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NEARLY €2000 WORTH of Irish property loans has been sold for every person in the State so far this year.
That’s what this graph, presented by real estate broker Cushman & Wakefield at a conference in Dublin this week, is telling us.
We’re streets ahead of our closest rival, the UK, and leave the rest of Europe in our trail.
Outside of loan sales, the market for bricks and mortar real estate is also projected to return, albeit briefly, to transaction levels last seen in 2006.
After closing €1.9 billion worth of deals in 2013, there’s been €932 million already done in the first quarter of this year. That’s projected to hit €3 billion by the end of the year.
The reason for this is not hard to discern. A total of 95 per cent of Irish sales in the year so far have been from IBRC and NAMA. IBRC alone has sold €16.7 billion worth of European loans in 2014.
€10 billion worth of commercial real estate loans from Permanent TSB is also expected to come onto the market in the near future.
Neither is it by accident. Michael Noonan’s finance department has been pushing the sale of these loans. The logic is that NAMA and IBRC should take advantage of the positive sentiment towards Ireland at the moment – to strike while the iron is hot.
But is it a good idea?
However, one seasoned observer of the Irish property market believes that the rush to dispose of the loans and property amassed by NAMA and IBRC may be hasty.
Karl Deeter of Irish Mortgage Brokers is concerned by just how aggressively investors are buying up Irish assets.
“There are a few aspects I wonder about. Are we definitely getting good value? If everyone is piling in to buy loans, there must be a reason.”
Federico Montero is a Partner in the corporate finance division of Cushman & Wakefield. He made the presentation from which the above slide is taken.
He agrees that the appetite for Irish property is unprecedented.
“Every time NAMA puts something in the market there’s a very long list of very important people looking at it.”
The size of the wall of money targeting European real estate investment is mind-boggling. An estimated €129 billion, spread across funds and asset managers, is available to invest in the disposals that are going on at the moment.
The UK & Ireland is meeting the majority of the demand at the moment. Loans relating to the two countries sold so far this year add up to €23.6 billion. The next two largest markets, Germany and Spain, come to €6 billion between them.
Logic
Unlike Deeter, Montero says that there’s strong logic behind offloading the loans and property portfolios in the short term.
While there is a risk that the properties will increase in value in the future, leaving NAMA looking foolish, he says that the State’s bad bank might not be the correct organisation to steward these assets in the coming years.
“To keep the properties for one or two years more isn’t that simple. There’s management, which takes cash, and NAMA needs to repay bonds.”
“You need money and expertise to create value, and sometimes NAMA isn’t the best to do that.”
Deeter, however, says that the Government could play a smarter hand by biding its time.
“You could wait. The idea of NAMA was to create a stagnation in the property market to let long term economic value be realised. Why not wait a couple more years?”
Reading the tea leaves on the property market is never easy. A capricious market is all too quick to make confident predictions on the future seem foolish.
That’s what Duncan Lyster of Lisney real estate argues. Better to bid rid of the portfolio now than saddled with it if there’s another crash.
“There will be a shock. We don’t know what it’s going to be.”
“You know you have a market today and you mightn’t have one in three years time.”
Goodbody Stockbrokers chief economist Dermot O’Leary agrees.
“We’re in a sweet spot for commercial property assets in Dublin at the moment. 2015 is going to be the start of a more challenging period because the expectation is that interest rates will start to go up in the US in mid 2015.”
When the US interest rates go up, markets worldwide feel the cooling effects.
O’Leary says that the Government shouldn’t be managing property at all, and that while there is a risk that it could be left with egg on its face if the purchasers of the IBRC and NAMA loan and property portfolios flip them for a considerable profit, it’s a small one.
Giving up value?
But while the stars seem to have aligned for IBRC, NAMA and the Government at the moment, Deeter remains unconvinced about the tactics employed to take advantage of it.
