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Thursday, 29 July 2010

Property Bubble Inquiry...

Call for inquiry into property bubble...

An independent inquiry is needed into the Government’s failure to control the property bubble, a State-funded academic institution said today.

In a scathing report, the National Institute for Regional and Spatial Analysis (Nirsa) also demanded a full investigation into charges of cronyism in the planning process.

Furthermore, the body which examines how the country is developing, claimed the National Asset Management Agency (Nama) is a worrying organisation set up as part of a response to protect developers potentially at the expense of taxpayers.

Professor Rob Kitchin, director of Nirsa, which is based in NUI Maynooth, said an inquiry into planning decisions and alleged close links between politicians and property speculators was necessary if the housing market was to recover.

“An independent inquiry is needed to investigate all aspects of the planning system and its operation within and across different agencies and at all scales in Ireland including charges of localism, cronyism and clientelism,” he said.

Prof Kitchin said it would be foolhardy to carry out a banking inquiry without also looking into planning mistakes.

In a 66-page report into the crisis, Nirsa lays blame for the property boom and bust squarely with the Government and local councils.

It says light touch regulation and tax incentive schemes administered by a political system infected by those in power favouring friends were the chief culprits.

Planning guidelines, regional and national objectives as well as proper assessment of demand for housing were ignored, it claims.

Nirsa says Nama, banking bailouts and nationalisation are worrying short-term moves involving “the protection of the interests of developers and speculators at the potential expense of the taxpayer.”

Prof Kitchin said there is now a growing sense Nama is paying too much for the loans it is buying from the banks. There is also a “worrying lack of transparency” around the agency and legitimate questions hanging over its potential, he argued.

“The truth is - based on current modus operandi - we will not know whether it might succeed or fail until much further down the line,” he said. “That may be too late.”

A home-grown “litany of systemic failures” that allowed the over-development and re-zoning of too much land will see housing lie empty in some areas for more than a decade, according to the Nirsa report.

“The banks could have lent all they wanted but if zoning and planning permission was not granted, property construction could not have gone ahead,” said Prof Kitchin.

The report concludes there is presently no need for any more homes to be built in Ireland apart from some social housing. House prices are also likely to fall further, with the average home expected to drop in value by as much as 60 per cent from the peak in February 2007, it found.

Nirsa said the property over-supply is not confined to housing, with too many hotels, offices, shopping centres, retail parks and industrial units also built. “Ireland is awash with buildings that few people either can afford or want to purchase,” it states.

The report also found:

- Reckless planning has left one in six houses uninhabited for most of the year.

- More than 300,000 homes are unoccupied and there are more than 620 half-empty or unfinished “ghost estates”.

- Tax incentive schemes greatly exacerbated the crisis as counties with most empty housing - Cavan, Longford, Leitrim, Roscommon and Sligo - built most new developments.

- The number of houses in these counties soared by almost half during the boom and they have enough housing now zoned to feed demand for the next 27 years.

- Nationally, there is enough excess housing and zoned land for the next 17 years.

- Cork city has enough for the next 64 years, Monaghan for 59 years, Dún Laoghaire Rathdown for 47 years and Roscommon for 45 years.

Nirsa said just six local authorities - Fingal, Kildare, Galway City, Meath, Wicklow and South Dublin - had employed relatively sensible planning during the boom.

The report argues that seven key issues need to be addressed before house prices bottom out and the property market can recover.

These include linking supply with demand; economic growth and job creation; linking house prices to average wages and affordable mortgages for first-time buyers.

It also requires concerns over Nama to be allayed; a verifiable end to the banking crisis and an overhaul of the planning process. Nirsa also calls for a clear plan of action to deal with “ghost estates”, including an investigation into alternative uses.

Minister for Planning Ciarán Cuffe said the Nirsa report echoed the concerns raised by the Green Party for years.

“There is a direct link between planning failures and the over-supply of housing in totally inappropriate places,” he said. “This did feed the property bubble which has now had terrible consequences for so many ordinary workers and their families.”

But Mr Cuffe insisted many of its recommendations have already been covered, through the imminent Planning and Development Act and a forthcoming investigation into planning failures at six councils.

“This process will be very revealing and there is nothing to stop its extension to other areas,” he said. Measures to deal with “ghost estates” will be revealed in the coming months, he added.

PA - Irish Times

Wednesday, 28 July 2010

Selling State Assets Cheap Is Madness...

Selling off state assets on the cheap is just madness...



This Government will not contemplate selling property just in case it would bankrupt the banks. The State's argument is that the market is depressed so if we were to sell the land, we would not get a fair price for it.

So we will postpone the problem: we get NAMA -- a financial skip into which the banks throw their worthless mistakes -- and you pay. The logic of NAMA and this Government's central strategy is to wait for the value of land to improve before selling.

Whether you agree with it or not, this is their logic. It can be summed up by: "Don't sell land in a depressed market."

Yet at the same time, the Government has just announced that it will sell real assets via privatisation in a similarly depressed market. So why can it sell ESB -- a real company with real assets -- and not a field in Athlone which is worthless and should command the price a farmer would pay you to put a donkey grazing on it?

Why is it imperative to sell proper state assets and inconceivable to sell useless land?

This is the part I do not understand. Why does the State believe that it is okay to have a fire sale of the family silver and yet protect the very asset which caused the problem in the first place? How could it be that a depressed market is a bad time to sell land but a good time to sell a strategic electricity company?

We the people are supposed to fork out for NAMA which is paying over the odds for the banks' and the developers' mistakes, yet look on helplessly as the State sells -- at knockdown prices -- those companies that our taxes have built up. Can anyone explain this inconsistency to me?

If you look at what the Government published about the privatisation of everything it can sell, the first aim is: "To consider the potential for asset disposals in the public sector, including commercial state bodies, in view of the indebtedness of the State."

So the key phrase is the "indebtedness of the State". But selling big companies like ESB will not solve the indebtedness of the State.

Furthermore, the indebtedness of the State wasn't caused by companies like ESB in the first place. The precarious position of the State with respect to its finances is a result of the estimated €50bn cost of saving the banks and a reckless overdependency on land and credit to generate enough tax to pay for the State's current expenditure.

If you don't solve the underlying problem, the issues will not go away no matter how much you privatise.

It is akin to the alcoholic flogging his house and his car to pay for his drinking; unless he stops drinking things won't improve. This is why privatisation (the putative cure) side by side with NAMA and the land scam (the obvious problem) will not work. It will make us poorer and make someone hugely rich as the assets are sold cheaply.

Worse still if Eircom is anything to go by, strategic state assets are sold off and then asset stripped by anyone who can raise enough leverage to do so. I gave up counting how many times Eircom was flipped, stripped and flogged on. What is clear, is that each time Eircom was overburdened with debt to make a few quick quid for the buyers, the chances of us having a first-class telecom infrastructure faded.

Think about the challenges ahead for energy. The biggest single economic issue facing not just us, but all of the global economy, is energy. The most far-sighted countries are those which are harnessing their energy companies' resources to come up with an environmentally friendly and efficient new energy blueprint.

And what do we do in Ireland? We flog our main energy company, which will end up in the hands of a private equity outfit that has little more than a five-year time horizon.

But there will be winners, so let's see who might make a quick buck in a rapid Irish privatisation. Would it surprise you if it is the same professional "insider" elite being bailed out by NAMA? Well the same lads emerge as winners again.

The stockbrokers who put together (and took a fee from) many of the syndicated deals which NAMA is now buying, take a fee for every new euro of debt we issue. I have been told that entire units of our biggest brokers have morphed from selling equities and land deals into flogging debt. The more indebted the country, the more fees they make.

So the brokers made in the boom and are making in the bust and now with privatisation they will make again because they will get a fee for "placing" the shares of the newly privatised companies with investors.

What about the big law firms, the ones who put the property deals together in the boom? Well apart from being given a gig at NAMA, they will be paid with your cash to issue legal prospectuses, which will govern the terms of the privatisations.

What about the big auditor companies? What about these guys who audited the likes of Anglo and Irish Nationwide and saw nothing at all untoward? Well they will be given hefty fees in the privatisation process to produce audited accounts of our companies.

