What is "Long Term Economic Value"?

Slideshowbob

It is what NAMA is predicated on, isn't it?

Yet it seems to be a term that only came into being around the time NAMA was established, no?

How can any valuers working for NAMA establish such a thing when it's clear they got it so wrong in the past.

Also, aren't there huge indeterminable factors at play now such as future energy prices etc. How are things like that being accounted for in the calculations?

P. Breathnach

The core idea behind NAMA is the avoidance of a fire sale. Long-term economic value is an estimate of what properties will sell for if we manage to wait out the worst phase of the market collapse.

[I may return to this question later.]

Slideshowbob

P. Breathnach wrote: »

The core idea behind NAMA is the avoidance of a fire sale. Long-term economic value is an estimate of what properties will sell for if we manage to wait out the worst phase of the market collapse.

[I may return to this question later.]

But the collapse will not be completed if there is uncertainty around values. NAMA with it's can i say smokescreen of assumed property values is perpertuating this uncertainty no?

Maybe this event on the 15th of April will leave us a bit clearer:

http://namawinelake.wordpress.com/2011/02/19/all-eyes-on-important-auction-of-80-properties-in-april/

If you support NAMA ethos what do you think the LTEV of the Glass Bottle site is?

ei.sdraob

It is an extension of "house prices can only ever go up" idiocy that overtook this country

SkepticOne

The idea was to supposedly base prices on future income streams rather than market value which was believed to be unfairly depressed due to international liquidity drying up in 2008 after the sub-prime crisis. Once this was blown over, it was thought, prices would return to their LTEV which would be higher than the market value at that time.

It is an idea that was soundly rubbished here on boards at the time as well as among economists. Prices in Ireland (and the associated value of loans) were not depressed because of international problems but because they were grossly overpriced in Ireland in the first place.

later12

LTEV in this case, essentially, is a measure of the change in real value over an extended period of an asset, that change being reflective of some intervention by an authority or interested party, i.e. Nama, and the positive feedback loop that is anticipated to emerge from that intervention all other things being equal.

In theory it is perfectly fine but it does meet with some practical difficulty - for example, in providing valuations that are too austere one risks a longer term collapse in the market, thereby losing a lot of money; whereas in providing valuations that are too optimistic one risks alienating consumers and financial houses, therefore also losing money. Somewhere in the middle there is a balance, the trouble is in finding it.

NAMA, for the record, did not find it.

Permabear

This post has been deleted.

ei.sdraob

How exactly is NAMA hoarding thousands of properties a good thing?

There is still the same amount of the oversupply except know buyers there is a seller out there which is sitting on a pile of property (using their money) and will drip feed them in

eitherway there is an oversupply, too much supply means lower prices especially at times of tight credit

there is no such thing as "long term economic value" when it comes to anything
you have a whole bloody street in Amsterdam which is a much more desirable place to live and a world class city in one of the most densely populated countries in world which only seen prices double above inflation in 350 years

long term economic value my arse, its a form of kicking the can down the road based on the same idiocy that got us here, whats worse is that people believe this will somehow work

goose2005

It's a complete lie - even the acronym LTEV was invented for Nama because no-one was this stupid in the past. When Picasso was getting started, was he selling his paintings for a billion pesetas because they'll be worth that eventually? Can I buy a '11 Merc for €100 because it'll be worth that by 2030? Should Nintendo sell the 3DS for €20 because in 10 years' time that's all you'll get on eBay for it?

ixtlan

ei.sdraob wrote: »

there is no such thing as "long term economic value" when it comes to anything

long term economic value my arse, its a form of kicking the can down the road based on the same idiocy that got us here, whats worse is that people believe this will somehow work

Well, for the sake of argument... one could argue that gold has long term economic value. It swings up and down across decades. If I held 10 billion in gold reserves and was short of cash, but could borrow some money to tide me over, would it be reasonable of me to say forget about tomorrow all that matters is what gold is worth today, this hour. I want the 10 billion (nominal purchased value) on the market and sold today, at any price because that is what it is worth. If people buy it at 2 billion, fine. Therer is no price other than the price today. And if it increases to say 5 billion in 2 years, well that's completely independent of my decision to sell today.

Houses are not gold of course, and I'm not entirely defending NAMA or any current policies. I'm just pointing out that the main people that benefit from firesales are very rich people and corporations who have lots of cash now,who can afford to pay cash over a very short interval of time during the sale.

