National Asset Management Agency

Re: National Asset Management Agency

Postby KerryBog2 » Mon Aug 10, 2009 4:28 pm

wearnicehats wrote:From the Bill:

NAMA not required to register certain instruments, etc.
84.—(1) Where a bank asset has been acquired by NAMA or a NAMA group entity—
(a) notwithstanding anything in the Bills of Sale (Ireland) Acts 1879 and 1883, the
Industrial and Commercial Property (Protection) Act 1927, the Agricultural
Credit Act 1978, the Companies Act 1963, the Registration of Deeds and Title
Acts 1964 and 2006, the Patents Act 1992, the Trade Marks Act 1996, the Taxes
Consolidation Act 1997 or any other Act, that provides for the registration of
assets, security or details of them, NAMA is not required to become registered
as owner of any security that is part of the bank asset,
(b) notwithstanding sections 62 and 64 of the Registration of Title Act 1964,
NAMA has, in relation to any such charge, the powers of a mortgagee under a
mortgage by deed, even though NAMA or the NAMA group entity concerned is
not registered as owner of any such charge,
(c) NAMA has the powers and rights conferred on the registered owner of a charge
by the Registration of Title Act 1964.


My reading of this is that NAMA are taking over the loans as banks normally would ie they are taking over and managing the risk. In that case the deeds remain held by whoever holds them under the terms of the original loan. If the loan is defaulted then NAMA will act as if it is the original lender to secure the loan based upon its terms. Presumably then the deeds pass to NAMA? maybe it's just a way of reducing the paperwork

or I could be talking bollocks


I'm not a lawyer so I'm open to correction.
Deeds show who owns an asset, charges show the extent of the financial interest somebody has in an asset..NAMA it appears will be able to take ownership of both without having to register its interests as owner and/or mortgagee.

It actually makes sense to me – NAMA just steps into the shoes of the lending bank on the same terms and conditions and with the same rights that currently exist on a mortgage. It also can take title, if done amicably, or go to the courts to foreclose on a mortgage. It is not clear if NAMA effectively becomes a silent partner, pulling the strings that make the bank act as directed or if NAMA will take over the actual management of the account themselves – I’d hope it is deliberately open to allow them the option to do what suits.

No harm in non-registry as an owner or mortgage holder, but some benefits would acccrue – no additional paperwork (requisitions on title, certs, etc.,) no tax or stamp duty liabilities on acquisition or transfer. On the sale of the asset nobody would know whether or not it was a NAMA /developer or a bank sale, which could make a difference to price negotiations. Clauses (b) and (c) copper-fasten NAMA’s rights contained in the above.

In the unlikely event of second bank lending on an above-described asset, there is no difference either, as the first charge held by the original bank is one and the same as the unregistered rights of NAMA and the new lender’s charge would, as anticipated, become a second charge.

Rs
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Re: National Asset Management Agency

Postby garethace » Mon Aug 10, 2009 4:41 pm

Deeds show who owns an asset, charges show the extent of the financial interest somebody has in an asset..NAMA it appears will be able to take ownership of both without having to register its interests as owner and/or mortgagee.


There is a crucial aspect we need to remember in relation to the Celtic Tiger development boom. That many borrowers were using their lands as a collateral with which to obtain loans for development, or to buy more land. Of course, those developments and land deals 'forward' from the collateral land went bad also. When things became difficult or impossible to 'value' the whole lot became poisoned at once. The good and the bad. We have no idea of what is what any longer. There was a vicious circular kind of habit surrounding land that gained popularity in Ireland. I think it happened with the Dutch Tulip mania too, where people were buying shares in the Tulip bulb. That is basically why Irish banks cannot raise any finance today. It is no coincidence at all that a Dutch owned bank can see things a lot more clearly than we can see ourselves.

Where land is concerned, especially land on rail lines, roads, on the out skirts of towns etc. Mostly its only purpose was to use as collateral in obtaining finance. As the 'value' of that collateral increased you were on a winning streak. Every so often one could extend one's credit line that little bit further if your land was re-valued upwards. Of course, when the land was de-valued downwards the credit contraction that happened domestically on this island was savage in it's nature. It must be akin to the storm that hit Long Term Capital Management bank in the 1990s when the sea changed against it.

While a lot of that 'strategically located' land appears to be nice from a sustainable development point of view. Say, when an architect or planner looks at where we aught to build. The big problem is, exactly that land is the most toxic in terms of trying to untangle it and release it back into the private portion of the economy. Either as 'land' or with some form of development on it. It has been messed up beyond recognition. It wasn't that builders ever wished to 'build' on these strategic land banks as I call them. They were the apple of most builder's eyes. They were so beautiful the builders would go to their graves without so much as touching a sod on the land. The land bank was their life line to securing credit. If you didn't have the credit, you were out of business.

The land banks was much more useful by not been occupied or developed, as you could place multiple 'charges' on it with various Irish and foreign lending companies. The fact is that, all of that toxicity has now to be un-wound over a period of time. Time is something that Ireland doesn't have enough of right now. This is what I think is one of the key strength's of the NAMA idea. NAMA will give us the time we need to figure out how we can unwind these positions in some kind of an orderly manner over a longer period of time. It is like one poster commented about the China purchase of US government bonds. If it releases the bonds on to the open market, the market will collapse. NAMA has to figure out a way to do it that will not precipitate a huge and sudden collapse. It is like that kid's game where you pull out all of the pins, and eventually all of the balls come tumbling down.

Worse than the above of course, is that in certain circumstances the land was in the hands of joint venture partnerships, where one partner obtained additional charges on the land unknown to the other party. So if a charge can be defined as the 'extent of the financial interest someone has in an asset', then you can imagine how difficult it is to understand the extent of the financial interest in an asset, which is part of a joint venture partnership! As builders backs were against the wall towards the end of the Celtic Tiger there was enormous pressure upon them to grasp at any kind of straw at all, to extend their life span. I would submit that most of the real toxicity was created in the closing chapters of the Celtic Tiger. As builders struggled to artificially 'support' their interest in a land bank with more credit extension and thereby stay in business.

What we don't know is how much of the above, has been uploaded onto financial markets in some kind of instrument there also. Then throw into the mix, the fact that the original land might be a confused set of legal agreements between partners who gave in the original deeds to make up the 'landbank'. The mind simply boggles, it is like molecular biology. This is why 'land taxation' is so valuable - it is worth all our whiles paying a €600 fee per year - because it avoids much of the above. With little young turks over extending themselves in all kinds of weird directions, in order to own land or become a stakeholder in land in some way. Because we had no form of taxation on land in Ireland, all of this house of cards was possible to build. No one's hands were burned by owning land. Land it was assumed, was safe. That was inbuilt into the Irish psyche. We never thought that something so close to our hearts would jump up and bite us.