And what about the geniuses in the Irish pension fund industry, the ones who bought shares in Anglo and the Bank of Ireland when they were in the high teens? These lads will be given another opportunity to shine by being given cheap shares on a plate -- for which they will take a fee for buying a company on our behalf, a company which we already own!

Selling state assets for a decent price could well be a clever thing to do, but selling cheaply is always stupid, particularly if it doesn't solve the underlying problem.

When you look at this idea of flogging the family silver right now, you see that Ireland is doing everything backwards as this Government fumbles from one crisis to another. In economics, when a country or a company gets into huge debt difficulties, the standard approach is to kick off the recovery with a debt for equity swap. This means you tell the people who are owed money that they will have to take shares in the company or in the country instead of real cash, which the country can't afford to pay.

In Ireland we are doing the opposite: by privatising now, we are selling real valuable equity to pay for old debt! So rather than a debt/equity swap, we are doing an equity/debt swap in a depressed market.

You couldn't make up a worse strategy.



Article by David McWilliams - Irish Independent

Tuesday, 27 July 2010

Double Whammy...

Be prepared for a double whammy of property and water levies...

PROPERTY tax isn't going away -- and it might be introduced at the same time as water charges.


Homeowners who thought they would be spared the controversial taxes for the foreseeable future have been told that they are still firmly on the Government's Budget agenda.

As the Cabinet prepared to meet for its final session before the summer break, Justice Minister Dermot Ahern reignited the debate over domestic taxes.

It had been believed that property tax would be shelved, despite the Government's need to make a €3bn adjustment in December's budget.

But yesterday, Mr Ahern said: "That may include a property tax and charging for water - which are in every other European country."

Dragged

He also warned that low paid workers could be dragged back into the tax net.

"There's a relatively small percentage of people who are paying tax. But 50pc of people are not paying a bob of tax. That is not sustainable," he said.

The property tax could cause significant problems for Finance Minister Brian Lenihan, as it is already the subject of backbencher disquiet.

Fianna Fail TD Chris Andrews had tabled a motion against its introduction for a recent Parliamentary Party meeting.

However, the debate never took place as ministers indicated that the tax was being put on the long finger.



Report by Kevin Doyle - Evening Herald.

Thursday, 22 July 2010

It's Bailout Time...

And They're Off... The Hook Again...

As the Nama smoke begins to clear, it is apparent developers deemed too big to fail are being bailed out just like the banks...

Last week, there was the ritual sacrifice. Seán FitzPatrick "bowed to the inevitable" as he said himself, and petitioned to be declared a bankrupt. From here on in, if he is to enjoy any luxury in his life, it will be as a kept man. His wife, who never worked a day in Anglo Irish Bank, enjoys half a pension pot somewhere north of €3m. She is also part owner of a number of properties, which is just as well for the FitzPatricks, if they are to continue living in the style to which they have become accustomed.

There is little sympathy for FitzPatrick. In a country where so many are struggling, he has become the pantomime villain. As a result, there was no way that Anglo Irish Bank was ever going to accept a private deal to settle his debts. The public would have been outraged.

But what of all the rest? FitzPatrick had debts of around €150m, which is chickenfeed compared to some of the serious players from the Celtic bubble era.

The bankers and politicians have sailed off to fat pensions. Those with serious debts have gone to ground.

At a time when thousands are struggling with debt, and some with the prospect of losing their home, it still grates with many that those at the top of the heap appear to be sailing on into the sunset.

There is often a good economic reason for not taking the ultimate sanction against somebody unable or unwilling to pay debts. Even in FitzPatrick's case, his creditors would probably have recovered more of their loans if a deal had been struck.

But with trust in government and state institutions at an all-time low, the feeling persists that many who bear the biggest debts are getting special treatment.

The only other player to be subjected to any ignominy was Bernard McNamara, whom the sheriff visited last month. He carted away some art and reportedly also took possession of McNamara's Mercedes.

Ironically, this intrusion into the developer's life was on foot of one of his minor debts. He owes €2.2m to two investors who have obtained a judgement against him, and now they want their money. Early last week, Ivor Dougan and Gary Smith began proceedings to make McNamara bankrupt, a process which he is resisting with all his might.

One other major developer has landed in the mire. Liam Carroll's big problem, it appears in hindsight, was that he borrowed from the ACC, which is now owned by Dutch-owned Rabobank. That bank had a liquidator appointed to Carroll's empire against the wishes of his other lenders, which were Irish banks and were happy to wait for the establishment of Nama.

Apart from Carroll, it's as you were. Those who were to the fore in landing the country in the mire just get on with business. Now that Anglo Irish Bank as they knew it is dust, they must turn to their next best friend – Nama.

When the agency was established last year, it was repeatedly stated by government figures that it was not going to act as a bail-out for developers. Its sole purpose was to relieve the banks of their smelly loans in order that they might be in a position to lend into the economy once again, and set the country back up on the road to recovery. In other words, back to the system which landed us in the mire in the first place.

It was acknowledged that Nama was a bail-out for banks, but only because banks were too big to fail. But, no sir, under no circumstances was it a bail-out for developers.

Now, as the smoke is beginning to clear, it is becoming apparent that those developers deemed too big to fail, will, like their kindred spirits in the banks, also be bailed out.

The position was highlighted in the recently published business plan for Nama.

"Nama may work with certain debtors where it takes the view that this is the optimal commercial strategy in the circumstances. However, this will only occur where debtors are cooperative, make full disclosure and are realistic in terms of asset funding and of the lifestyle implications for them of Nama support.

"They must also accept close monitoring by Nama of their activities."

How exactly will the Nama executives assess who should be bailed out and who should be turfed out? Many who work within Nama have histories themselves of being players in the property game and while they will undoubtedly act in the best interests of the exchequer, they carry psychological baggage from the days of the bubble.

We now know the identity of the first 10 players whose loans are going into Nama. All of them have debts in excess of €500m. Some have made an effort to rein in their previous high-flying lifestyle, but all these things are relative. If you were fond of a wager, you could put your house on most of these guys coming out the other end financially fit and healthy, over the lifespan of Nama.

The whole project is rife with problems. One is the trust that we, the citizens, are being forced to invest in something that may well shape the future of the country.

Another issue is the old chestnut, long-term economic value. This is a premium that was put on the loans bought on the basis that property in the long term will increase again. Various percentages have been thrown around, but it remains unclear what base the long-term economic value is projected from.

For instance, just last week Goodbody Stockbrokers released information in which it said property prices have further to fall and will eventually be worth 50% of what they were at the outer limits of the bubble. We don't know whether that base is being taken into account by Nama.

While Nama will almost certainly bail out the big boys, there are many others who will have to answer for their loans. There are also developers who weren't hit as badly by the downturn.

One is Paddy McKillen, who is taking a legal action to prevent the transfer of personal and business loans from 15 of his companies to Nama from Bank of Ireland and Anglo Irish Bank. His case is that it will negatively affect his business interests.

On the other hand, it was revealed last week by Nama chairman Frank Daly that the banks have heretofore apparently dealt with indebted developers with kid gloves, and the implication is that Nama will have a different approach.

Brian Lenihan has repeatedly said that Nama will not cost anything, but that if it does, there is provision to impose a levy on the banks to recover the cost to the exchequer. Above all else, this appears to be a bad joke. The provision is that the banks "may" be subjected to a levy. By the time the cost to Nama is available, the banks will most likely be back in private ownership. Any new owner is going to want a contingency for the levy taken into account as it would be deemed to pertain to a legacy issue which is nothing to do with the new owner. So once again, it is Joe and Josephine Citizen to whom the bill will eventually be passed on.



Article by Michael Clifford - Tribune News

Wednesday, 21 July 2010

Ireland Staring Down Barrel Of Bankruptcy...

Ireland is staring down the barrel of bankruptcy...



Why are interest rates for Irish debt rising? Because the risk of a blowout here is rising -- it really is that simple

IN THE summer of 1787, determined to show foreign ambassadors the might of Russian power in the newly subjugated Ukraine, Catherine the Great organised a boat trip down the Dnieper, past modern-day Kiev.