The goal of dissolving NAMA and, at least notionally, drawing a line under the chapter of Irish history, is an attractive one.
“I just wonder whether NAMA is giving up some value to achieve its goal.”
Ultimately, only time will tell whether the trigger has been pulled too early on the disposal of loans and property relating to IBRC and NAMA. But for the time being, as Deeter puts it, “we are a country for sale. And we are selling”.
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Turn your three bed semi in negative equity into modern office space and all you problems will be solved
Yeah Pierce, just add a government backed capital gains tax exemption plus NAMA funding and relocate it to south county Dublin and hey presto.
There is a general & fairly simple rule that I have always used in my property investments & it has served me very well. Generally speaking, a 5% yield is the long term market value of property (20 times annual rent). I only ever bought property when the yield reached 8% (12.5 times rent) or more. if the yield drops below 3.5 or 4% (25 times rent) I sell.
Foreign investors currently buying at yields well in excess of 8% so they are getting value no doubt. Some good properties have made close to 15 – 20% recently. We are definitely selling ourselves short.
A 20% yield is as good as hitting the lotto….
Yes James, I agree.
However, similar/better yields are available in parts of the UK which has more available cash than Ireland and 100′s of functioning banks and lenders.
It’s better to sell up now (at a good price for the taxpayer of course) than to allow corrupt state entities “manage” these properties any longer.
Granted the big stuff is selling with the help of CGT exemptions and NAMA funding but in the high street every second shop is empty.
NAMA needs to repay bond holders ;) …….remember folks under no circumstances can we upset bond holders…. Now if only we can figure out what makes Ireland appealing as a good place to horse a few million into once the financial instrument is corrrect…….Hmmmm nope nothing obvious jumps out to me at all at all….well at least if it all goes tits up and we make taxpayers pay for the mess then they’ll revolt won’t they…. Won’t they ??? Anyone ??
Once NAMA appoint receivers to property the value is compromised immediately. Receivers don’t add any value they are only concerned about collecting their ridiculous fees .Is it not self evident the demand is there because are not getting the true value there are bargains to be had that what’s creating the demand all the vested interests ie auctioneers accountants and legals are advising Ml Noonan a former teacher and a bunch of public servants who know nothing about business to sell the family silver the crash was a disaster this ongoing carving up of our countries valuable assets is a calamity God help us all
What’s spinmaster Deeter (the failed subprime mortgage broker) looking for?
A little €150k “grant”, like his mate David Hall got?
The investors consider it undervalued or they wouldn’t be buying so fast.
Unfortunately the “deals” that they are getting behind closed doors are so cloaked in secrecy by NAMA, the banks our government that it is very difficult to find out what these “deals” really consist off.
Comment from the U.S. , buy REITs (real estate investment trusts ) . Ireland now has three . England has many more and the U.S. has many, many more . With REITs someone else does the work and you get the yield and capital appreciation . The are many types of specialized REITs : property : commercial , residential , industrial , timberland , hotel and blended . Also mortgage REITs and even cell tower REITs. Pick your risk and exposure .
REITS are loaded with tons of middlemen fees and charges etc.
It’s better for the investors to buy carefully selected property themselves.
Donald Trump does not have to be the only one buying property in Ireland, we too are selling our commercial site which is ideal for development and in a prime location in Ireland. is a commercial property in need of renovation(gov grants available) but is in a prime location and has almost an acre of ground at the rear of the building. This was once a family/business home but we are now selling this premises as we do not have the funds to develope this site, however,IT IS A VERY VALUABLE SITE but as stated we as family have it on the market because we do not have the sufficient funds to develope, HOWEVER,because of its location and size it has endless optionsfor development. I suggest that you google the The Bridge House Dingle for sale and you will see it for your self. http://jdproperty.ie/540475/No_1_The_Bridge_House__John_Street_Dingle_Kerry Isuggest that you check this out and see for your self.
How much of these sales have gone to Foreign investors???
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