It actually makes sense to me – NAMA just steps into the shoes of the lending bank on the same terms and conditions and with the same rights that currently exist on a mortgage. It also can take title, if done amicably, or go to the courts to foreclose on a mortgage. It is not clear if NAMA effectively becomes a silent partner, pulling the strings that make the bank act as directed or if NAMA will take over the actual management of the account themselves – I’d hope it is deliberately open to allow them the option to do what suits.


Speaking with a lot of people in the trade, I do get the impression that certain builders were more opaque in their dealings with their creditors than others. I do get the impression that those projects, where the main contractor plainly said to those involved and affected, the spout has 'run dry' are probably those projects which are not 'toxic' in any real sense, except that they are in limbo as a result of the credit flow problems.

We can debate at great length as to whether the credit problems are the result of only international turmoil - as the government understood the case to be last Autumn when the offered their guarantee to depositors - or whether many credit problems stem from domestic mal-practice in Irish companies who simply owe too much, they will never repay. That is a debate within itself. But what isn't in much debate judging by the people I have spoken to, is that some projects could simply be started in the morning and progress without too much difficulty.

The point you make about NAMA requiring to have a number of options open to them, is a very good point indeed.

Brian O' Hanlon
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Re: National Asset Management Agency

Postby KerryBog2 » Mon Aug 10, 2009 6:54 pm

garethace wrote:.............It is no coincidence at all that a Dutch owned bank can see things a lot more clearly than we can see ourselves.

The conspiracy theory people would say that the Irish banks are doing what they are being told by the Dept of Finance and the foreign banks are outside that fold.

garethace wrote:........Every so often one could extend one's credit line that little bit further if your land was re-valued upwards.

That happened. It should have stopped when developers could not meet repayments and the banks then started to re-appraised upwards the land value to enable the developers remain within their loan covenant ratios. Inevitably the new credit was used to finance debt, not work. That was the start of the cancer.

garethace wrote:...........It wasn't that builders ever wished to 'build' on these strategic land banks as I call them. They were the apple of most builder's eyes. The big problem is, exactly that land is the most toxic in terms of trying to untangle it

No. Those land banks were the equivalent of ‘raw material in stock’, the basis for production next month/year/whenever. Fine, as long as they were not a depreciating asset. I dislike the word “toxic” in this meaning. Those land banks have a value, albeit at a lower level. Toxic is a word seized on by tabloid journalists because it sounds nasty. Correctly it refers to the securitized mortgage bundles on people who are jobless and have no hope ever of making repayments. Thankfully, Irish banks have little exposure to them.

garethace wrote:............ in certain circumstances the land was in the hands of joint venture partnerships, where one partner obtained additional charges on the land unknown to the other party.

I don’t see how this could have happened and if it did, one would have a very difficult task proving legality. Joint ventures invariably require joint signatures; charges must be registered and therefore are public. If Bank A has a charge on a site and Bank B lends on a secured basis, it registers its charge which becomes a second charge, unless Bank A agrees to it becoming a joint first charge on a parri passu basis, an event that usually is unlikely.

garethace wrote:............. certain builders were more opaque in their dealings with their creditors than others.

Yes, that is why I said in an earlier post Ireland Inc needs to be stricter on the laws governing unlimited company status. Apart from the banks, it would have been helpful if many suppliers – including architects, engineers and QS’s - had a modicum of cop and basic credit control procedures. From what I’ve seen few of them did.

garethace wrote:..........We can debate at great length as to whether the credit problems are the result of only international turmoil - as the government understood the case to be last Autumn when the offered their guarantee to depositors - or whether many credit problems stem from domestic mal-practice .........

We had a property bubble. It cracked and in the scale of things it could have been repaired, with some pain. This was the expected so-called “soft landing.” However, the crack coincided with turmoil in money markets caused by the CDOs scandal in the US. That dried up liquidity. Then the world learned about the shenanigans at Anglo, Nationwide, ILP, etc., and very lax (or absence of?) Regulatory control. This was not long after the stink internationally over what happened in the IFSC on Parmalat and the German Landesbanks, so Ireland was not a place anyone could recommend lending into, thus Irish banks could not get cash and the taxpayer had to put its head on the block.
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Re: National Asset Management Agency

Postby garethace » Mon Aug 10, 2009 7:54 pm

No. Those land banks were the equivalent of ‘raw material in stock’, the basis for production next month/year/whenever.



I mean, if the above was true, then look at middle tier property developers in Ireland. The middle tier development area is where the real skills are to be found surprisingly enough. The reason being, that many of those guys had quite successful and lengthy careers as professionals and consultants before they got into the property game late.


Bucket of Nails


The guys who started with the bucket of nails and a tin of paint made it to the first division yes. But they hadn't an opportunity to learn and improve their minds, while fighting their way up through the leagues.

To the best of my knowledge the middle tier developers didn't make the same monstrous mistakes either with regard to land. In fact, they operated on a different model whereby they disposed of land with planning permission attached for quite extensive developments. That is how they made their cut. Rather than wading in the whole way and ending up with unsold houses.

You could say they were like Japanese car makers, they needed less raw material and operated on smaller lots. Or even more accurate, they were like Nike who designed the runner shoe and got it made somewhere else.


Irish Towns


Of course, rarely were the schemes they gained permission for ever realized. There are thousands of them. You can check in the planning departments if you like. The Irish construction industry was getting efficient by 2006 certainly. But it wasn't good enough to munch its way through a fraction of what was granted permission.

That was part of the point that Paul Keogh made remember in his essay about sustainable land development. That zoning in many Irish towns is much larger than what the tiny population could support.

It might be of interest to know that the architectural profession operates on a similar model. The successful architectural practices are successful and profitable because they never build anything. They get paid to come up with designs. They would rather they took something to planning stage and never heard or saw it again.

That is how the middle tier property developers made their turnover. They never laid a single brick often.


Making Masterplans


A lot of first division developers had 'access' to thousands of acres of land. But had not even got a developed stage masterplan for one tenth of it. Architects cost money. On the other hand, the middle tier developers had maybe 100 acres on the edge of a town somewhere, and a fully developed masterplan up to full planning permission grant approval stage.

But their plan wasn't to hold onto the land for long. Only long enough, to sell to someone else with PP.

You see the difference? Different skills entirely. I would like to maintain the 'classical economics' position that land is a 'raw material in stock'? I really wish it were so simple.


Owning IP


Intellectual property for instance is the best kind of property to own. You can sell it as many times as you like but you never give it away. (Within a 25 year period at least, but large media companies want to own Mickey Mouse and Donald Duck for ever)

You see a lot of fabless silicon chip companies today. Intel are one of the few left in the business who own and run their own fabs, while still designing the chips. But that model is getting tired also.