Her trusted field marshal -- who was also her lover -- Prince Gregory Potemkin organised a series of mobile villages to appear as soon as the imperial barge, stuffed with innocent and gullible foreign dignitaries, came into view.

When the boat came within earshot of the river bank, the villagers would break into a spontaneous, sycophantic chorus of praise for the empress, giving the perplexed foreigners the impression that not only had Russia pacified Ukraine, it had also managed to win over the local peasantry -- which was no mean feat in the 18th Century.

As soon as the imperial barge turned the corner, the villagers would dismantle their villages and rebuild them overnight further downstream, with a view to performing precisely the same malarkey the following day.

This continued each day for over two weeks. The overwhelmed foreign dignitaries then reported back to Berlin, Paris and London on the marvel of the Russian conquest and pacification of Ukraine.

Thus was born the 'Potemkin Village' approach to economic and political progress. Over the years, the Russians perfected this approach of half-truths, misinformation, disingenuous analysis and obfuscation.

Russian governments perfected the art of identifying culprits on whom to pin the blame for their own failings: Jews, Poles, profiteers, priests, intellectuals, kulaks, enemies of the revolution and so on.

Typically, if there is a problem, a few culprits are rounded on and grandiose decrees are announced to fight the evil, whether it is economic, social or political.

Our Government behaves the same way. The truth is always secondary to the spin. So during the 'binge' (because it wasn't a 'boom', it was a splurge), the Government accused the few who saw through the hype of "talking down the economy" and tried to pin the slur of "doom-mongers" on others.

Now, we know what was going on. Yet, despite this, no lessons have been learned. We see again today the Government complaining about too much "negative" comment. They just don't get it.

Analysis is not about positive or negative anything, it's about the truth and telling it like it is. And in truth, the situation is getting worse.

We are not turning any corners. In contrast, we are being subjected to a series of economic Potemkin Villages -- such as guff from silly politicians -- that are designed to obscure.

Before we get bogged down in more spin, let's look at the facts.

The Live Register is at 444,900. The ESRI predicts that 120,000 will leave the country in the next 18 months, on top of the 100,000 who have already gone in the past 18 months.

Government income is only covering 70pc of its expenditure (that is before accounting for the bailout of Anglo.)

Our national debt is heading inexorably towards 100pc of GDP, driven by both our falling GDP and our rising debt.

And now that the State is paying nearly 6pc interest on our debt, this means that the debt-to-GDP ratio will spiral out of control. A simple rule of thumb on debt dynamics is that if a country's debt gets to 100pc of its income, the growth rate has to be greater than the rate of interest on the debt in order for the debt to stabilise.

Our growth rate will probably not hit more than 6pc again in a generation. So without huge increases in taxation and deep cuts, the deficit will spiral out of control. But the more you cut and tax, the less the growth rate and the more the efforts to cut the debt fail. This process -- known in economics as a 'failed fiscal adjustment' -- occurred all over the world in the 1980s.

This is why the markets are penalising Ireland. As pointed out by Paul Krugman, the Nobel prize winner for economics, far from being rewarded for our orthodox, IMF-friendly deficit-cutting programme, the markets are charging us more for debt. Why are interest rates for Irish debt rising? Because the risk of a blowout here is rising. It really is that simple.

The internal inconsistencies will overwhelm the whole effort.

Think about it. The latest NAMA loans transferred from Irish Nationwide have a discount of 72pc. This is just junk.

It means that the value of the loans extended against property during the binge have fallen by 72pc. And we are supposed to pay for this.

Because of this collapse in loan quality, the banks -- which we are stupidly trying to save -- need to get money from somewhere, anywhere. So yesterday, they announced that mortgage rates for 300,000 people will be increased.

What do you think this will do? In a situation of rising negative equity, rising unemployment and rising taxes, higher monthly interest payments will obviously lead to increased defaults.

The 'haircuts' we are seeing from the 'big guys' in NAMA will be repeated for the 'little guys' all over the country in the form of mortgage default.

This is why the financial markets are worried -- because they see the steady path towards bankruptcy. And investors realise that there will only be a recovery when the return on equity rises dramatically. This will only happen if either we become considerably cheaper or productivity rises rapidly.

We can't get manifestly cheaper while we are in the euro and we can't raise productivity unless we have a massive increase in investment -- but investment is collapsing.

So we are stuck, staring down the barrel of bankruptcy.

Instead of this honest -- if admittedly unpleasant -- analysis, we are forced to listen to so-called economic commentators bleating about practically inconsequential press releases from multinationals who might want to employ a few dozen people here and there.

But by focusing on these tiny scraps, some parts of the media are behaving like propagandists for the State. They then appear surprised when the facts on the ground don't match the rhetoric of the spin.

This press-release approach to analysis is the Potemkin Village of modern Ireland -- and obscuring the truth does nobody any favours.



Article by David McWilliams - Irish Independent.

Tuesday, 20 July 2010

Caging Tiger-Think...

Caging Tiger-think key to Ireland's economic revival...

OPINION : Stimulus and mass job creation is a must as we leave behind crazy, jargon-filled days of boom and pursue a more concrete reality

THREE YEARS ago, it seemed Ireland was doing very nicely. And then suddenly it all changed. Our lifestyles were threatened; our wealth and dreams shattered. People had to try somehow to understand and come to grips with the frightening new reality of a rapidly deteriorating economy and a property market about to crash.


Jules Henri Poincare wrote: “To doubt everything or to believe everything are two equally convenient solutions; both dispense with the necessity for reflection.”

We have spent a lot of time since, necessarily so, reflecting on a continuous flow of appalling information about banks, developers, Nama, frozen credit, failing businesses, negative equity and a collapsing economy, accumulating in an astonishing and calamitous increase in unemployment. But unlike WC Fields’ comment about Philadelphia, surely they can’t let a country close down?

The issues have been and continue to be debated and rightly so, but at some point we must realistically endeavour to pick up the pieces and start implementing solutions to our problems. Isn’t it time to take the advice of Wayne Gretzky, the Canadian ice-hockey star who said “I skate to where the puck is going to be, not to where it has been”.

It is quite clear that we need to change some of our values and beliefs.

The guardians of reality have recaptured the Celtic Tiger but our thinking hasn’t necessarily moved on. To have any realistic chance of implementing solutions to our problems may I suggest we need to kill off the last vestiges of what could be termed “Tiger-think” and realise there is a vital need for change and the need is here and now.

Tiger-think includes, among others, the following sentiments: the “I’m entitled to syndrome”; the “why not first class syndrome”; the “I’m not responsible for it and it wasn’t my fault syndrome”; the “do nothing and it might go away solution”; the culture of enormous salaries/fees and expenses for the new elite, the well-connected, the golden circles and those in the know; the innumerable consultants’ reports, costing the State millions, a lot of whose recommendations have never been implemented; the “you can’t rush these things, they do take time syndrome” (the excuse for doing nothing); the “propensity to defend first and discuss later syndrome”, and the “let’s have another quango solution”.

The Tiger years often fostered a tolerance of mediocrity in performance, an explosion in costs and a serious deterioration in our competitive position. To progress, we need to go back to basics and call a spade a spade and not a “new-generation agricultural implement for turning earth” (Tiger-think).

In the Tiger years, in the race to lend ever increasing, ridiculously large amounts, banks became seriously overweight in lending to the construction/developers segment. Not happy to keep up with the Joneses, the banks sought to overtake their rivals in the race to lunacy lending. When reason is consigned to the back-burner, the results are often dangerous and chaotic.

The years of plenty from 2003-2007 are gone and not likely to return. In the last few years we have been transfixed with a reluctance to spend and deflation is still a worry. But most things come back to unemployment levels.

While the first quarter of 2010 has seen a very welcome increase in exports and some lift in spending, will these be enough to solve our problems? It is one thing to stabilise the numbers of unemployed people but it is quite another matter to seriously reduce the numbers. We have 450,000 people unemployed now and the figure could get worse. We need jobs for the present as well as the future.

We will benefit from a recovering world economy (if it overcomes the sovereign debt crisis) but surely we can’t wait for the rest of the world to help trade us out of our difficulties? What is our plan B if the world recovery stalls or fades?

