June 8 (Bloomberg) -- As Europe’s debt crisis deepens, Ireland is considering desperate measures to revive what remains of the country’s real estate industry.
The National Asset Management Agency, set up by the government 18 months ago to acquire risky assets, is trying to lure buyers back into one of the region’s worst-performing property markets. NAMA may sell homes at a discount, providing the value of the property falls further in the years after the deal, said Ray Gordon, a spokesman for the agency.
“The market needs a kick-start,” said Tom Dunne, a lecturer at the School of Real Estate and Construction Economics at the Dublin Institute of Technology. “NAMA might be able to provide that.”
Ireland’s boom and bust, which led to an 85 billion-euro ($125 billion) international bailout last year, was driven by the real estate market. Property prices quadrupled in the 10 years through 2007. Since then, home values have fallen 40 percent, figures released yesterday showed. Mortgage lending has dropped about 95 percent from the market’s peak.
The government, through NAMA, is on the hook for 31 billion euros of loans tied to the property market, equivalent to 20 percent of the Irish economy and part of the more than 100 billion-euro cost for taxpayers to rescue Irish banks.
“There is no lending going on,” said Niall Gaffney, chief executive officer of IPUT, a real-estate fund and among the largest owners of offices and stores in Dublin. “The market is dead.”
The number of new mortgages granted in the first quarter declined 53 percent to 3,259 from a year earlier, the Dublin- based Irish Banking Federation said on May 17.
Home prices fell 1 percent in April, according to a report published yesterday by the country’s statistics office. Prices have fallen every month since December 2007.
Would-be buyers are afraid of ending up with negative equity, where the home price falls to less than the value of the loan, NAMA said in a May 19 statement. The agency said it was talking to banks about how to spur potential purchasers of offices, malls and empty homes into action.
One option would be for NAMA to ask the buyer for 80 percent of the purchase price at the time of the transaction and only collect the remaining 20 percent if the market value remained the same or increased by a certain amount. If the value fell, the purchaser would have to pay only part of the outstanding amount or, in some cases, nothing at all.
More than 300,000 households, or about 40 percent of mortgages, may end up in negative equity before the property market bottoms out, said David Duffy, an economist at the Economic & Social Research Institute in Dublin.
NAMA now has about 1.2 billion euros in cash and controls loans once worth 70 billion euros, which it bought at an average discount of about 58 percent. Led by Brendan McDonagh, who previously worked with the country’s National Treasury Management Agency, NAMA has taken action against 57 debtors. McDonagh wasn’t available for an interview.
“NAMA is desperately trying to get out of the corner that it painted itself into,” said Karl Deeter, operations manager at Dublin-based Irish Mortgage Brokers. “From their point of view, it’s better to get some cash in and have the houses occupied than have the property empty and have to pay for maintenance and security.”
The plan may risk pushing buyers into NAMA-controlled real estate, which would artificially boost prices and leave swathes of properties outside the remit of the agency unsold, Deeter said. The agency has said it’s prepared to work with banks that haven’t transferred assets to it.
“You could have purchasers buying properties for the wrong reason, just because financing is available,” Deeter said. “So, it might be akin to the tax incentives that led to some of the overbuilding in the first place.”
In addition to unfinished and empty housing estates, about 23 percent of offices are unoccupied, according to CB Richard Ellis Group Inc. Two commercial property sales were completed in the first quarter of this year, compared with 29 during all of 2010, CB Richard Ellis reported.
While that is partly due to investor concern that the government is set to abolish contracts which prevent rents from being reduced, financing is also scarce. NAMA said it may provide vendor financing, where buyers provide about 25 percent of the asset price, and enter a loan deal with the agency to repay the rest over five to seven years.
“What international investors want to see is some leadership and direction out of Ireland,” said Gaffney at IPUT. “An investor in London and the U.S. wants to know that the Irish real estate market has hit the floor, and the NAMA initiative could help arrest the decline.”
--Editors: Rodney Jefferson, Andrew Blackman.
To contact the reporter on this story: Dara Doyle in Dublin at firstname.lastname@example.org.
To contact the editor responsible for this story: Andrew Blackman at email@example.com.