank recapitalisation after NAMA, thats exactly whats happening.

What you are saying might only marginally make sense if inflation adjusted property prices were restored to 2006 levels, ergo making these businesses "sustainable" again. Would you see that as being a likelihood?

Well done Amhrain Nua. Once again go on a rant and ignore anything that has been said. I love the way you got in me wanting property prices returning to 2006 levels which pretty much makes my earlier point that I directed to Treehouse.

"You use ridiculous phrases like "you are living in bubblesville" as if there are only 2 types of opinions either property is going to drop to 0 or return to 2006 levels. Like Amhran Nua's comments which have nothing to do with anything I said "

The anti NAMA comments here so far have been from people who
1. Do not know how the valuation system works
2 Do not know the criteria under which loans are transferred to NAMA
3 Do not know what % of proerty is expected to be overseas.

These are 3 fundamental issues with regards to NAMA yet people like yourself make sweeping generalisations without even knowing the basics. I have no problem with people disagreeing with NAMA (although it is going to happen anyway) and as I said I am not too impressed with it either. But, at least learn a little about NAMA before you go on another rant.

Amhran Nua

beeno67 wrote: »

I love the way you got in me wanting property prices returning to 2006 levels which pretty much makes my earlier point that I directed to Treehouse.

That was a question, not a statement. Can you respond to it rather than avoiding it please, in the interests of furthering the discussion. Do you see it as being likely that property prices will return to their inflation adjusted 2006 levels?

Jabber2

I think the biggest fear the general public have about NAMA reflects the general sense of mistrust people have in government, and from a personal point of view its the phrase "Long Term Econonmic Value" that is frightening we are taking over loans from banks at an assumed "LTEV" who set this value are they the same people who told us only 2/3 years that "those of you talking down the economy should jump off a cliff" ,the following link details NAMA's plan
http://www.nama.ie/Publications/2009/NAMAPresentationNov2609UCD.pdf

Embedded in this they set out there own risk assessment:
"Valuations outside expected range – risk that assets are more
impaired than anticipated resulting in larger bank losses."

there are over 21,000 loans going into NAMA how can they properly assess there current Market Value let alone any LTEV, the 13m midlands property has been mentioned a number of occasions this has an estimated current market value of 600k but we have no way of knowing what the LTEV NAMA has paid for it, is it 600k, 1m 2m etc and we won't know? Property in Ireland has dropped between 50-90% from peak yet we're paying only 30% below estimated current value and value from 2007 not 2010 where it is still dropping, 70% of the 21,000 loans are from Ireland do we really expect prices to rise 20% in Ireland over the next 10 years: 500,000 on the dole, rising interest rates, rising energy costs, minimum wage amongst highest in developed world we're not realisitic in this country, we weren't realisitic about the property boom and now we're repeating the mistake and being unrealisitic about the recovery we are a small island off the coast of Europe with 4m people. How can we compete with 1b Chinese 1.5b Indians.
Unless we face reality we'll always be stuck here:
Emmigration is part of us, real wage reform is a neccessity, reduction in civil service numbers is vitally important, education needs to enter the 21st century.
One question always annoys me about property is why 3 years into a property crash (note not correction) can we still not see what houses are actually selling for on streets, this is comically I wouldn't buy a loaf of bread without the price displayed yet we spend hundreds of thousands on houses without ever trully knowing their real value.

beeno67

Amhran Nua wrote: »

That was a question, not a statement. Can you respond to it rather than avoiding it please, in the interests of furthering the discussion. Do you see it as being likely that property prices will return to their inflation adjusted 2006 levels?

Well they don't have to so it is pretty irrelevant. Obviously if they did NAMA would make enormous profits.

beeno67

Jabber2 wrote: »

I think the biggest fear the general public have about NAMA reflects the general sense of mistrust people have in government, and from a personal point of view its the phrase "Long Term Econonmic Value" that is frightening we are taking over loans from banks at an assumed "LTEV" who set this value are they the same people who told us only 2/3 years that "those of you talking down the economy should jump off a cliff" ,the following link details NAMA's plan
http://www.nama.ie/Publications/2009/NAMAPresentationNov2609UCD.pdf

Embedded in this they set out there own risk assessment:
"Valuations outside expected range – risk that assets are more
impaired than anticipated resulting in larger bank losses."

there are over 21,000 loans going into NAMA how can they properly assess there current Market Value let alone any LTEV, the 13m midlands property has been mentioned a number of occasions this has an estimated current market value of 600k but we have no way of knowing what the LTEV NAMA has paid for it, is it 600k, 1m 2m etc and we won't know? Property in Ireland has dropped between 50-90% from peak yet we're paying only 30% below estimated current value and value from 2007 not 2010 where it is still dropping, 70% of the 21,000 loans are from Ireland do we really expect prices to rise 20% in Ireland over the next 10 years: .