What new thinking and practical implementable steps can we take to help ourselves into a recovery? There probably won’t be any meaningful recovery in anything until we make serious inroads into reducing the number of people unemployed.

We must become passionate about creating jobs, with an utterly single-minded focus on jobs. A can-do attitude on jobs instead of a “let’s hope so” attitude. Of course it is absolutely necessary to continue to cut Government expenditure but the deficit reduction programme would be helped also by a reawakening economy. But where will these jobs come from? Should we not evaluate and consider all options large or small, be positive, and drive on?

If we could produce locally an additional amount of the type of goods/ services that are being imported into this country there would be a reasonably quick impact on jobs. Costs are being reduced here now and in these different circumstances are new opportunities emerging?

If costs can be reduced more to help restore our competitiveness, why can’t we make progress with import substitution? What wasn’t possible previously for companies, might be more possible now. What needs to be done to make it happen?

Craig Barrett, former chairman of Intel, said in reference to Ireland: “You need to grow your economy from within and that will come from start-ups and risk-takers”.

The Government must provide the conditions to allow and encourage existing firms to expand and many new start-ups to get going. Can operating costs be made more attractive to encourage these entrepreneurs? We are in extraordinary times and the old responses will not be enough.

Can we, subject to EU and other regulations, consider incentivising small and medium-sized companies to achieve increases in exports? Could certain State-related operating costs, incurred by companies through an increase in exports, be charged at a reduced rate, the rate of reduction being dependent, for example, on the percentage increase in exports achieved by the company? If achieved, this would help in improving the competitive position of our exporters. We need to permanently improve our core cost base for home market businesses.

But, again, so much is dependent on unemployment levels. Vitally important though the economic figures are, there are other considerations. There are the human costs of unemployment, including people’s dignity, confidence and ambitions.

However difficult the circumstances in which we find ourselves, we must make every effort to ensure they don’t choke the enthusiasm out of thousands of people by condemning them to the dungeons of unemployment; the shorter the stay in the dungeons the better.

It has been argued that a stimulus programme will just encourage higher imports in a small open economy like ours. That could happen, but I believe that in our current circumstances it is unlikely to be of major effect. Another objection to a stimulus programme is often that “we don’t have the money”.

However, if a stimulus programme were adjudged to be useful by the authorities, the money would be found. Where there’s a will there’s a way.

For a start, the economist Colm McCarthy, in his report last year, highlighted very substantial potential savings. Would it not be a good idea to convert some of these possible savings into reality and invest them in good productive opportunities?

Any stimulus given to the economy is better than none and such a programme could easily be phased in, the effects carefully monitored, with the amount of the programme dependent on the timing and strength of the world’s recovery and on the success of the stimulus on the local/national economy.

All parts of this country will not benefit to the same extent in any recovery but every county has, without doubt, a number of beneficial and necessary projects, manageable in size, which would provide good returns to the economy. The multiplier effect could add a serious further boost.

We live in extraordinary times. People are gripped by apprehension and the sovereign debt problem is further exacerbating the situation. The world is stumbling from one financial crisis to another.

I have outlined some ideas for possible job-creating opportunities and how we might implement some solutions to help ourselves in any recovery. This calls for a passion in locating and pursuing jobs and will require an utterly single-minded focus on job creation.

As Johann Wolfgang von Goethe advised many years ago “whatever you can do or dream you can do, begin it. Boldness has genius, power and magic in it”.


Report by VINCENT O'SULLIVAN - Irish Times.

Saturday, 17 July 2010

Cowen's €440bn Shot In Dark...

How Cowen took a €440bn shot in dark...


Government snub for own advisers:

THE Government was in the dark about the true scale of the banks’ massive losses when it ignored its own advisers and pushed ahead with a €440bn blanket state guarantee.

Losses at the banks have ended up being double the amount the Department of Finance assumed at the time of the bailout.

The €440bn bailout was undertaken on the basis that the banks had assets of €500bn. But in reality these assets were worth far less because of the property crash.


If the guarantee was called in at any time, taxpayers would face colossal losses that would dwarf the banking bill to date.


The startling revelations are revealed in newly released documents from a Dail committee investigating the banking crisis.

The documents revealed:

● Contingency plans to nationalise Anglo Irish Bank and Irish Nationwide were in place before the controversial guarantee was agreed on September 29.

● A special lending scheme proposed by advisers Merrill Lynch to keep the banks afloat was ignored by the Government.

● The Department of Finance thought Anglo Irish Bank would only lose €8.5bn – it later posted a world-record €15bn loss.

● Nationwide losses were estimated by Goldman Sachs at a “few €100m”, but these later soared to €2.5bn.

● At one point the idea of merging the country’s two biggest banks, Allied Irish Bank and Bank of Ireland, was floated.

● Anglo vastly overstated its financial health just two weeks before the guarantee was agreed.

Finance Minister Brian Lenihan said last night he went for a blanket guarantee so there could be no doubts about the Government’s determination to save all the banks.

“We took the view that we should guarantee all the debts to make sure that people knew that we were not going to let them close,” he told the Irish Independent.

He said the extra guarantee had not cost the taxpayer anything because, in the end, they had not had to repay the loans in question and the blanket guarantee would come to an end in September.

However, Fine Gael finance spokesman Michael Noonan said the dramatic documents released by the Oireachtas Public Accounts Committee confirm Taoiseach Brian Cowen and Mr Lenihan “torpedoed the Irish economy through a series of catastrophic decisions” made during the banking crisis.

“Merrill Lynch made it very clear that it saw no future for Anglo Irish Bank, and suggested that it might be immediately nationalised by the State and turned into a ‘bad bank’ used for the recovery of non-performing loans for the entire banking system. Despite this, right up to January 2009, the Taoiseach persisted in claiming that it was ‘business as usual’ for Anglo Irish Bank,” he said.

Impact

Merril Lynch warned Mr Cowen and Mr Lenihan the day before the introduction of the state guarantee that the cost to the six main banks could soar to €500bn, which the State could not afford to cover.

It said this would “almost certainly negatively impact the State's sovereign credit rating and raise issues as to its credibility”. However, the Government ignored the advice, believing the risk to the taxpayer from its €440bn guarantee scheme would be offset by €500bn in assets held by the banks.

The bank also admitted that “there is no right or wrong answer” to the problem facing the Government.

It also claimed that apart from liquidity concerns, “all of the Irish banks are profitable and well capitalised”.

But it warned liquidity for some could run out in days rather than weeks.

Mr Cowen last night insisted the decision to introduce the blanket state guarantee was the “right one” for the country.

“The guarantee decision that was made on the night was to ensure that there was sufficient funding for the banks.

“The policy decision taken that night proved to be the right one in meeting that objective,” he said.

Mr Cowen also denied that the Government had gone against the advice of Merrill Lynch, who had warned a blanket guarantee for all the banks could be a “mistake”.

“It wasn’t a question of going against . . . There were a number of options set out by Merrill Lynch.

“What we had to decide at that time was the best thing to do,” he said.

Fine Gael leader Enda Kenny accused Mr Cowen and the Government of ignoring widespread warnings about Anglo Irish Bank and Irish Nationwide.

“They then sought to deceive the Oireachtas and the Irish public about the nature of the advice that had been offered to them. That deception continues to this very day,” he said.

Yesterday the Irish Independent revealed former financial regulator Patrick Neary informed Mr Cowen that Anglo Irish Bank was in good health just 72 hours before the Government moved to rescue it.

At a meeting on September 25, 2008, Mr Neary insisted Anglo Irish Bank was not insolvent and that the bank had enough assets to cover its debts.

However, it quickly emerged Anglo was in far deeper trouble and the Government has since pumped more than €14bn into the nationalised bank.

Mr Neary was not available to comment at his family home in Dundrum yesterday.

One of his three adult sons said his father had no comment to make on the matter.

“He’s not here at the moment. I don’t think he wants to speak to the media so that is kind of the way he feels,” he told the Irish Independent.


Report by Emmet Oliver and Michael Brennan - Irish Independent

Friday, 16 July 2010

Paying For Financial Denial...