NAMA may be a bad idea, it may have overvalued assets, but the idea of not wanting to have €40-50b of property assets on the market tomorrow, and needing to be sold that day or that week, or that month, is not crazy. It would be crazy for us to say hell yeah, sell it all now, at any cost. Don't care what the price is, the potential future price is irrelevant. That would be crazy. Investors who own significant percentages of shares in companies and want to sell do 2 things. 1/ Don't sell at the bottom of the market unless there is no other choice. 2/ Sell in batches so that the sales themselves do not further depress the market artifically.

NAMA is kicking the can down the road. That's not necessarily a bad thing. Deciding that you don't want to even consider what might be down the road, because all that matters is the section of road right in front of your nose is a bad thing.

EDIT: Other examples of long term economic values...

Food prices are rising... should farmers have got out of the business a few years ago when they were falling? Was the only relevant factor today's price?
Wind power generation... is more expensive than other generation options, should we cancel all wind projects? If they cannot compete today why bother with it at all? The future is irrelevant.
Oil was clearly much cheaper a few years ago. Would it have been reasonable then to assume it would be that price forever?

Ix.

ei.sdraob

ixtlan wrote: »

Well, for the sake of argument... one could argue that gold has long term economic value. It swings up and down across decades. If I held 10 billion in gold reserves and was short of cash, but could borrow some money to tide me over, would it be reasonable of me to say forget about tomorrow all that matters is what gold is worth today, this hour. I want the 10 billion (nominal purchased value) on the market and sold today, at any price because that is what it is worth. If people buy it at 2 billion, fine. Therer is no price other than the price today. And if it increases to say 5 billion in 2 years, well that's completely independent of my decision to sell today.

You just admitted that there is no "long term value" :eek: why are you debating this then?

No one can predict the value of anything in XYZ years from now, if they could they would become extremely rich.

What we have here is a form of futures contract backed by taxpayer which is already being squeezed by the public expenditure deficit and the banks themselves who are still bankrupt despite dumping their "assets" into NAMA

A one way bet with our money on prices being X in Y years, probably the largest one way bet in history considering NAMA is now the largest property owner in world with the most useless portfolio here and abroad.

ixtlan wrote: »

Houses are not gold of course, and I'm not entirely defending NAMA or any current policies. I'm just pointing out that the main people that benefit from firesales are very rich people and corporations who have lots of cash now,who can afford to pay cash over a very short interval of time during the sale.

It doesnt matter who benefits, If a rich Saudi king snaps up all those ghost estates tomorrow would you care? It would really lower the amount of supply in the market leading to prices stabilizing elsewhere, shuffling property into NAMA doesnt make it go away, the bricks are still there and any investor in property would see the elephant in the Threats Quadrant

Aside we now have proposals to firesale 7% of the country with forest on top (which actually has value that quite literary grows out of the ground) at ridiculous 1000 an acre. It is interesting that we have no issues pissing away natural resources at knockdown prices but somehow empty homes are sacred :rolleyes: what does it say about us Irish?

ixtlan wrote: »

NAMA may be a bad idea, it may have overvalued assets,

It is, because I say so :P, jokes aside just about every economist out there has said its a bad idea for about hundred reasons, yet the government ploughed ahead with it creating a new shiny quango renting a shiny office wasting hundreds of millions on keeping accountants and solicitors busy, may as well rename it Jobs for the Boys quango

ixtlan wrote: »

but the idea of not wanting to have €40-50b of property assets on the market tomorrow, and needing to be sold that day or that week, or that month, is not crazy.

It is crazy because these assets are not worth 40-50 billion

read the above sentence until it sinks in, the visit the glass bottle site, or for that matter tell us the long term economic value of a ghost estate in Leitrim. And please dont say oh in 30 years our population would grow in a Best is Yet to Come fashion, i dont think these homes would stand 30 years with the quality of the building that went in, and considering that prospective buyers are emigrating en masse....

ixtlan wrote: »

It would be crazy for us to say hell yeah, sell it all now, at any cost. Don't care what the price is, the potential future price is irrelevant. That would be crazy.

We the people and taxpayers and the government had to say absolutely nothing. I dont remember people on the streets screaming and protesting about firesale of these "assets", if anything alot of people have protested about the dumping of them on us by the government.

These "assets" were not ours, they where made ours by a political decision.

ixtlan wrote: »

Investors who own significant percentages of shares in companies and want to sell do 2 things. 1/ Don't sell at the bottom of the market unless there is no other choice. 2/ Sell in batches so that the sales themselves do not further depress the market artifically.

