Analysts point to waning prospects for property market in Ireland, the UK
The Irish government’s plan to morph its ‘bad bank’ into a moneyspinner is becoming a pipedream as Irish and UK property market prospects wane, placing its 2020 profit target of five billion euros (S$9.38 billion) in jeopardy, analysts said.
The Irish taxpayer will become one of Europe’s biggest property owners within months as the National Asset Management Agency (NAMA) progresses a 43 billion euro investment campaign to detoxify banks and rejuvenate the Irish financial system.
‘I’m more sceptical than most but having seen first-hand how the value of much of these assets has been destroyed, I feel it’s a mountain to climb,’ Bobby Sheehan, business development manager at property investment company Edinburgh House, said, when asked about NAMA’s profit-making prospects.
Ireland is the first European nation to set up a ‘bad bank’ to aid its troubled financial sector, which bore the brunt of the global credit freeze that flattened world property markets.
NAMA claims that it can generate five billion euros of profit for Ireland over a 10-year lifespan, but some doubt the scheme’s potential to break even while economies and property markets astride the Irish Sea struggle to emerge from recession.
‘With a population of four million, we currently have 330,000 empty residential units. This, coupled with the fact that young Irish are once again leaving the country in search of work, is worrying,’ said Mr Sheehan.
The links between property prices and Ireland’s economy are tight, making it almost impossible for one to improve without improvement in the other, analysts said, leading to a stalemate that makes NAMA’s profit target harder to reach.
NAMA has bought the first tranche of loans with a book value of 16 billion euros at a 47 per cent average discount, and could end up paying half the book value of the 81 billion euros of assets it plans to take over.
Investment Property Databank research shows that Irish commercial property values fell more than 55 per cent between September 2007 and December 2009, meaning that capital-strapped Irish lenders may still be queuing up to convert bad property bets into liquid government securities via NAMA.
In addition to a drawn-out recovery in prices, analysts also fear that a proportion of the worst assets, such as rural land tagged for housing, may never recover pre-bust values, making NAMA’s ability to turn a profit much more difficult.
NAMA itself is under no illusions as to the quality of the assets it has been tasked to restore.
‘We can all see land and half-built developments which should never have been contemplated,’ chief executive Brendan McDonagh said in a statement. ‘As an involuntary purchaser it has to take what it is given.’
Source: Business Times, 15 Apr 2010
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