Classical Economics View


Sure land was a raw material in the neat theoretic sense of it. But the trick was to try and build on it in such a way that one did not sell the land, but earned as much rent as one possibly could with as little tenant administration or servicing as one possibly could.

Get the local authority to build and take charge, free of charge, as much of the basic civil infrastructure as one could. The developers didn't want to build any roads. That is the only reason why local authorities were even tolerated and allowed to become joint venture partners. The local authorities thought it was to do with their 'having a say'. Some hope.


Let the rabbits live on it


In a lot of cases, it was easier if you could hold out and not build on or touch the land at all. You will see the local authority kept their end of the bargain by laying the road and infrastructure. That is about it.

Building on the land and selling solved a minor cashflow problem today. But it didn't solve anything tomorrow. Whereas holding onto the land and allowing lenders to take a charge against it, left you with a lot more options in the medium term. Even if you ended up losing the entire landbank eventually.

In the meantime, by not developing it, it was helping to keep you solvent. It bought you precious time, which struggling Irish builders badly needed towards the end of the Celtic Tiger.

Every 10 years or so the staff in the local authority would roll over and a new fad would emerge. Something like the 'low carbon city', so that planning directors could go to conferences and make a speech about some great new idea.

Still the land bank sat there and rabbits thrived in the weeds and long grass. Pheasant shooting was available in the more wooded areas and un-claimed horse populations roamed the plains. Architects went on making sketches to visualise even more ambitious plans in full pixel perfect photo representations.


Land Taxation


Land tax would put a stop to builders doing that. We could use profit from developing central and strategic land banks in order to offset the losses in the NAMA portfolio in locations where use reverts to agricultural. I would disagree. I believe we should take the hit up front where it reverts to agricultural values.

But then use the profits which NAMA can generate in order to 'buy out' any joint venture partners, legal deed interests or other charges against 'abused' land banks that are in the prime and sustainable development locations.

You would have to work with developers on a daily basis for a number of years to know how capable they are of ruining a perfectly good asset with all kinds of messing.

But in some cases unfortunately, like a true Ponzi scheme of things, the scandalous complexity of ownership and legal rights associated with our land banks may have began with the third last previous 'owner' of the lands.

But heck, you know we can agree to disagree on this little item. It can only make it more interesting. I think we are working towards a common understanding on most other fronts.

We had a property bubble. It cracked and in the scale of things it could have been repaired, with some pain. This was the expected so-called “soft landing.” However, the crack coincided with turmoil in money markets caused by the CDOs scandal in the US. That dried up liquidity. Then the world learned about the shenanigans at Anglo, Nationwide, ILP, etc., and very lax (or absence of?) Regulatory control. This was not long after the stink internationally over what happened in the IFSC on Parmalat and the German Landesbanks, so Ireland was not a place anyone could recommend lending into, thus Irish banks could not get cash and the taxpayer had to put its head on the block.


I like the way you layed out the sequence of things very correctly there. It is indeed interesting when you see it like that.

Thanks,

Brian O' Hanlon
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Re: National Asset Management Agency

Postby KerryBog2 » Mon Aug 10, 2009 11:04 pm

garethace wrote:I mean, if the above was true, then look at middle tier property developers in Ireland. I mean, the middle tier development area is where the real skill was to be found surprisingly enough. The reason being, that many of those had quite successful and lengthy careers as professionals and consultants before they got into the property game late.
To the best of my knowledge the middle tier developers didn't make the same monstrous mistakes either with regard to land. In fact, they operated on a different model whereby they disposed of land with planning permission attached for quite extensive developments. That is how they made their cut. Rather than wading in the whole way and ending up with unsold houses.


Perhaps I should have been a bit clearer. Land banks ARE the equivalent of ‘raw material in stock’ for developers and every investor examined the landbank held for e.g. by McInerney in the UK as it was an indicator of pipeline availability and the impact it could have on future earnings. That type of holding is quite different to what Paul Keogh described as “larger than a tiny local population could support.” A personal anecdote on this –speaking with a developer’s project manager on a local development, I said what they had planned was totally unrealistic for the area, as an ordinary businessman I could not see how it could be profitable and if developed would at best detract from and more likely devalue their other assets in the area. His response? “It is my job to get it built on time and on the budget I’ve been given; it is not my job to make that decision or make it work when built.”

garethace wrote: The guys who started with the bucket of nails and a tin of paint made it to the first division yes. But they hadn't an opportunity to learn and improve their minds, while fighting their way up through the leagues.

Not quite. This happens everywhere. It’s an old model that will always work at a basic level. The middle tier guys rarely get caught out on innovation. The old way is to say “he’s a great farmer/builder/whatever with 40 years of experience” but in reality he is someone who has 40 years of repeating the same thing, over and over. Those guys rarely fail because they never take a risk. “Be not the first on whom the new are tried nor yet the last to leave the old aside.”

garethace wrote: ............Or even more accurate, they were like Nike who designed the runner shoe and got it made somewhere else.

Agreed. They did outsource, which is why we have no idea yet of the depth of the crap the construction sector is in. Lots of subbies are waiting for payment on sitework, blockwork, plumbing, etc.and hoping (in vain) that it will happen. It won’t. Developers continue to say “We are trading profitably” which possibly is true, but misleading, as they are describing earnings before interest, tax, amortization and depreciation. That does not mean a black bottom line or payment to suppliers.

garethace wrote:Then all of that became 'securitised' on the international money market, against future rental incomes off of this product.

I wonder. Really, was there that much rental securitization happening in Ireland? My guess is very little, if any. None of the factoring companies would touch rental factoring, afaik. None of the payment protection insurers were doing it, afaik. Unless of course there were some dodgy SPVs out there? Any examples?
garethace wrote: Still the land bank sat there and rabbits thrived in the weeds and long grass. Pheasant shooting was available in the more wooded areas and un-claimed horse populations roamed the plains. (I am describing Cherrywood in case you haven't noticed)


C’mon, that’s a bit OTT. The Foxrock/Carrickmines tinkers had/have a bit of grazing nearby; there has not been a bit of (game) shooting in the area for years, although I concede Loughlinstown once was a renowned foxhunting area back when the hunt met in Stillorgan (where the shopping centre now stands.)

garethace wrote: You mentioned elsewhere that we should use profit from developing central and strategic land banks in order to offset the losses in the NAMA portfolio in locations where use reverts to agricultural.


Not I (I think :))

garethace wrote: But then use the profits which NAMA can generate in order to 'buy out' any joint venture partners, legal deed interests or other charges against fecked up land banks that are in the prime and sustainable development locations.