Since when is it the job of the government to become an investment speculator
In what other countries do the taxpayers have to worry about the long term economic value of shoeboxes? while their pension pots was raided to save the banks who financed the property no one needed or asked for

ixtlan wrote: »

NAMA is kicking the can down the road. That's not necessarily a bad thing.

The can wasnt ours to kick in the first place, someone painted the can green and handed billions over for it

ixtlan wrote: »

Deciding that you don't want to even consider what might be down the road, because all that matters is the section of road right in front of your nose is a bad thing.

When your country is faced with a default due to the government kicking a tray of cans down the road is all that matters right now, there might not be a road down the road :P

ixtlan wrote: »

Food prices are rising... should farmers have got out of the business a few years ago when they were falling?

Ask the farmers what the milk they sell now gets them compared to few years ago
food inflation is not long term economic value its a symptom of monetary system which is based on creating ever larger amounts of money and credit

ixtlan wrote: »

Wind power generation... is more expensive than other generation options, should we cancel all wind projects? If they cannot compete today why bother with it at all? The future is irrelevant.

dont get me started on wind power generation :P we had a whole thread on the folly of our one way bet on wind

ixtlan wrote: »

Oil was clearly much cheaper a few years ago. Would it have been reasonable then to assume it would be that price forever?

Ix.

Priced in what? currencies created out of thin air?

ixtlan

"There is no price other than the price today. And if it increases to say 5 billion in 2 years, well that's completely independent of my decision to sell today."

ei.sdraob wrote: »

You just admitted that there is no "long term value" :eek: why are you debating this then?

I was being sarcastic/ironic. You surely do not generally agree that economic decisions must be based on the current situation with no regard whatsoever to the future?!

ei.sdraob wrote: »

No one can predict the value of anything in XYZ years from now, if they could they would become extremely rich.

No one can predict the value of anything in X years, but, it is possible to guess with various degrees of accuracy trends in prices. When oil was $80 per barrel there was a very high likelihood that it was going to go back over 100. Pretty close to a certainty. So why then would investors not buy futures in oil at that time? Simply because they could not say when exactly it would go back over 100, and in the time it might take they might make more money elsewhere.

ei.sdraob wrote: »

It doesnt matter who benefits, If a rich Saudi king snaps up all those ghost estates tomorrow would you care? It would really lower the amount of supply in the market leading to prices stabilizing elsewhere, shuffling property into NAMA doesnt make it go away, the bricks are still there and any investor in property would see the elephant in the Threats Quadrant

It would not matter who benefits, as long as you believe the Irish government should dump the banks and let them collapse. If you believe that any support at all should be offered to them, then yes it does matter that wealth transfers from them to outside buyers of assets (after all they won't buy unless they think they will make a profit)

ei.sdraob wrote: »

Aside we now have proposals to firesale 7% of the country with forest on top (which actually has value that quite literary grows out of the ground) at ridiculous 1000 an acre. It is interesting that we have no issues pissing away natural resources at knockdown prices but somehow empty homes are sacred :rolleyes: what does it say about us Irish?

Well I disagree with any fire sales, and I would not approve of asset stripping like this.

ei.sdraob wrote: »

It is, because I say so :P, jokes aside just about every economist out there has said its a bad idea for about hundred reasons,

Many economists, but not all.

ei.sdraob wrote: »

It is crazy because these assets are not worth 40-50 billion

Pick a number... if I say they are worth 20, and then decide to sell in one day, I'll maybe get 10, if I decide they have to sell in one hour maybe I'll get one. You are suggesting no consideration whatsoever to market conditions. People put reserve prices on things at auctions to ensure that cars/houses/pictures don't end up getting sold for 1cent. You seem to be saying, sell everything this second, and it one cent is all you can get, then that's what it's worth.

ei.sdraob wrote: »

read the above sentence until it sinks in, the visit the glass bottle site, or for that matter tell us the long term economic value of a ghost estate in Leitrim. And please dont say oh in 30 years our population would grow in a Best is Yet to Come fashion, i dont think these homes would stand 30 years with the quality of the building that went in, and considering that prospective buyers are emigrating en masse....

I don't know what anything is worth. But I do know that for example the glass bottle site is worth more than say a euro. I'm repeating myself here, but how fast do you want that sold? One day? one week? One hour? Why more than an hour? Sell it for a euro, if that's all that can be got? If you say no... of course not... that would be silly, then you accept the principle that consideration needs to be given to market conditions, and I rest my case.