Fair enough comments really. Price being paid as you say is current price plus 10%. This represents a "haircut" of about 30% on original loans. Obviously the majority of these loans were not taken out at the peak. The valuations have not been published yet so it is hard to criticise the valuations yet.

ricman

ANYONE can get an average price in an area, look on daft.ie ,prices have been going down every year.
I see houses in dublin west going from 300k in 2006 ,to 180k now .THATS for a private house in perfect nick, on a private estate.
And if you want a cheap house go for an older house that needs redecoration ,renovation.
THE 1st law of the market is buyer beware.AS other countrys have shown ,theres much cheaper ways to rescue the banks than nama.
And the government could just wind up anglo, rather than pay 20billion to rescue it.
ITS a zombie bank,which lent recklessly and made some transfers to another bank in a very suspicious manner just be4 its annual report was due .I understand the government has to honor its gaurantee re deposit accounts ,but it doesnt have to spend 20billion on 1 small bank.
IT would be much cheaper to nationalise aib and boi and then say privatise them in 5 years when the financial system is more stable.
IF some1 pays more than 220k for a house in dublin now its because they want to live close to where they work ,or school,or they are on a high income.
ALL the info re house prices is on the web,
obviously any house can go for x amount plus, if theres a number of people bidding on it .
ITS not like a can of beans ,ie i can go to aldi and pay 20cents,thats it.
ie people buy houses primarily in terms of location, is it near schools,shops, transport links etc
does it have status etc thats why a house in killiney costs abit more than a house in coolock.
JABBER , do you expect a label on each house, this is worth 190k ,not a penny more, no bidding allowed.IE i wont accept 210k, 190k is all i,ll take.
WE are a democracy ,its a free market ,you can set the price at whatever you like.
IF its too much no one will buy it, and the estate agent will advise you ,if you have no idea what its worth.

Jabber2

Ricman
I expect the final sale price to be listed against properties, you mention Daft and its clear for the same estate listed prices can vary by values from 1k to 150k+. Why because some estate agent deems them that price, anecdotal evidence has prices being sold for considerable price differentials from list prices(both during and after boom) surely there is no reason apart from deceit not to display final sale price, if final sale price is the price someone is willing to pay then thats what its worth end of discussion(would this not aid the whole NAMA debate) Of course house prices are based on sentiment desirability but how does this stop final sale prices being listed. Pubs in different parts of the country charge different prices and both are listed. The buyer is then left with the decision to purchase or not based on hard facts not estate agent opinion. Seems to me there is no Honest reason not to disclose the amount, it leaves buyers and sellers and even banks in a better position to gauge their true worth. Buyer beware BS...Why should there be any fear factor when purchasing the single largest item of your life, if you knew the last price a house went for, it would in my opinion bring a lot more honesty back into a totally corrupt business.

Amhran Nua

beeno67 wrote: »

Well they don't have to so it is pretty irrelevant.

So this whole LTEV thing everyone is talking about is a smokescreen of some sort, is it? I'm having difficulty pinning down what exactly you are in favour of at the moment. NAMA has a purpose, already clearly outlined in this thread, and its purpose is not to bail out developers.

If you think that is its purpose, you are mistaken.

Its also a very poorly thought out plan, as almost every significant economic authority agrees. The market might not agree this week, but this was the same market that had AIB shares at many multiples of their current prices only a couple of years ago; anyone using the markets as a measure of actual value doesn't understand how the markets actually work.

ricman

I,M not an expert on commercial property, if you wanna buy house x ,just compare it with a house in a similar area, same size ,specs, does it have an alarm, new kitchen, size of garden etc.
IF you are buying a shop,pub you are allowed to look at the acounts 4 the last 2 years,to see what the expenses/ profits are .ie a pub in rathmines will make more than say a pub in a village in the middle of nowhere.
AND you will employ an independent expert ,eg a commercial expert/ specialist /accountant to advise you re the value of the pub/shop.
WOULD you pay 300k now for a house now, without even looking at what are houses in a 2mile radius going for.IF the house 500 yards a way is going for 210k, well then one of the houses is wrongly priced.
OBVIOUSLY you can look on daft.ie and see a house going for 250k, when the other identical houses in the estate are going for 200k.
ie some people are unhappy, cos they paid 300k,and now their house is only worth 240 now, but thats the way the market works.