We're paying high price for blind eyes and denial...

No event in the past 40 years, apart from the Arms Crisis of 1970, has been shrouded in as much state secrecy as the bank guarantee scheme introduced on the night of September 28, 2008.

While everyone knows the outcome of the various meetings -- €485bn of liabilities were ultimately guaranteed -- only a small circle knows precisely what happened during the shuttle diplomacy between the banks and Brian Cowen's Government that night.

Two books have been written, several newspaper accounts have been published and one or two of the participants have even spoken briefly about that fateful evening. But detailed, minuted information about the key decisions and key moments leading up to the guarantee has never been released.

In fact a slew of Freedom of Information requests seeking these details has been flatly rejected, with the Department of Finance using highly charged language to explain why the public and the media cannot see such information.

Now the information surrounding the granting of the guarantee is to be released, via a website today controlled by the Dail Public Accounts Committee. If all the relevant material is released, this is to be welcomed.

When a government decides to guarantee liabilities amounting to more than 2.5 times' the country's entire economic output, the reasons and assumptions underpinning the decision need to be publicly scrutinised.

While much attention will focus on what politicians said or did during this period, there is also a need to carefully consider the role of the Financial Regulator, even though the person in that office at the time, Patrick Neary, has already been widely castigated.

Early indications are that Neary's reputation will be further undermined by some of the records being released today. For example, it appears that even in the days just before the guarantee was drafted, Neary believed Irish banks were simply suffering from a liquidity crisis -- that is, they couldn't access funding from other banks.

Neary apparently couldn't see the wider and more deep-seated problem -- most of the banks were hopelessly insolvent because their property-heavy loan books were massively over-valued in a declining property market.

What is most baffling about Neary's comments in the days just before September 28 is that so many market players were already telling him --indirectly -- that the Irish banks were in serious trouble, and not just because of funding issues.

Anglo shares had been collapsing from March 2008 onwards and a series of highly negative stockbroker's notes had been published outlining Anglo's financial fault lines. Investors were not selling solely because of Anglo's funding issues, they were selling because the Irish/UK and US property markets had been stalling since early 2007 and Anglo had over 80pc of its assets in property.

For some reason Neary, and, yes, some of the politicians, seemed to believe that Irish banks were perfectly adequately capitalised going into late 2008 and had no wider credit quality issues. This was a dangerous mistake.

Hiding among the balance sheets of each bank were ticking time-bombs that exploded with violent force throughout 2009, leaving Ireland with a bank rescue bill expected to top about €50bn, according to Standard & Poor's.

Neary, the Government and some bank executives seemed to be paralysed with indecision in 2008 and this reaction seems to have been based on living in financial denial. In fact, Neary seemed to blame the problems of 2008 on everyone but on the Irish banks themselves.

For example a high-profile investigation was launched in March 2008 by Neary into the sale of Anglo shares by certain investors. Aggressive short-sellers were blamed for dragging Anglo's share price down, using malicious rumours to change market sentiment.

But months later, when the results of the investigation emerged, it was discovered that these investors were acting perfectly rationally and were in essence justified in dumping Anglo's shares. The bank was hopelessly under-capitalised and it is absolutely certain that if the bank had not received the benefit of the guarantee in September 2008 it would have collapsed -- Lehman Brothers-style.

For some reason the staff of the Financial Regulator could not draw the obvious conclusions from the published financial statements of Anglo Irish Bank and also Irish Nationwide.

With commercial property prices plunging from 2007 onwards and the US subprime crisis erupting throughout that year, it was very plain that Anglo was going to have serious financial challenges, but instead of facing up to these it now appears the authorities wanted to avert their gaze from the problems.

In fact the pattern of denial started much earlier than even 2008. When depositors were queuing outside Northern Rock branches in the late summer of 2007, the Irish authorities acted -- at least in public -- in a most blase manner.

This included complacent comments saying a Northern Rock could never happen here -- even though that lender was felled by the same issue that later caused the Irish banks so much trouble -- an over dependence on inter-bank lending.

Once again this was a poor piece of forecasting and another dollop of financial denial that we're now paying for.


Report by Emmet Oliver - Irish Independent

Thursday, 15 July 2010

Property Tax For €3.5bn Hole...

Property tax plan to help fill '€3.5bn hole'...

IMF urges help on mortgages and new tax on bank salaries:

THE Government is considering a flat-rate property tax as the International Monetary Fund (IMF) warns an extra €3.5bn may be needed to meet budget targets.

In a detailed analysis of the Irish economy, the IMF predicted the Government may not enjoy the hoped-for "bounce" from the recession.

The Department of Finance believes that forecast is too gloomy. The difference between the two views amounts to 2pc of the country's output (GDP) and that comes to almost €3.5bn over the next five years.

However, government officials agreed that a property tax would be a good way to make the public finances more stable.

That is revealed in a new report from the Washington-based fund.

Despite claims that a property tax is "off the agenda" in the next two Budgets, the Government told the IMF a flat-rate tax on property was under consideration "in the transition" to a tax based on value.

A spokesman for the Department of Finance last night said no tax measures had yet been ruled out.

"All proposals will be fully considered in the context of preparing December's Budget," he told the Irish Independent.

The report -- part of the regular analysis the IMF carries out on member countries -- also recommended:

* Help for home buyers who cannot meet their mortgage payments.
* A proposal for a special tax on bank profits and top salaries.
* Some extension of the bank guarantee after it expires in September.

It also criticised the policy of forcing banks to lend to small businesses because they represent a bigger risk.

The IMF's downbeat view is based on its forecast that growth will average not much more than 2pc a year over the next five years.

It says in the case of Ireland: "The normally sharp bounce back after a large output decline will be muted."

The report also warned: "The Irish economy may be in a regime with relatively modest potential growth and high unemployment reinforcing each other."

The Government is projecting almost twice as fast growth in its budget plans. It told IMF analysts who visited the country in May that the traditional flexibility and international openness of the Irish labour market would provide a self-correcting mechanism towards more robust growth.

Output

The difference between the two views amounts to 2pc of the country's output (GDP) -- almost €3.5bn.

The IMF insists there should be no slippage in the budgetary targets, even if it means further corrections. If targets are met, the national debt should stay below the damaging level of 100pc of GDP.

The IMF says Ireland is among the most vulnerable nations to deflation, with prices again falling next year.

The IMF fears Irish banks simply do not have the finance to provide enough credit when recovery comes. It warns of the dangers of forcing banks to lend to the small business sector, which is seen as risky.

"Targets for SME lending, which have been imposed on two major banks in 2010-11, could have adverse effects on credit quality and hence require strong prudential safeguards," it says.

Despite the banks' problems, the IMF wants a levy on them to pay for any future rescues.

The fund also said additional support was needed for a number of homeowners struggling with mortgage arrears.

Fine Gael enterprise spokesman Richard Bruton described the IMF findings as "very downbeat" and raised the prospect of even greater spending cuts and tax hikes.

However, Finance Minister Brian Lenihan insisted the IMF report showed the Government was taking the right moves to support the banks and tackle the deficit.


Report by Brendan Keenan - Irish Independent.

Wednesday, 14 July 2010

Thousands Of Irish People Emigrating...

5,000 will leave each month over job crisis...

120,000 to emigrate by end of next year, ESRI predicts:


MORE than 120,000 people -- or 5,000 a month -- will emigrate by the end of next year to escape unemployment at home, the State's economic think tank warns in its latest report.

That means the equivalent population of Cork city will leave over the next 18 months.

The figure is 20,000 more than the Economic and Social Research Institute (ESRI) estimated in its last report, just three months ago.

Jean Goggin, a co-author of the report, said: "It's quite significant -- we expect 70,000 to leave in 2010 and a further 50,000 in 2011."

Unlike last year, most of these emigrants will be Irish, the figures suggest.

Many foreign workers -- mostly in construction and retailing -- whose jobs disappeared have already left the country.

"In the two years 2008 and 2009, the number of non-nationals employed in Ireland fell by 87,500," the report says. "The biggest adjustment was in the number still in Ireland. It fell by 60,200, or 12pc."