I'm not arguing over specific values here, just the principle of using some common sense.

Ix.

Permabear

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ei.sdraob

Permabear wrote: »

This post had been deleted.

Exactly I know many businesses here in Galway which would love to get cheaper premises and there is no lack of empty buildings I tell you which are sitting empty, here in Galway we have fine examples such as North Point and Enterprise Ireland Webworks buildings.

When will people realize that the value of a building that is empty is alot less than a value of a building which is being used in a businesses or being lived in (and being upkept, buildings depreciate).

Myself and friend where interested in getting commercial space and using it as a datacenter, but after crunching the numbers and realising that what was being asked is simply absurd we reverted to locating the hardware in other countries.

---

@ixtlan

I am not arguing with you over whether investing/speculation is right or wrong, there is "value" in thinking longterm, that a whole separate subject

the underlying theme in my previous long post is

the Irish people have unwillingly being made "investors" by questionable "assets" being dumped on their shoulders by a party in government whose obsession and "dealings" with everything property related and stroking a property bubble has led us here in first place.

if you are happy with a multi-billion bet being made in your name then fine, I am not, can you pay share of my taxes for me over next few years that will endup being wasted on nama and banks et al.?

ixtlan

ei.sdraob wrote: »

@ixtlan

I am not arguing with you over whether investing/speculation is right or wrong, there is "value" in thinking longterm, that a whole separate subject

the underlying theme in my previous long post is

the Irish people have unwillingly being made "investors" by questionable "assets" being dumped on their shoulders by a party in government whose obsession and "dealings" with everything property related and stroking a property bubble has led us here in first place.

if you are happy with a multi-billion bet being made in your name then fine, I am not, can you pay share of my taxes for me over next few years that will endup being wasted on nama and banks et al.?

Well, I don't dispute this, but whether it should have happened or not is a separate issue. If you say that Irish people have unwillingly being made "investors" then you seem to acknowledge that we are investors. That may have been a disastrous decision, but it's what happened. The question is... if we are reluctant investors, then how best to dispose of those assets, in a fire sale or over a longer period?

I'm not happy with the multi-billion euro bet, but since that is what has happened, what next? We could refuse those debts and default, but note that we must do a sovereign default since the non-sovereign parts of the debt are pretty minimal at this point. Or we try to cope with the debt without a sovereign default, in which case we need to try to get the best value from the assets. And I'm pretty sure the best value will not be retrieved with a one-day sale.

Anger at how we got into this mess is justified, but what I'm debating is what to actually do at this point. A sovereign default would be a disaster, and paying the debt may be a disaster. You just have to choose the lesser disaster.

Ix.

ei.sdraob

"We are where we are" so :P

Sesshoumaru

ixtlan wrote: »

I'm not happy with the multi-billion euro bet, but since that is what has happened, what next? We could refuse those debts and default, but note that we must do a sovereign default since the non-sovereign parts of the debt are pretty minimal at this point. Or we try to cope with the debt without a sovereign default, in which case we need to try to get the best value from the assets. And I'm pretty sure the best value will not be retrieved with a one-day sale.

Why are you discounting the value these assets could have if they were sold at low prices to young entrepreneurs? How much value are they to our country if they are sitting there empty doing nothing? We're just keeping the prices artificially high and making it that bit harder for someone to start up a new company, companies which could provide employment and employees the government could tax. To me it seems like a case of penny wise and pound foolish.

ixtlan

Sesshoumaru wrote: »

Why are you discounting the value these assets could have if they were sold at low prices to young entrepreneurs? How much value are they to our country if they are sitting there empty doing nothing? We're just keeping the prices artificially high and making it that bit harder for someone to start up a new company, companies which could provide employment and employees the government could tax. To me it seems like a case of penny wise and pound foolish.

Agreed, the assets could have some value in that way, and if so that is something the new government should try to formulate a policy on as soon as possible, but... if you dump tens of billions of euros worth of assets on the market for an immediate sale that won't help young entrepreneurs much. Say you have an office block with a 10 million euro loan. NAMA acquires it for a value of 5 million. Some people here are saying dump it right this second along with hundreds of similar properties, and what price is retrieved is fine. So what you would expect in that scenario is that some investors will swoop in and pay maybe half a million, ready to make a killing when the economy recovers. Young entrepreneurs are not going to be in a position to buy such properties. It might, just might, make rent cheaper for some companies, or it might not, but I can think of more efficient ways to encourage enterprise with more state supported incubation centres, "borrowed" off NAMA.

ix.

ixtlan

ei.sdraob wrote: »

"We are where we are" so :P

I was trying to avoid saying that.