No hope of NAMA generating profits – ever - unless it takes on assets at a deep discount, which seems unlikely on the available information.

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Re: National Asset Management Agency

Postby missarchi » Mon Aug 10, 2009 11:50 pm

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Re: National Asset Management Agency

Postby garethace » Tue Aug 11, 2009 8:17 am

Lots of subbies are waiting for payment on sitework, blockwork, plumbing, etc.and hoping (in vain) that it will happen. It won’t. Developers continue to say “We are trading profitably” which possibly is true, but misleading, as they are describing earnings before interest, tax, amortization and depreciation. That does not mean a black bottom line or payment to suppliers.


That avalanche is waiting to happen I can assure you. I had no more motivation myself, in raising the issues I have raised here at Archiseek, other than to dodge this problem in some way. I don't think we will dodge it. A lot will depend on the Liam Carroll case today, and how much 'reality' is brought to bear in court. The subbies really make up the bulk of the industry. They may work on razor thin margins a lot of the time. But the bulk of the numbers of construction jobs are in that sector. I hate to see it collapse in such spectacular fashion.

The speed of the turn around was savage in the extreme. I guess, that is where the hopes of all of the subbies were wiped out too. Even if they got out with some of what they were owed it would be something. But as it stands they have to pay for legal council and stand at the back of a very long line in order to get anything. I know Ireland isn't renowned for group claims. But is there some way that all subbies could group together in some way to make a case on an individual developer? Something that would enable them to skip a couple of places in the queue?

The construction industry federation should be doing more to help. Instead of making bald statements about the fragility of the market if Zoe goes under.

I wonder. Really, was there that much rental securitization happening in Ireland? My guess is very little, if any. None of the factoring companies would touch rental factoring, afaik. None of the payment protection insurers were doing it, afaik. Unless of course there were some dodgy SPVs out there? Any examples?


We were a year or two away from doing it. The schemes being drawn up towards the end, were designed to take advantage of it. Like I said, it reminded me of the V2 rocket episode in WWII. Of course a production line had to be built. That was going like hammer and thongs. I wouldn't say it was a product the Irish institutions offered. The reason securitisation would have worked is because, there were some larger tenants who were looking for a large developer to do business with.

But finance really dried up to even do stuff like pouring foundations. There were no developers left by then, in the sort of shape financially wise to answer the calls from the market. Those large tenants are still out there. Expect some deals to be done in the next couple of years as valuations undergo a re-jig. I might not be surprised if things get bad enough, that tenants will buy sites outright. They could always re-mortgage the site later on, if they need to release some finance and eventually dispose of the asset completely in a more favourable market. But I know those large tenants are out there and need their premises to operate. Their facilities are already a few years out of date as it is.

If possible, those large international tenants do not want the asset on their books. I presume that is their interest in renting. It could have suited developers if a securisation mechanism had been in place to enable them to retain ownership of the land bank against which the charges were being placed. (You can pin down the larger tenants in lease agreements to insure yourself against defaulting on rental payment . . . it is harder to arrange that for a lot of small tenants) Developers wanted to use land banks to gain access to future rental income streams. It was on the cusp of being organised. I know that much, because it affected awfully the way in which masterplans were being conceived and developed.

Now that I think of it, with closures some vacant premises may appear on the market which suit the needs of potential tenants. But the locations might not be right. With the new science of logistics and supply chain management, operations are done on very slight margins. This was my own argument for developing some of Cherrywood for logistics in the short to medium term. Make it attractive, open up the space to make it public. Do the civil and infrastructural work now, (the local authority JV partner could look at it as a way of stimulating the local economy by spending) as the NPV will beat us the longer we wait around.

If you take Keatings point above, that international flow of capital will never again return to the levels of where it was. Then the right move for Ireland today is to develop the means and know-how to use what scarse capital will be available and make it work as hard as possible. That is why I think securitisation was being so carefully considered towards the end of the Celtic Tiger. There simply wasn't another way to look at the problems facing capital and land resource intensive activities.

The logistics building stock on a site such as Cherrywood could be designed to be collapse-able (in a safe environmentally friendly way . . . as little embodied energy as possible should be used in initial assembly and construction) in a number of years, as development gathers steam and needs this land to build on. Or not as the case may be. We can still accomodate plenty of horses. It is akin to what you said in Kerry where un-finished houses need to be bulldozed and the land returned to amenity space or nature or both. Our architects and landscape architects working together are great at coming up with clever solutions here. It would keep them off the dole queues also.

Apologizes, It was PVC King (who has a fine healthy optimistic attitude) above who suggested offsetting losses in the NAMA portfolio against profits elsewhere. But I guess you are correct, without enough discount, NAMA is set up to fail. It will never generate a profit, but merely allow us all to 'lose' in a controlled manner.

Oh, you will find the shot gun shells at Cherrywood if you know where to look.

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Re: National Asset Management Agency

Postby corkblow-in » Tue Aug 11, 2009 9:53 am

Guys....I'm sorry. I have tried really hard and concentrated. I've tried different times of the day, I've tried breaking it up into small pieces - I've done everything - but garethace I cannot get past two paragraphs of your posts without losing the will to live!

You seem like a very intelligent chap and you are passionate about the topics, but please.....take more time and write shorter pieces - its harder but will get your point across better and to more people. At the moment it seems like a stream of consciousness and is just too daunting.

Kerry bog - you're in danger of heading the same way!
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Re: National Asset Management Agency

Postby garethace » Tue Aug 11, 2009 9:56 am

Sorry Cork blow-in. I agree completely, it is sheer ridiculous our continuing an extended conversation like this. I am about all out of steam. I was completely out of steam a month ago, but kept going on momentum.

Thanks for taking your time to express your view. What you describe on the receiving end of things - trying to read the material - is almost the exact same for myself on the production end too. Because one has to spend an age, trying to go over every last detail to make sure the argument pulls together in some kind of cohesive, if indeed very long winded kind of way.

The real bottom line is though, there is no money in the newspaper business any more for serious investigative journalism. (Where you have an editor to engage in the 'hacking down' process you describe) The business community out there are aware of that, which leads to their taking more risks with our future.

The newspapers and the media do good work in general, but don't know how to join up the dots. (Look at how long it took for Anglo Irish bank to be exposed here in Ireland) I suggest that the media hires the people who have worked in the real world, or visa versa.

The honest truth is I don't know what the best answer is.

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Re: National Asset Management Agency

Postby garethace » Tue Aug 11, 2009 10:19 am

The Sunday Tribune reporter Neil Callanan had indeed found one of the biggest 'dots' in the whole story. But joining up that 'dot' with something else is the real difficulty that newspapers are facing.