"It is very difficult to estimate how Irish workers will react to the situation," senior researcher Alan Barrett said. "But the evidence from things like visa applications for Australia points that way."

The ESRI does expect the number of jobs in the economy to stabilise at around 1.85 million this year and next. But the labour force will grow by around 140,000. If the emigration forecasts prove correct, unemployment will rise by 20,000, keeping the jobless rate at 13pc.

"Unemployment levels may fall in 2011 only because so many people are leaving the country," Fine Gael Finance spokesman Michael Noonan said.

"There will be no net job creation over the next two years, with employment levels set to remain static. The ESRI's report should set alarm bells ringing at the highest levels of Government."

The ESRI's general forecast is that the economy will be broadly flat this year, with output rising by just 0.25pc, and national income falling by 0.5pc, after last year's catastrophic 10.7pc decline.

Growth will resume next year, with national income growing 2.75pc. Most of this will be driven by a 4.75pc rise in exports. Personal consumption will grow just 1.5pc, after deducting inflation, which is forecast at 1.25pc. The economy would have grown by 3.75pc -- one percentage point more -- next year were it not for the impact of the €3bn promised tax rises and spending cuts in the December Budget.

The ESRI thinks the tough Budget is necessary in Ireland, given the state of the public finances, although it queries the need for austerity measures in Britain and Germany.

If there is no €1bn property tax, the impact on the economy could be even more severe, because existing taxes will have to rise by more, Dr Barrett said.

Government sources say nothing has yet been decided on in terms of the Budget. If there is no property tax, ministers would have to decide where else to raise the revenue and a mild property tax cannot be completely ruled out, the sources say.

Ireland will record what may be the biggest peacetime deficit for any EU country this year if, as expected, the €20bn in future payments to Anglo Irish Bank and Irish Nationwide have to be added to the official deficit.

That would bring the deficit to 19.75pc of GDP, although it would fall back to 10pc in 2011, as the bank money comes off the total and the Budget knocks up to 2pc of GDP off government borrowing.

The report says the global recovery has been stronger than expected, but the risks to the Irish economy seem greater than even three months ago. The debt crisis in Europe, with banks unwilling to lend to governments, has cast doubt over the recovery in the euro area.

Budget cuts in Britain and Germany also risk damaging the fragile recovery. "These are our main trading partners. We need strong export growth even to achieve these forecasts, and so we need those economies to perform well," Dr Barrett said.

House prices are forecast to fall again next year. "We expect the cumulative fall in new house prices to be close to 50pc from the peak by the end of 2011," the report says.


Report by Brendan Keenan - Irish Independent

Tuesday, 13 July 2010

House Prices Will Keep Falling...

House prices will keep falling this year despite growth...


HOUSE prices will continue to fall this year despite a return to economic growth, the Government has warned.

And a report from the Department of the Environment warns that almost 200,000 homeowners are facing negative equity by the end of the year -- where one-in-four mortgage holders will be forced to pay off loans that exceed the value of their homes.

The Housing Market Overview 2009 also says price recovery will take longer outside major urban centres, and that the downturn may be "longer or more severe" than expected.

This means that demolition could be the only option for the thousands of housing units due to come under the control of NAMA because they are unlikely to ever sell.

Unsold

Officials from the department have begun a count of the number of unsold housing units across the country, with some estimates saying up to 300,000 may be empty.

"The International Monetary Fund has analysed house-price cycles across 19 countries, including Ireland, and has shown that the average upturn lasts about 6.5 years and the average downturn lasts about 4.25 years," the report said.

"However, as the most recent period of sustained house-price growth was atypically long (almost 16 years), it is possible that the current downturn may also be longer or more severe than normal.

"Notwithstanding the emerging signs of stabilisation in the public finances, a return to moderate economic growth in some areas of the eurozone and beyond, and the significant improvement in affordability resulting from price adjustment, the consensus is that prices are likely to soften further in the period ahead in certain areas."

Some 792,000 homeowners have residential mortgages, and the report said 116,000 borrowers were in negative equity at the end of 2009. This figure could rise to 196,000 by the end of the year, with first-time buyers -- many of whom bought at the height of the boom with 100pc mortgages -- "more susceptible".

The Department of the Environment said the "consensus" was that prices would continue to fall in certain areas.

"It is a consensus based on information from a number of informed sources," a spokesman said.

"When the department has compiled its database on unfinished and ghost estates the information will enhance our knowledge base in relation to the current state of the market and possible future trends."

Meanwhile, the latest house price figures from property site Daft.ie, published yesterday, show that nationally the average price paid for a home is now €224,000, a 36pc drop from the €352,500 paid at the height of the market in 2007.

The drop has been more severe in the capital, where a home now costs an average of €272,500, down 40pc from the €457,000 paid just three years ago.

Agencies compile an index of house prices using different criteria. The department bases its prices on the value of mortgages drawn down, while Daft.ie bases its index on the asking price of properties on its website.

This means that nationally -- depending on the survey used -- the decline ranges between 27pc and 37pc, while in Dublin the drops are between 33pc and 46pc.

The report adds that future demand will depend on "demographic trends, economic performance and the level of available stock".

Demand

"The uneven distribution of the overhang of unsold properties means there will be a number of discrete housing markets in Ireland rather than a single market. Recovery of demand in the Dublin area is likely to be ahead of other areas," it said.

The managing director of estate agents Hooke & MacDonald, Ken MacDonald, told the Irish Independent that prices had fallen by as much as 50pc in some parts of Dublin, and that the recovery could take up to three years outside the major urban centres.

"Certainly Dublin will recover much quicker than a lot of areas. In a lot of provincial areas it will be two or three years before they really stabilise because of the stock of properties available in those areas," he said.


Report by Paul Melia - Irish Independent.

Saturday, 10 July 2010

Parallel Universe - Untroubled By Reality...

While the rest of us work, TDs get three months off...

THERE are ordinary people and then there are the people in the Dail. Dr James Reilly made the distinction while arguing against a three-month summer recess. Ordinary people, he said, could not fathom how the Government could take a three-month holiday in the middle of the biggest economic crisis in the history of the State.

The Fine Gael deputy leader was doing his best to distance himself and his party from the perception that they and all the other extraordinary people in the Dail exist in some sort of parallel universe , untroubled by reality.

However, the Opposition's attempts to absolve themselves by objecting to the length of the recess rang a little hollowly. In the end, they shrugged and went off on holiday anyway.

Would it be too cynical to suggest that it doesn't matter a curse that the Dail will be inactive for three months due to its general ineffectiveness?

When we are told that the Dail has decided this or that, what it usually means is that the Government has decided this or that.

Nevertheless, TDs and ministers are elected to enact laws, supervise the Government and control the finances of the State. In an uncynical world, they would regard that function as an honour and a privilege -- perhaps some of them do -- but they can only fulfil those functions when the Dail is sitting.

We ordinary people find it difficult to accept that committee work and constituency work are proper substitutes.

Indeed, Dail deputies spend more than half their time on constituency work, as against a third on legislative work. In other words, our national politicians see it as more important to deal with problems in their own electoral backyards than with the problems of the nation.

At least that's what an Oireachtas survey into the Dail mindset found.

It is confirmation that all politics is local, as Tip O'Neill once remarked. Given the great issues he dealt with on a daily basis, the venerable US Democrat was probably exercising a little irony. Here in Ireland, it is hard fact.

Most TDs say they are in the Dail to represent the interests of the people back home, rather than the broad sweep of the population. Does this mean that our TDs are parish-pump politicians, or is it simply confirmation of what we always knew and accepted?

Probably the latter, but in the midst of what is supposedly a national effort to get through the worst economic crisis for generations, it does not seem right that our TDs should scoot off back to their constituencies for three long months to mind their seats.

The long break may give the Taoiseach and his ministers some respite -- an irony that was not lost on the thousands of carers who took to the streets this week in protest against spending cuts. Nevertheless, their exodus does not sit well with the voters.

FURIOUS readers have deluged this newspaper -- and presumably others -- with emails containing comments such as: "They demand of us that we work longer for less pay while they themselves close shop and go on holidays till the end of September."

Another one: "How much further in debt will we be after our leaders return to work in three months' time? Can our children afford this blundering?"