It calls to mind the story of the tourists asking the old guy deep in the countryside for directions. "Well, I wouldn't start from here..." :rolleyes: a point of view which much of the discussion here descends to.

Ix.

hinault

ei.sdraob wrote: »

Exactly I know many businesses here in Galway which would love to get cheaper premises and there is no lack of empty buildings I tell you which are sitting empty, here in Galway we have fine examples such as North Point and Enterprise Ireland Webworks buildings.

When will people realize that the value of a building that is empty is alot less than a value of a building which is being used in a businesses or being lived in (and being upkept, buildings depreciate).

Myself and friend where interested in getting commercial space and using it as a datacenter, but after crunching the numbers and realising that what was being asked is simply absurd we reverted to locating the hardware in other countries.

As Perma said on another thread the real reason why NAMA exists is to warehouse property that would ordinarily be liquidated, thus averting the complete collapse of Irish property prices is prevented.

FF looking after the builder/landlord buddies.

aftermn

LTEV might be a workable notion if it was applied to a single, or very small number of, properties.
The property market, like all markets, has good times and bad. Things are bad now, but they will recover. To hoard a small number of properties, too small to influence the overall market, is feasible.
The problem with Nama is it's size. When you hoard several years supply of property you cannot but influence the overall market. No-one will buy with this overhang and the possibility of it being released, thereby destroying the value of your 'just bought' property.

But, as with our current debt situation, we now have Nama and can't go back.
I like the suggestion of using Nama commercial properties to assist start ups, but see howls from the estate agents if you go down that road.

SkepticOne

aftermn wrote: »

I like the suggestion of using Nama commercial properties to assist start ups, but see howls from the estate agents if you go down that road.

Yes, won't someone think of the estate agents.

Sesshoumaru

ixtlan wrote: »

Agreed, the assets could have some value in that way, and if so that is something the new government should try to formulate a policy on as soon as possible, but... if you dump tens of billions of euros worth of assets on the market for an immediate sale that won't help young entrepreneurs much. Say you have an office block with a 10 million euro loan. NAMA acquires it for a value of 5 million. Some people here are saying dump it right this second along with hundreds of similar properties, and what price is retrieved is fine. So what you would expect in that scenario is that some investors will swoop in and pay maybe half a million, ready to make a killing when the economy recovers. Young entrepreneurs are not going to be in a position to buy such properties. It might, just might, make rent cheaper for some companies, or it might not, but I can think of more efficient ways to encourage enterprise with more state supported incubation centres, "borrowed" off NAMA.

ix.

A friend of mine started a small cafe/restaurant recently enough. As he was giving me the tour he started showing me stuff like their big coffee making machine etc and most of the equipment he had bought at knock down prices, as they had been repossessed from other failed businesses. It certainly helped him start his business being able to buy repossessed equipment at much cheaper prices.

ei.sdraob

Sesshoumaru wrote: »

A friend of mine started a small cafe/restaurant recently enough. As he was giving me the tour he started showing me stuff like their big coffee making machine etc and most of the equipment he had bought at knock down prices, as they had been repossessed from other failed businesses. It certainly helped him start his business being able to buy repossessed equipment at much cheaper prices.

A relation opened another shop in galway here last week using a premises whose owner went under after getting tangled up in property deals

I dont buy this whole "firesales" are a bad thing,
no leaving buildings artificially empty is a crime against the economy

later12

It's not clear whether people are against NAMA in principle or NAMA in practice, or more likely, both.

NAMA, in principle, is a perfectly fine idea in itself. It is largely reflective of the successful Resolution Trust Corporation in the United States of the 1990s. It is how NAMA has approached property values that has proven calamitous, i.e. failing to write down property values adequately to meet consumer confidence. In short it is NAMA in its practical application which has failed; the theory behind it remains sound.

ei.sdraob

Show is in practice or past history any "Resolution Trust" organisation of the size and money involved as NAMA, even the Swedish example which was parroted our before was much smaller.

later12

ei.sdraob wrote: »

Show is in practice or past history any "Resolution Trust" organisation of the size and money involved as NAMA, even the Swedish example which was parroted our before was much smaller.