After receiving the securitised income he went on a share-buying spree, investing in everything from sugar to ferries. Millions were invested in Greencore, Irish Continental Group, McInerney and Aer Lingus, stocks that had little in common other than the fact that they had land banks, and land was what Carroll understood.


http://www.tribune.ie/business/article/2009/jun/28/where-did-it-all-go-wrong-for-carroll/

If you read the above long stretches of text, you will find that Carroll wasn't intending to understand land, or build on land, or anything like that. Carroll was only a lowly construction manager like myself. He wasn't in a class that he could successfully develop a fraction of the land he owned. It was something different, something more to do with financial innovation and scarce flows of international capital going into the future. In that respect, I imagine he was no different to other Irish developers. I wish land had been a simple factor of production, but in reality it ended up being used for a different purpose. That is the heart of the problem that NAMA has to figure out.

If we had some form of land taxation in Ireland, it might stabilize land values and we wouldn't be stuck with the hassle we are in with NAMA. The land banks were being used to capture value increases in the asset, and then used to extend financial leverage, (€2.3 billions worth) . . . not to build on. That is why land was so attractive to Liam Carroll, not because he was a builder or anything like that. That was a pure smoke screen in the end.

I wonder how many houses in Kerry were built, for local populations to consume? None? This is my point in a nutshell. There was nothing to 'burn the fingers' of wealthy Dublin blow-ins who travelled down to Kerry every summer for three weeks and owned a second house. If that isn't a recipe for vast over production of a commodity such as housing, I don't know what is. Worse, we had 300,000 people involved in producing a product that was in the end un-saleable! At least that number of people still invovled in agriculture can get some sort of price for what they produce. A price can be put on the thing at the very least.

Sorry to people who own summer houses in Kerry btw, I would love to own one myself to be honest. But it is deeply unsustainable for all the reasons I have tried to outline above.

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Re: National Asset Management Agency

Postby garethace » Tue Aug 11, 2009 12:48 pm

Going into global news today, from the Financial Times newspaper:

This scheme is poorly designed. If the NAMA makes a surplus from the purchases, the government will keep the money. But if it makes a loss, the government has said it will charge banks to make up the difference. The bad bank, therefore, does not cap banks’ losses – only their profits. This will hardly do much to quell the fears in private investors’ hearts.


http://www.ft.com/cms/s/0/9d23fa0a-85e3-11de-98de-00144feabdc0.html

I couldn't agree more with this assessment:

But, as the wreckage of the boom is washed away, older, safer sources of growth will be uncovered.


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Re: National Asset Management Agency

Postby jimg » Tue Aug 11, 2009 8:40 pm

PVC King wrote:The idea of a €90bn property company with an almost soveriegn credit rating is exactly quite exciting in a lot of ways!

Only if you'd share in the glee of seeing a country burdening at least 2 generations with a huge tax burden to meet bond repayments.

The picture fills me with dread; a combined bank, property portfolio manager, property development and marketing company and property management company all funded from future tax revenue. Run by mostly the same or similar people who got the country into the position it is in. What gives anyone any confidence that a all powerful public organisation can magic tens of billions out of thin air? NAMA will make the HSE look like an impressively run organisation.

Apart from the initial guarantee, the Irish government is doing the exact opposite of what the Swedes did. That's a story they should have studied well but obviously haven't.
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Re: National Asset Management Agency

Postby garethace » Thu Aug 13, 2009 8:29 pm

Okay,

I'll bite one last time. This is ridiculous but, I saw this on the Irish Times website.

http://www.irishtimes.com/newspaper/breaking/2009/0813/breaking29.htm

With our current financial system in Ireland, in order to create more money and hope for prosperity, there needs to be large amounts of debt created at the point in the system where money is created. Whether that debt becomes toxic or not at a later stage is besides the point. The point is, it is still debt.

Let me demonstrate the system by telling a true story.


The 'better' idea


I am a builder and I owe €1,100 euro to an Irish bank. I win the lottery somehow, and receive €800 euro. I go to my bank manager and say to him, guess what, I've won the lottery. I want to pay down some of that loan I owe you. You would think the bank manager would be delighted. Think again.

The bank manager comes up with the a better idea. I know what, instead of paying down your debt we can invest the €800 euro. We will make more than €1,100 in no time at all with very little risk involved. The builder says, would that work do you think? The bank manager replies sure, no problem, we'll set things up right now. Everyone is a winner right? We have created more money in the system. The builder and bank manager together manage to make a windfall profit on their investment of say €600, which added to the original €800 comes to €1,400. So we are up €300 altogether by accepting some minor risk. We use the €300 Euro to pay off some trade creditors who are screaming at us, and promise the rest to follow up shortly.

Heck, we are feeling so flip'in confident, we might buy back our own debt and pay interest of cents on the euro. We could in turn, re-package our own debt and sell parts of it to someone else. There are a whole panorama of possibilities once you have created the initial debt amount.


Robustness


Everyone is doing fine and a little bit of profit is made. Creditors gradually get paid and the economy is moving, people are working doing something. The banks are helping to stimulate jobs and raise money for investment. As the economy grows the builder's debt grows with it. It is fine though, because the economy is larger. There a very robust growth projection figures doing the rounds, based on current performance indicators.

As the builder gets the habit of handling more throughput of money through his or her business, they find out more things to do with the money. They find new suppliers of new components. They find new experts who can advise them on how to assembly components. They get things half assembled from some other supplier who starts up business. All kinds of things go on, to ensure that the process improves. Customers out there are willing and able to pay a higher price for a higher standard of product. Sometimes the builder begins to resemble a little bank in their own right. Financial wizards and trades people begin to mingle together quite comfortably. Sharing funny stories and pints of German beer down the road at the pub.


We don't want your stinking money.


I think you get the picture, the last thing in the world the bank wants is for the builder to pay back what he owes, because then the economy as a whole shrinks by that amount. If every builder pays back at the same time, the whole deck of cards collapses and no one has money for anything at all. Devil if you do and devil if you don't. But if the debt stays in the system, the chances are it will act as a magnet for foreign investment from all over the world. Smart foreign investors will say, Wow, look at these crazy Irish guys who are able to convert this debt into net income. We all want a piece of that. The Irish bank then becomes an intermediary between Ireland and giddy foreign investment capital, eager to get in on the action.

The builder comes under huge pressure now to invent new concepts and new ideas. There is no way in the world the bank wants the builder to reign in what he owes. The banks wouldn't know what to do with all of that cash anyway, if he did give it back to them. Best to extend the credit to the builder, because traditionally he or she has come up with the innovations.


