Primetime’s Ian Kehoe breakfasts with the experts
Last Tuesday evening, 6 September, RTE 1 aired a Primetime special, hosted by Ian Kehoe, entitled Namaland. The documentary style programme was tasked with finding out what exactly is Nama and, most importantly, is it working?
Developers Niall Mellon, John Fleming, Michael O’Flynn and Ray Grehan were among the interviewees, together with Nama CEO Brendan McDonagh and Chairman Frank Daly.
Senior economist Peter Bacon defended his creation on the basis that it was never designed to be a debt collection service for the State – I think the clue is in the name – National Asset Management Agency!
Buyers Broker Ltd was invited to join the ‘Experts Breakfast’ to represent property buyers in Ireland and I was delighted to contribute to the discussion. Around the table were:
- Peter ‘Banker’ Matthews – Fine Gael TD
- Ronan King – Head of Property Industry Ireland
- Myself, Carol Tallon – Author of the Irish Property Buyers Handbook
- Nick Leeson – the original Rogue Trader
- Richard Curran – Political editor of the Sunday Business Post.
Some of the issues discussed at the table included debt forgiveness for developers – it generated mixed reaction around the table; how Nama could be effective as a source of property in Ireland and abroad; Negative equity mortgages and a potential buy back scheme for first time buyers purchasing apartments directly from Nama.
To my mind, many of the really interesting points never made it to air. For example, Ronan King was able to look at the commercial objectives of the agency in a way that supported the property industry rather than working against it – Ray Grehan touched on this during his interview but coming from a developer, it sounded self-serving. In reality, Nama has to operate with a commercial focus or its sheer scale will sink us all.
I was there in the sole capacity as the Irish buyers’ representative. My objective was to point out that Nama has failed to use its dominant position in the marketplace (it has a virtual monopoly for impaired assets in this country) to benefit the State. I agree with them concentrating outside Ireland initially as that is where ready cash can be generated (as already proved) and the State needs some early wins from this giant.
I was keen to get discussion going about the negative equity mortgage scheme, which I believe (with some fine tuning) could work. As always, the devil will be in the detail. In the absence of details, I could only look at similar schemes in other jurisdictions. Basic operation will be that Nama will not actually grant the mortgage, this will be done through the existing pillar banks. What Nama is offering is a 20% cushion or protection against negative equity i.e. 100% of the asking price is agreed and the buyer must be loan approved to this amount; however, only 80% will be drawn down. It appears likely that the full 100% will need to be serviced by the buyer – this is where the detail is all important!
There are two big problems for buyers: Firstly, this is only to be offered to first time buyers in respect of particular Nama properties, most likely apartments in Dublin (the scheme may be extended); secondly, the cushion of 20% calculated using Nama existing values, which we believe to be inflated – particularly for apartments, which are likely to drop further in value for a further period of time. Straight away we can see that the protection against negative equity is insufficient, also, using apartment only will simply delay the problem. These buyers are unlikely to be in a position to live in these apartments indefinitely.
My biggest fear with the type of facility is that Nama is breeding the next generation of negative equity home-owners particularly if the scheme is only extended to first-time buyers buying apartments. This is a problem for me for many reasons, not least of all because I feel that Nama has over-valued it’s present stock but also because I feel they are using inexperienced and over-eager buyers to off-load poor quality units that they know experienced buyers and investors will not touch. What happens in five years time when the buyers wish to move on, start a family etc – how will they sell on? The simple answer is that they may not be able to do so. The 20% cushion (which I believe is less than 7 – 10% based on real market values) will be well gone and there will be no future buyers for the apartments.
One solution that Buyers Broker suggested is a buy-back scheme. I appreciate that it is not a perfect solution but we are not operating in a perfect market. How the scheme might conceivably work is that buyers of these apartments might use the negative equity mortgage to purchase but they would have an out clause i.e.Nama (yes, the State) would buy back the apartments at the price of the mortgage within a restricted period of, perhaps, five years. The catch here is that the price paid will be no greater than the mortgage balance and two very important conditions – firstly, there must be no incidence of monthly default, and secondly, there must be no element of re-mortgage or top up. If the market improves as Nama forecasts, then the scheme should not be necessary. But if Nama is wrong, and in five years time Irish buyers still don’t want apartments, then the first-time buyer of today will not be stuck in a box overlooking the Dublin docks indefinitely. This is the only way that buyers can consider these Nama apartments without buying into a life sentence.
The final question we were all asked by the Primetime presenters was simply – does Nama work? Again, mixed responses around the table. Peter Matthews was in the ‘No’ camp, Richard Curran took a longer view and displayed confidence in the Agency. My response was that it has not worked yet, it is still early days, but yes, I believe that with the right commercial focus (even if that focus causes Nama to concentrate on the market outside of Ireland) Nama can work.
Managing Director of Buyers Broker Ltd.
Tel: 01 4428 035