Do you get what I'm even saying? The principle behind Nama is fine, the problem with the application of the theory is the excessive cost - i.e. 'size'.

But on the topic, since you asked: the RTC cost well over a hundred billion USD.

hinault

later10 wrote: »

It's not clear whether people are against NAMA in principle or NAMA in practice, or more likely, both.

NAMA, in principle, is a perfectly fine idea in itself. It is largely reflective of the successful Resolution Trust Corporation in the United States of the 1990s. It is how NAMA has approached property values that has proven calamitous, i.e. failing to write down property values adequately to meet consumer confidence. In short it is NAMA in its practical application which has failed; the theory behind it remains sound.

Chicken and egg.
Both the concept and execution of NAMA are flawed.

Lets get back to basics here.
The fact of the matter was that we were told that the transfer of bad loans from the banks balance sheets to NAMA would allow the banks to function and lend money as normal.
We were also told that NAMA would negotiate prices for the purchase of said loans on a conservative and prudential basis.

NAMA is already incurring loses from inception to date amounting to €280 million.
The banks remain moribound and zombified.

fred252

wasn't the objective of NAMA to prevent the banks from being nationalised?

as the banks are now nationalised NAMA is redundant. or am i missing something? how would one go about winding down NAMA?

Slideshowbob

later10 wrote: »

It's not clear whether people are against NAMA in principle or NAMA in practice, or more likely, both.

NAMA, in principle, is a perfectly fine idea in itself. It is largely reflective of the successful Resolution Trust Corporation in the United States of the 1990s. It is how NAMA has approached property values that has proven calamitous, i.e. failing to write down property values adequately to meet consumer confidence. In short it is NAMA in its practical application which has failed; the theory behind it remains sound.

I heard there is a difference with NAMA and the US programme - the latter had a social aspect included in its remit!

Slideshowbob

Is this LTEV??:

http://www.irishtimes.com/newspaper/finance/2011/0727/1224301447012.html
Lord save us

Sand

That sort of collapse in market price - the Scottish shopping centre- is even more worrying when its remembered that we were told that NAMAs UK property portfolio was the stronger set of assets. God alone knows what sort of losses are going to be taken on the green fields in the middle of nowhere.

Mind you, we were told a lot of things by the advocates of NAMA - I remember being told by a very patient poster that NAMA had nothing to fear from property prices falling, as it was actually about buying loans.

I was also told not to worry, that even if NAMA did take a loss that wed just claw it back in levies from the banks.

Oh, innocent and naive days.

srsly78

NAMA own lots of luxury properties in London. London is pretty much the only place in UK that has seen prices increase rather than fall.

Bits_n_Bobs

LTEV is according to NAMA 10% more than the current market...ummm...why? Because that's what NAMA need in order to flog the crappiest and biggest property portfolio in the world. So they are going to enter into the mortgage market to inflate prices via some daft loan scheme.

Because we all know that an inflated property market is desirable.

Right???

Rabidlamb

So you've a 20% buffer against further falls over 5 years but you must pay for this buffer through interest payments on the full amount.
Seems nothing more than an attempt to prop up apartment prices with a false floor.

How the scheme would work

Nama would try to sell a house or apartment linked to one of its loans by putting it on the market for €200,000, for example. The purchaser would have to have a €20,000 deposit and would then apply for a mortgage from one of the two “pillar” banks, Bank of Ireland or Allied Irish Banks.

To encourage the buyer to complete the sale and to ease fears about negative equity – where the loan is worth more than the value of the property – Nama would agree to defer the payment of 20 per cent of the value of the property – in this case, €40,000.

The bank then approves the buyer for a mortgage of €180,000 and the buyer makes the repayment on this loan. If after five years the property is still valued at €200,000 or more, then Nama will collect the outstanding €40,000 from the bank. The repayments do not change.

If the property has fallen in value to say €160,000 then Nama would waive the outstanding €40,000 from the purchase price agreed five years earlier. As a result, the home owner would be ahead on their repayments and avoids negative equity as the mortgage is based on €140,000 rather than the original €180,000.

As a result, the bank and the home owner reschedule the remaining repayments around a mortgage of €140,000.

“One of the big issues that we hear about every single day here from people contacting us is that they go to try to buy a house for €200,000. They believe they have 80 or 90 per cent mortgage approval from the institution,” said Mr McDonagh.

“They go through everything to try to buy the house and they go to the institution and the institution says that it is only worth €180,000 and they will only give them 80 per cent of 180,000.”