Paraded through the streets


This all works in principle at the lower end of the scale I think. When you are trying to get things off the ground initially. The trouble though is hind sight. As success arrives on our door step, we feel less inclined to change. We are doing well right? Yes, the figures clearly show it. If we change the plan now, we risk it all. Let's keep going the way we are and see.

Debt based finance when you reach a certain critical threshold can bite you in the ass. When it finally does, everything under the sun is blamed, other than the main cause of the problem itself, the creation of debt. At some stage the small builder no longer is a small builder. That builder becomes a big builder. When that builder finally goes under, we parade him in the streets and point our fingers. There is the cause of it all, or so we convince ourselves.


Sitting on the gold mine


At some stage in the game one has to find a different way in which to create money, based on assets rather than debt. Money isn't the best description of it either. Equity would be a better term. At least, when you build a model which creates 'equity' based on an asset, that equity stays in the system for good. You can create rules and regulations by which parties can trade their equity for various products and services. A market develops around the creation of equity, rather than only around the creation of money. People who own a lot of assets such as the Middle Eastern countries who own oil reserves, have to set up some system to organise those assets. They have no use for debt based finance at all. They are no in the business of 'boot-strapping' themselves up. They don't have to. They are already sitting on the gold mine, quite literally.

The question becomes, what does one do when you find yourself sitting on the goldmine? A modern thriving economy requires a certain kind of engine once it reaches a certain point. A point where the old debt based incentive to the economy, which boot strapped all things to begin with, is no longer adequate for the task of supporting the said economy.


Riding through the recession


What happens with the debt based system, is that you go through one small turmoil, one bit of rough water and the builder gets choked. There is no riding out the storm, there is no point talking about rescue plans. You are gone before you even get a chance to formulate anything like a rescue plan. Anyhow, with all of the rushing and racing for the last ten years, you never learned how to make plans properly anyhow. The plan was, there is no plan. It was always flexible. As the economy was growing so fast, plans went out of date quicker than Frank McDonald books do. The context for investment was changing and expanding so fast, that making a plan was silly. It is hard to believe now, that some of the chapters of McDonald's book have become 'historical archives' after such a short time of publishing. It goes to show you.

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Re: National Asset Management Agency

Postby jimg » Thu Aug 13, 2009 10:37 pm

None of that stuff applies Brian. We're part of the euro area and have access to almost unlimited credit from the ECB. More than 50 billion euro of credit has poured into the country's financial sector from the ECB since the crisis started. What you're talking about is not the problem here at all.
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Re: National Asset Management Agency

Postby garethace » Thu Aug 13, 2009 10:46 pm

Thanks Jimg. Fair point.

However, what are small businesses in Ireland going to use to trade with? Back to beans I guess.

B.
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Re: National Asset Management Agency

Postby garethace » Fri Aug 14, 2009 7:44 pm

I noticed this point raised by the Sunday Tribune reporter Neil Callanan last weekend. When we get into the math and science of making NAMA's engine startup and keep ticking over, these are the kinds of nasties that await us. It's like peeling an onion in a way, always another layer to it.

The real problem, and this will become apparent in the coming months, is that those loans were usually funded on a 70% loan-to-value basis meaning that the developer put up 30% of the money to buy a property.

In fact, it regularly just put up an investment property as a deposit so Nama might very well be buying any loans on that investment property too, meaning we lose on the double.


http://www.tribune.ie/business/article/2009/aug/09/second-chance-tuesday/

It is shocking, we had a story somewhere in the newspapers this week that banks continued to offer 100% mortgages after the crash in property had occured. So the bubble was really being inflated in many more ways than one.

A story about hampered lending capacity of Irish banks by Thomas Molloy today.

The banks are likely to use money from the National Asset Management Agency (NAMA) to pay back the ECB and won't be in a position to lend to businesses from between nine and 14 years, they added. "The NAMA proposal alone is insufficient to address the business model challenges facing the bank," the analysts wrote.


http://www.independent.ie/business/irish/aib-and-boi-lending-may-be-hindered-for-10-years-1859803.html

This is worrying, since we need small businesses with sufficient cash to soak people up from the live register. Basically, an Irish employer today could have their 'pick of the bunch' from any of the lines outside labour exchanges. A far cry from the Celtic Tiger human resources squeeze.

I think the real avalanche of unemployment is just around the corner, when the vast network of subcontractors and so forth, where the bulk of construction employment is made up, falls into the sea like an iceberg in the North pole. Watch the climate change then. Basically, we need another way for small businesses to operate other than credit.

Beans, is my best suggestion. But there may be much better ideas out there.

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Re: National Asset Management Agency

Postby jimg » Fri Aug 14, 2009 9:11 pm

garethace wrote:Thanks Jimg. Fair point.

However, what are small businesses in Ireland going to use to trade with? Back to beans I guess.

B.

There is no shortage of money in the world. It's just that it costs more to rent it because many of the borrowers have questionable solvency. Cheap and easy credit is like cheap oil - it seems to provide a "free" boost to business and industry; but basing your business model on it's availability is a folly given historical precedent. Everyone, from the Irish government, to Liam Carroll to the Irish banks are struggling to adopt to this new reality and the small and medium sized business will have to adopt to it too. Financial efficiency is as important as energy efficiency in the world we find ourselves in. And financial efficiency means being getting the most out of your capital - i.e. borrowing as little as you can. Similarly there are some who wish that the age of the petrol guzzling SUV was still with us but it isn't. It was a historical blip - like the Greenspan age - that has passed.
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Re: National Asset Management Agency

Postby garethace » Fri Aug 14, 2009 10:25 pm

Jimg,

Thanks for adding that nice paragraph of explanation. That makes quite a lot of sense to me.

Thanks.

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Re: National Asset Management Agency

Postby missarchi » Fri Aug 14, 2009 10:43 pm

Govt may mull over taxing expensive family homes...
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Re: National Asset Management Agency

Postby garethace » Fri Aug 14, 2009 10:55 pm

I don't care what homes they are. The land is the land is the land. If the land the house sits on, is next to a transport corridor it is valuable. No matter what is built on it. Tax the land rather than whoever is occupying the land. It could be a tax like the building energy rating, which only hits you at the point of turn over of the asset to another party. If you can't pay it, it is subtracted out of your selling price.

Maybe we should re-invent stamp duty and model it according to land values, rather than it being a flat tax across all properties, which was never fair. Lets be honest. Yes, the flat rate of stamp duty tax might have prevented some more investors getting into the market for the third or fourth property at the height of the Celtic Tiger. That was one positive aspect to it.

What I don't like though, is the notion of the tax on property instead of land. I can see a lot of sense in taxing of land, because it makes us all better off. If it can help to stabilise the market for land resources in Ireland a bit better. Thereby making the right land available for development at the right price. Instead of us building ghost towns 100 miles away from jobs. It a tax could be used to stabilize land values we would all be better off.