Or: "Our TDs have spent the little time they have had in the job this year shouting and yelling at each other, only to go on a long vacation and give the two fingers to the public."

Our TDs can hardly point to a hectic work rate over the rest of the year as justification for a summer break that exceeds even that of a schoolteachers.

Last year, the Dail did better than in previous years by sitting for 100 days, 42 days less than the House of Commons.

Even as increasing numbers of Irish workers are forced to cut their working week to three days in order to preserve their jobs, the three-day week is the norm for TDs.

In contrast, the House of Commons sits for four days or more. Last year, it sat for 20 four-day and 10 five-day weeks.

MPs, most of whom will have three or four times as many constituents to look after, have a basic pay of €75,000, compared with nearly €93,000 for TDs.

Nor can the Government here look to other troubled countries for reassurance.

The Italian parliament is to take a summer break of six weeks. In Greece, it's just three weeks. The Spanish Cortes has decided not to go on holiday in July, as it normally does. And the French National Assembly will take its usual August off, but will do so in the knowledge that it will be promptly recalled in the event of an emergency.

The Taoiseach might have ordered a similar gesture, if only as a nod of recognition to the sacrifices that so many citizens are making.

But, much of the time, the Taoiseach does not appear to care what the people think.

That is both bad and sad.



Report by Brian Brennan - Irish Independent.

Friday, 9 July 2010

House Prices Plummet...

Gap in asking/selling prices of 'up to 20%'...

THE gap between asking prices and selling prices can be as high as 20 per cent says economist Paul Murgatroyd.

There is no way for the public to accurately determine selling prices in the absence of a national price database linked to the Land Registry, but Murgatroyd, who analysed MyHome.ie’s price survey published this week, says his view is that the figure is “anywhere between zero and 20 per cent below asking price, depending on the seller, the buyer and the property”.

Myhome.ie’s figures indicated that asking prices have fallen in Dublin by 33 per cent since the peak of the property boom at the end of 2006. This followed a price index by Sherry FitzGerald saying that selling prices have plummeted by nearly 50 per cent in Dublin since the peak.

Vendors and buyers are being left to figure out current property values for themselves by piecing together information from the few indices available: these include ESRI figures based on the number of loans being drawn down; property websites’ data, which is about asking prices; and estate agencies’ indices, based on a fixed sample of properties that are revalued every quarter.

This has led to a big divergence in asking prices in some areas.

Despite the confusion, there appears to be some activity in the market particularly in the lower end with first-time buyers going for well-presented, extended properties in the €150,000-€350,000 price bracket, says Darren Chambers of Lisney who says properties which “tick all the boxes and represent obvious value are sometimes taking only three weeks to sell”. People who sold their homes at the peak are also buying but are taking their time and refuse to compromise on their wish list.

Paul Murgatroyd says there is some detective work involved for both vendors and buyers and says vendors should canvas the opinions of “two or three estate agents” with valuation qualifications before setting an asking price.

“They also need to look at the level of supply in their area. It’s a suck-it-and-see situation: the vendor can shift price up or down but it’s more difficult for a buyer to know where to pitch a bid.”

Getting a sale could mean undercutting the competition by 10 to 20 per cent. He says buyers can ask around local agents if a property they are interested in is priced correctly and vendors should beware when an agent suggests a bullish asking price “because it could be that they just want to get a board up on your road”.

Darren Chambers says it doesn’t take long to ascertain whether a property is going to sell: “usually it’s fairly obvious within four to five weeks”.

Paul Murgatroyd says the Government “has been posturing and doing whatever they can to evade establishing a national price database. It’s down to a psyche of privacy and confidentiality in Ireland surrounding property and the fact that it’s written into data protection legislation – but if other European countries can do it, why can’t we?”


Report by EDEL MORGAN - Irish Times.

Thursday, 8 July 2010

Nama Is Biggest Danger To Property Prices...

NAMA is now the biggest danger to property prices...

If one is to take NAMA planners at their word
, a wave of commercial property and development land is set to be unleashed into the Irish market, presumably driving up supply and hammering prices downward.

The original idea of NAMA, that it could hoard properties in ways not open to the banks, seems to be subtly changing. Now the agency is talking about developers rapidly reducing their debts via sales of assets and in less than three years.

The obvious question arises, who is going to buy all the land banks that are going to be unleashed and what will the unleashing do to prices?

One view is -- who cares if prices plunge downward, the market needs to find a price floor at some point. That is all very well, but it is the biggest developers who'll be selling first, the smaller ones will come to the fire sale party late and most likely pay the price, literally.

There is also the concern about overspill into the residential market, where prices are in large measure controlled by the supply of land and the price the builder paid for it.

The following sentence from this week's revised NAMA business plan is likely to be pored over by developers and their advisers, but also by anyone else holding commercial property, and even residential property: "Stabilisation or modest reduction of their debt over the medium term is not sufficient."

This seems to imply that debt repayments by developers must be in some way accelerated via quick sales of assets or refinancing of assets.

With the Irish banks, and foreign lenders, scarred from their last dalliance with the Irish commercial property market, it is hard to see where the refinancing is going to come from and even Anglo is being warned off such deals by no less than the EU Commission.

This is not the only strange requirement NAMA is seeking from the developers. The disclosure that all working capital given to developers to finish projects will be charged at 2.5pc over market interest rates is also baffling.

While nobody wants developers given soft loans, this arrangement would seem to simply exacerbate their debt problems, increasing leverage and making repayment even more unlikely.

Then again this may be the point? Either way it appears the instructions from NAMA chief Brendan McDonagh are 'sell up or get closed down'.

So asset sales it will be, but that is problematic too. Unless a huge amount of foreign money pours into Ireland and boosts demand, prices could take a serious lurch downward when the NAMA properties flood onto the market.

For example, Anglo's customers controlled huge land banks in north Dublin and north Wicklow and such concentrations are likely to also press prices downward if developers are forced to sell.

Of course with prices down 50pc already, yields will be attractive to some overseas funds, but they are buying in prime areas, not sniffing around development land in the wasteland areas off the M50.

Yes NAMA has investment property and much of it is in prime locations, but overall only 30 of NAMA's entire portfolio will be finished investment property, the rest will be raw land, hotels, houses/apartments and half-built developments.

To avoid a double-dip price plunge in Irish property, NAMA could of course foreclose on the properties itself and hoard the assets for a longer timeframe than any developer would be allowed.

But this effectively means asset prices are living on borrowed time and extra supply is simply corralled in the wings until NAMA decides to open the sluice gates.

Would foreign money be that comfortable buying into a market with that kind of uncertainty on supply and demand hanging over it?



Report by Emmet Oliver - Irish Independent

Sunday, 4 July 2010

Ireland: Up The Creek Without A Paddle...

They've gone, but are we safer?...

IT's a sign of the times really. On this weekend in previous years we would have, by now, worked ourselves into a frenzy of outrage about the fact that, as the country faces its greatest challenges yet, our leaders are about to embark on the kind of summer holidays unknown outside the teaching or TV-presenting fraternity. Indeed, many of our leaders are teachers and one can only assume they took to politics because they knew it was one of the few other professions where grown adults get two or three months off simply because it is summer.

This year the outrage is muted. This year we are all half relieved that they are all heading off for a good stretch. "There, there", we think, "let them have a little holiday and see if they feel better after that." We even secretly hope that they might be different when they come back, that they might come into contact with the real world over the summer months, and that such a shock might galvanise them into doing something in the autumn. But, of course, in reality we know that won't happen.

In previous years we used to worry that the country was to be left drifting along rudderless for two or three months. Now we are more inclined to think that on the law of averages, like the stopped clock, the rudderless boat might at least go in the right direction now and then -- which would possibly be an improvement on term time, when our leaders seem to focus on steering us steadily up the creek. And let's face it, when you've been up that creek without a paddle as long as we have, the loss of a rudder is no big deal.