Jabber2

Ricman,
You seem to be dancing around the point, if all this information is available why not the last piece of the puzzle Final Sale Price, without this all else is speculation... Is this not what got us into this mess, speculators.
You keep mentioning the market and how it works, but we are talking about speculating with people's life savings here, real people! Even the stock market lets us know the current true price of what we are buying.
In the UK all sale prices are available does it affect the market there, they still have bubbles inflate and burst what are we afraid of in Ireland. To me it again smacks of the old crony society we have built up. The political establishment is too tightly associated with the car industry, large estate agents, property developers, construction industry, we can't get the information because we'd only then know the true extent of the crisis this country is in. If the government were truly concerned about the ordinary Joe Soap we'd have this information already but their more concerned about protecting themselves and their backers.

Inquitus

Daft.ie and Myhome.ie clearly demonstrate that noone has a clue what property is worth.

Very little property is being sold, you can see similar houses in the same estate as said above for wildy differing prices. 200k for one 290k for another, neither having sold in the months they have been listed.

People wanting to move, and people wanting to leave the country will have a price at which they need to sell their house to enable the move, or break even on the outstanding mortgage. Thats the prices we are seeing in auctioneers and online atm. Imo they are way above the actual value of the properties.

Its a mexican standoff between buyers and sellers. Sellers in most cases have a bottom figure thats way above the market value, buyers correctly think the houses are overpriced and the buttom of the market hasn't been reached.

If you had to sell your house tomorrow at the value the highest bidder put on it, you'd be in for a hell of a shock imo. Couple that with the dirth of credit being offered by the banks atm, and the impact that has on the market, and its no surprise noone is selling a house at the moment.

beeno67

Amhran Nua wrote: »

So this whole LTEV thing everyone is talking about is a smokescreen of some sort, is it? I'm having difficulty pinning down what exactly you are in favour of at the moment. NAMA has a purpose, already clearly outlined in this thread, and its purpose is not to bail out developers.

If you think that is its purpose, you are mistaken.

Yes Amhran Nua I know it is not to bail out developers and I never said it was nor do I think it should be. Is that clear enough for you. As regards your total failure to grasp the concept of LTEV perhaps you should read the link jabber2 gave in one of his previous posts. Here it is again.
http://www.nama.ie/Publications/2009...Nov2609UCD.pdf

Under "Common misconceptions" it says

Some commentary has suggested that property market will need to recover
to 2004-2007 levels for NAMA to break even. The scale of recovery
required is, in fact, a more modest 10% over the lifetime of NAMA taking

into account the 5% of subordinated debt (€2.7 bn).


Property does not have to return to 2006 levels.

Amhran Nua

beeno67 wrote: »

Property does not have to return to 2006 levels.

It does if you want those businesses to be "sustainable" again without a massive taxpayer bailout. I don't think we're dealing with the same issues though, so I'll ask - to get us both in the same frame of reference - are you in favour of NAMA as the best possible option?

Treehouse72

beeno67 wrote: »

Yes Amhran Nua I know it is not to bail out developers and I never said it was nor do I think it should be. Is that clear enough for you. As regards your total failure to grasp the concept of LTEV perhaps you should read the link jabber2 gave in one of his previous posts. Here it is again.
http://www.nama.ie/Publications/2009...Nov2609UCD.pdf

Under "Common misconceptions" it says

Some commentary has suggested that property market will need to recover
to 2004-2007 levels for NAMA to break even. The scale of recovery
required is, in fact, a more modest 10% over the lifetime of NAMA taking

into account the 5% of subordinated debt (€2.7 bn).


Property does not have to return to 2006 levels.

My God, your arrogance and lack of humility is shocking given your utter delusion on this matter.

As you point out, in April 2009 when establishing NAMA Brian Lenihan said that property would need to rise 10% in 10 years for NAMA to break even. You are 100% correct on this.

The problem is that we are now one year on from that and property has fallen almost 20%. That means a €100 house in April 2009 is now worth €80. By the end of Mr. Lenihan's time frame - April 2018 - it needs to have reached €110. That leaves the price needing to rise 35% in the next 9 years April 2010 - April 2019.

Do you think this is likely? Are you saying this is not evidence that Bubble 2.0 is part of the government's stratgy? That they, like you, are still living in the bubble? (Rhetorical questions, naturally).

And I never responded to your earlier post that stated it was possible that private money would fill in the capital at AIB and BoI. I wrote a long reply but really couldn't be bothered posting it because you have shown so little effort to meet half way. You are just arguing to defend your position. Anyway, here's something from today that might help you:

http://www.independent.ie/opinion/analysis/the-836490bn-double-or-quits-gamble-2091277.html

The_Conductor

Guys- refute each others posts- but keep it civil, and do not personalise it.

Regards,

SMcCarrick