But this notion of local authorities using property as a reason to source revenues, in my view is much more problematic. I did like Cearbhall O'Dalaigh's idea to cut all of the mortgages in the country in half. That way, it would remove the burden of paying overheads and taxes, which is simply driving people into the ground with worry at the moment. I can't see how establishing a tax on property is going to help that problem. We need to get smart at what we are doing, and fast.

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Re: National Asset Management Agency

Postby PVC King » Sat Aug 15, 2009 9:54 am

jimg wrote: Only if you'd share in the glee of seeing a country burdening at least 2 generations with a huge tax burden to meet bond repayments..


The position in reality is that the Government had two choices either let the main banks collapse or intervene in some form, the position with the Irish banks was in no way unique; this was a choice made in the US, UK amongst others. You are totally right there is going to be a lot of pain whatever method of stabilisation is selected be it bond insurance, debt transfer, capital injection or collapse in the corporate and private pension structures caused by the loss of the personal and corporate deposit base by letting the banks fail. Not a pleasant picture whatever way you analyse it.

jimg wrote: The picture fills me with dread; a combined bank, property portfolio manager, property development and marketing company and property management company all funded from future tax revenue. Run by mostly the same or similar people who got the country into the position it is in. What gives anyone any confidence that a all powerful public organisation can magic tens of billions out of thin air? NAMA will make the HSE look like an impressively run organisation..


You are totally correct if the same attitude that ran the Anglo-Saxon model onto the rocks; which you assert is combined with local possibly negative nuances and if that remains unaltered; then you are probably very right to be scared. There has to be real reform and an acceptance that a model that both respects and can adapt to global economic movements is created.

The model however if it is sufficiently long term in its view and mandate then in can create significant value from where we are now. I agree that if the changes in personnel and mindset are not made then it is doomed to failure before it has commenced. Conversely it is a great opportunity to use market conditions as the only solvent player in the market to exercise their position of power to create long term value.

jimg wrote: Apart from the initial guarantee, the Irish government is doing the exact opposite of what the Swedes did. That's a story they should have studied well but obviously haven't.


I studied the Swedish model as part of the disaster myopia model at college; I agree that what the Swedes did worked in a very impressive timeframe but do not agree that the underlying causes were beyond localised property bubbles sufficiently comparable. The Irish real estate sector is infinitely larger as a share of GDP, a lot of the assets are geographically more diversified. Demographically Ireland has a much more positive position in terms of real estate demand domestically due to the much more favourable household formation patterns than the Swedes had at that time.

KB shares your concerns on the people that if past trends in government recruitment are selected would be involved; I am too remote to comment on that with any real credibility but I have no doubt that if the following happened it would be a great opportunity.

1. Non-performing debt bought at realistic prices

2. Government Investment made in banks via preference stock at say 250bps above bund to bridge the gap between market value and 'notional mid-term value' (they take the hit on frothy market lending decisions)

3. Assets transfered to a team with development / investment management expertise

4. Planned development of the most viable parts of the development portfolio to where appropriate rip up existing planning consents and rework in the context of supply having more purchasing power and being more discriminating

5. Select JV partners to carry out or complete the projects on a PRE-DEFINED profit share basis. In some areas it would be better to do this and assume a nil land value than wait for the private sector to even bear the finance costs on a nominal; access to a government guarantee scheme for construction costs would ensure that any recovery is not limited to just Dublin, Cork, Galway and Limerick.

6. Supply that cannot be sold at 'mid term fair value' to be put into specialist invetment funds covering retail, business space and residential

7. When mid term fair values are reached fund units sold to Irish private and International institutional and sovereign wealth investors.

All academic in the absence of business culture changes but if executed in a safe and secure way then this could kick start the construction sector, prevent a free for all in development land markets and allow banks to capitalise on rising values in the UK and other International markets taking performing loans away from what should primarily be a domestic project which would dramatically reduce the scale of the Nama project.
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Re: National Asset Management Agency

Postby garethace » Sat Aug 15, 2009 2:52 pm

Conversely it is a great opportunity to use market conditions as the only solvent player in the market to exercise their position of power to create long term value.


Excellent point. All during the building boom, the government's argument was that they were cut out of it. The developers I would argue had artificially inflated land values, in order that the government was kept out of the picture as a potential investor. Now we are looking at a situation in the future, where the opposite is the case. The government will have too much say in everything. No private development company is going to compete in the Irish market place at all, for fear of going head-to-head with the 80 pound gorilla in the corner of the room. The likes of Zoe were the equivalent of that gorilla in the past, and that wasn't a healthy situation for even the gorilla as experience has shown.

In the Dublin Docklands basically the government was reduced to grovelling for a bit of an input. I don't know whether the presence of a master plan for the Docklands made things better or worse in the end. Particularly where you have gorillas involved. I can't argue with architects who claim that social values weren't at the table as far as development in the docklands went. I have attended some of the lectures given about plans on-going by the DDDA to enhance the area. It seems they had a lot to contribute. However, it was in delivering key infrastructure such as roads, landscaping etc where the DDDA can still do a lot better.

We can look at Ballymun as a situation where the government did own the land. But even there, they did encounter resistance and had to deal with that by working cooperatively with parties. Obviously neighbourhoods around Ballymun wanted to erect a high wall between themselves and any future development at Ballymun. But there was progress made on that front. The point has also been raised, that many of the projects at Ballymun were carried out at a community scale. However, in the case of Ballymun, there are enough of people experienced in community regeneration projects elsewhere around the globe who do not see the new Ballymun as a complete success.

In short, further un-biased views and opinions should be sought in all of those cases. A discussion in this regard really does need to happen in advance and as part of what NAMA will do. There are opportunities for an awful lot of stakeholders, which should not be under estimated. But there are a lot of ways in which to ruin this too, if we follow too dogedly some models of the past.

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Re: National Asset Management Agency

Postby jimg » Sun Aug 16, 2009 11:10 am

PVC King wrote:The position in reality is that the Government had two choices either let the main banks collapse or intervene in some form

That's not the argument I have with your enthusiasm for NAMA.

It is practically a consensus that governments should intervene to protect retails banks from panics (i.e. "liquidity" problems) or to protect the smooth operation of their national payment systems and infrastructure. There is no such consensus that governments should pick up the tab for insolvent banks and in fact I believe that that economists are generally against it.

Doing the latter has cost the government huge sums of money; money that has been diverted to shareholders, unsubordinated bond holders, bond holders, bank employees and managers who certainly do not deserve it. This money that would have been particularly useful at the moment if spent directly to provide fiscal stimulus. The 4 billion gone to pay off some of Anglo's losses could have built some world class infrastructure in the country. Paying off (by now old) debts does f*ck all to provide stimulus.

And only in the most superficial way can we be said to be following the US model or even the UK model. In both big and small non-viable banks have been allowed to fold. The Swedes were quick to do the same.
The model however if it is sufficiently long term in its view and mandate then in can create significant value from where we are now.

I can assure you that a belief in mean reversion when it comes to markets is a sure way to poverty. The Japanese are still waiting - over 15 years - for their property bounce which will fix everything.

Needless to say I don't find any comfort in your wish list of events either.
1. Non-performing debt bought at realistic prices

This cannot happen; if the banks are forced to accept market values for their loans, then they will become insolvent defeating the purpose or requiring a capital injection to keep them afloat.
2. Government Investment made in banks via preference stock at say 250bps above bund to bridge the gap between market value and 'notional mid-term value' (they take the hit on frothy market lending decisions)

Preference stock is probably the worst way the government can inject capital; you're the first to lose all your money if things go bad and you get none of the upside if a miraculous recovery occurs. Attaching a generous yield to it is pointless too. Aren't the banks supposed to be paying us 500 million a year for the guarantee?
3. Assets transfered to a team with development / investment management expertise

So where is this expertise going to come from? You seem to the believe that the government has the magical ability of identifying and procuring such expertise where the private sector can not. Given precedent would suggest the exact opposite, this represents wishful if not delusional thinking.
4. Planned development of the most viable parts of the development portfolio to where appropriate rip up existing planning consents and rework in the context of supply having more purchasing power and being more discriminating

So a government run planning system failed, but if we have a government run planning system, a government run property development company and a government run property management company, all the incompetence will balance each other out delivering a more efficient and sustainable pattern of development.
5. Select JV partners to carry out or complete the projects on a PRE-DEFINED profit share basis. In some areas it would be better to do this and assume a nil land value than wait for the private sector to even bear the finance costs on a nominal; access to a government guarantee scheme for construction costs would ensure that any recovery is not limited to just Dublin, Cork, Galway and Limerick.

You obviously believe that property development is the engine or potential engine for the economy. Such a belief, in my opinion, represents exactly why we are in this horrible mess. I know that this forum is going to overrepresent people involved in construction in some way or another but you need to step back; what's good for the construction industry is not necessarily good for Ireland as a whole.

Property is a cost for most of the productive economy and for most of the individuals in the country not a generator of wealth despite the hype of the last few years.

I understand why this sort of thinking has purchase. All special interests - not just the CFI and their close allies the banks - develop this self delusion of their own primary importance for the national wellbeing right down to the farmers, the pharmacists, the taxi drivers, etc. etc.
6. Supply that cannot be sold at 'mid term fair value' to be put into specialist invetment funds covering retail, business space and residential

7. When mid term fair values are reached fund units sold to Irish private and International institutional and sovereign wealth investors.

There is no such thing as "mid term fair value". There are hundreds of theories of value and even more valuation models. I've yet to come across a credible one which bases the valuation on what someone thinks is a "fair" amount, no matter what that persons credentials are. I'm well used to looking at graphs of financial prices and know full well the lure of seeing patterns in what is essentially noise. Technical analysis is quite seductive but ultimately generally considered to be complete b*llox; justifying a future valuation on a historical peak value is a classic technical approach but has been proven, in most markets - property or otherwise, to be useless.

Ok, I'm snipping selectively here but this seems to be a pillar of the governments actions:
prevent a free for all in development land markets

The sooner the property markets in Ireland is allowed to adjust to reflect the adjustment in the global credit markets the better for all concerned. Attempting to prevent such a correction, while ego-massaging for politicians and hugely beneficial to the banks and the others who have overexposed themselves in development land speculation is not just folly but extremely damaging and expensive as all historical precedent shows.
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Re: National Asset Management Agency

Postby gunter » Sun Aug 16, 2009 1:25 pm

jimg wrote:The sooner the property markets in Ireland is allowed to adjust to reflect the adjustment in the global credit markets the better for all concerned.


Is that not what it's just done? or how much further do you think it needs to drop?

Is it not possible to establish some system of valuation based on graphing property value, (by category), globally, or even regionally, starting with places that seem stable?

You know, so much per sq. meter in a schedule of cities from Zurich to Luton and just pick roughly the band we should be in, taking into account all the factors, employment, transport, culture, climate etc.

OK, maybe I set the bar too high with Luton, but you get the idea. An apartment (for example) in Dublin is not going to be worth as much as a comparable apartment in Paris, but it should be worth more than a comparable apartment in Poznan, and work it that way!
Find the valuation band that would seem to demonstrably fit our circumstances and people might start to say; yeah that's about right, I can see where that flat is worth €180,000, or whatever.

I take jimg's point that no forecast model will give you all the answers, but what's the point of having this supposed knowledge economy, if don't use the knowledge we do have. OK, it might be a bit of a shock initially, after being told so recently by the Metro that a Dublin 3 bed was now more expensive than a Manhattan apartment, but at least knowing we were in a band with Helsinki, Lisbon and Zagreb would bring an air of reality.
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Re: National Asset Management Agency

Postby jimg » Sun Aug 16, 2009 3:18 pm

gunter wrote:Is that not what it's just done? or how much further do you think it needs to drop?

Is it not possible to establish some system of valuation based on graphing property value, (by category), globally, or even regionally, starting with places that seem stable?

I see very little evidence that the property market in Ireland has corrected itself. To use market speak, the transaction volume is miniscule and the bid/ask spread is huge suggesting nobody is really sure what a particular property should be worth at the moment. A correction should leave the market in a state where there is low expectation of future volatility.

And yes indeed there are many such models but few or none have much use when dealing with the hard financial realities of property unfortunately. It doesn't matter what numbers your models produce. The property market can only considered to be "normal" in any sense once the gap between what buyers are willing to pay and what sellers are asking narrows. When that happens, transaction volumes will increase and the implied uncertainty will be gone. At that stage, people like auctioneers, solicitors, furniture/household retailers, plumbers/painters/decorators, even maybe architects and builders, banks, etc. can begin to make a living from a market that hasn't seized up. This is what the goal should be - allow the normal sort of economic activity associated with the market to return; the final price of a two bed in Christchurch in the end doesn't matter.

As an aside once I spent months building valuation models (though not for property) and I can tell you, whatever answer you ever want such models to produce can be derived in a perfectly reasonable way; you just need to keep adding factors/variables until the outputs start giving you what you want. E.g. Dublin is still undervalued compared to Copenhagen?? Hold on - if we factor in the number of international companies headquartered in Dublin - then we can see blah blah blah...
jimg
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