When you look at what they get up to when they are actually "sitting", as it is aptly known, you wouldn't be too alarmed at the idea of them not sitting. The last few weeks have been mainly taken up with breeding bitches, thwarting stag hunts, and other country pursuits. And just when it looked as if people had finally had enough of Fianna Fail, Fine Gael showed they couldn't even get rid of Enda Kenny, despite the whole country apparently being indifferent to Kenny's leadership. With the young bucks of FG having been felled, there was another couple of weeks taken up with John Gormley's preening and ego tripping. God knows what they would have been doing if they were sitting for the summer. Coming up with a regulatory framework for hopscotch? The holiday will do them good. They can meet real people for a change. "What's that you're all talking about?" John Gormley might say to the crowd in the pub, "the economy? Unemployment? Well, I never."

So let them off. And for those of us who believe that politicians should have to bear in mind that cornerstone of medical ethics: first, do no harm -- well, at least for the next few months we can be confident that they won't.

And anyway, no doubt the Germans will be keeping an eye on us.



Report by Brendan O'Connor - Sunday Independent

Friday, 2 July 2010

Merrion Street Mandarins Have Failed Us...

The Merrion Street mandarins have failed us – it’s time for a shake-out...

THE mid-point of the year sees the publication of the half-year exchequer returns and CSO data on the economy. This will form the backdrop to the formation of December’s budget.

Next week the Department of Finance will circulate its strategic memo to shape 2011 expenditure plans. The Government has been softening up the public for tax hikes. A flat household charge of €175 for water and an average residential property tax of €1,000 per household are being promulgated. All the while, the Bord Snip Nua report continues to gather dust.

Finance Minister Brian Lenihan has announced an external independent group is to review the performance of the Department of Finance over the past decade.

Speculation has centred on its advice to ministers, forecasting ability and competence dealing with the banking crisis. The lack of specialist personnel has been acknowledged. Its annual budget forecasts of GDP and tax revenues have been wide of the mark, through the boom and the bust, making Met Éireann look like clairvoyants.

The Central Bank and Office of the Financial Regulator bear primary responsibility for failing effectively to supervise the lending practices, balance sheets and solvency of the banks. Mandarins in Merrion Street have alibis for this systemic failure.

The fundamental flaws of Finance over the past 10 years have not related to banking policy. Its core function is to safeguard the public finances. The overall balance between tax revenue and public expenditure has fallen apart. While Patrick Neary was asleep at the wheel of financial regulation, Merrion Street was comatose at curbing spending. It has presided over a decade of profligacy.

Total government expenditure has increased from €35bn in 2000 to more than €60bn last year. Even without the banking bailouts, they have allowed our budget deficit spiral to €20bn a year.

The minister’s probe into his own department will be meaningless unless there is a complete restructuring of the expenditure division. The department’s controlling competency has to be questioned.

Let’s start with the basics of accounting – verifying that monies voted under a particular sub-head are spent in accordance with the provision. €2.35m was set aside under the SKILL programme for the training of low-paid health workers. No one in the Department of Finance seems to have exercised any oversight as to where the money went. More than 30 overseas trips indicate this was a global junketeering fund. One taxi bill alone cost €12,000. Invoices can’t be traced for some expenditure. The supervisory audit role of Finance is appalling. Remember FÁS?

Every year the Comptroller and Auditor General reports to the Dáil Public Accounts Committee on a post-hoc basis. He details a litany of projects that ran over budget. The wastage of taxpayers’ cash is chronicled many years after the event. Who is supposed to be acting in a contemporary fashion to prevent such fiscal misuse? That’s supposed to be the day job of the Department of Finance.

Its failure to curb and control expenditure led to the establishment of An Bord Snip Nua. Under the chairmanship of Colm McCarthy, a menu of cuts was published on July 16 last year. They proposed measures to save a total of €5.3bn, with 271 individual recommendations. Only 32 have been fully implemented and 89 have been partly introduced.

Their work fine-combed each department’s activities. They concluded that the delivery of public services could be improved, made more coherent and delivered more cost effectively at local level.

McCarthy’s group concluded that public service numbers should be cut by 17,358 (almost 7%). A year later, the department’s own figures suggest only 410 fewer public servants will be on the payroll.

Big reductions were advocated in Education and Health, with more than 6,000 personnel each, plus 1,100 in Agriculture. The arrangements for substituting absent teachers on sick leave should be reformed, with a minimal saving of €100m a year.

Enhanced productivity at third-level institutions could allow the reduction of staff numbers by 2,000. The restrictive work practices in the health sector and the burgeoning bureaucracy of 3,000 extra administrators since the regional health boards were abolished were unjustifiable.

The potential of outsourcing government activities could save tens of millions. This would include such administrative areas as payroll, data entry, payment and claims processing and invoicing. This would have the dual benefit of significant efficiencies and direct savings.

Information and communications technology work is radically changing in every commercial workplace. Each of our major hospitals has its own personnel department. Why is this function not synchronised under the HSE? Under the Data Protection Act, a hospital consultant cannot access diagnostic test results on a patient commissioned by another consultant whereas, abroad, patients carry a Smart card with all their medical records collated in a unified, accessible fashion. The Department of Finance should drive these reforms, akin to an examiner or administrator fixing ailing companies. The list is endless. Bord Snip highlighted two areas where the state was simply all over the place – science and innovation and the delivery of enterprise supports. Plans to streamline these areas were set out. Departmental turf wars ensued. Empire-building bureaucrats have successfully resisted change because of the weakness and ineffectiveness of the Department of Finance.

MORE than 80 quango rationalisations would save €170m, plus €20m in capital costs. These bodies alone employ 16,000. The proposed abolition of the Departments of Community, Rural and Gaeltacht Affairs and Arts, Sports and Tourism were completely ignored. The plethora of regulators and ombudsman offices has been allowed to remain intact.

The level of imagination employed by Finance has been limited to slide rule economics. The pension levy, public service pay cuts and social welfare rate reductions have now been exhausted. There is no more low hanging fruit of crude and simplistic measures. Every business manager has had to put in the hard yards of productivity reforms. This can be ignored no longer in the public sector.

The Celtic Tiger era spawned a twin subversion of the Department of Finance. Social partnership and the Department of the Taoiseach reduced the role of Finance to rubber-stamping wasteful programmes. Politics and populism prevailed over prudence.

Our political masters are cogitating new taxes on our homes, charges on our consumption and various stealth revenues. All will result in a heavier burden on hard-pressed families, struggling to make ends meet each week. Sovereign debt servicing costs are inevitably rising (last week by more than 5.6%).

Recession necessitates more welfare expense due to unemployment. Anecdotes abound of waste and gross inefficiency in the delivery of public services, some of dubious value. If Finance insiders aren’t up to the job, it’s time to employ proven external expertise to reform and rationalise.



Report by By Ivan Yates - Irish Examiner.

Thursday, 1 July 2010

New Property Tax For Ireland...

Property tax: how will it work...

Homeowners will have to fork out hundreds every year if the Government presses ahead with plans to introduce a new property tax...

THE prospect of a property tax is looming large as the Government attempts to plug holes in the Exchequer finances.

An annual tax based on the value and size of the property is what is being considered, it is understood.

Taoiseach Brian Cowen said in the Dail last week that no decision had been made on the tax measure, but he did not rule out introducing the new tax either.

The tax would be self-assessed. This would likely mean homeowners having to get their home professionally valued so they could make an accurate assessment of its worth.

For a lower-valued house, homeowners would pay around €250 a year, while those with a pricier house in a sought-after area would pay more than €3,000 a year.

However, any move to introduce a property tax is set to be hugely unpopular and may even be resisted, if calls and texts from homeowners to radio stations are anything to go by.

So how might such a tax work?

The Commission on Taxation report, which was issued last September, recommended that the tax should apply to residential properties, second homes and holiday homes, which means it would replace the €200 levy imposed by local authorities.

The owners of residential housing that is rented out would also have to pay the tax.

Commission recommendations would see the tax applied to vacant housing units as well.

The report said self-assessment was an appropriate way of determining what level the tax was set at.

It is understood that self-assessment would involve homeowners getting professionals to value their properties. The commission recommends that homeowners would get a tax credit of €75 in the first year to compensate for the cost of a valuation.

Property owners could make payments due to their local authorities, as is the case with the second-home tax.

Bands

It is understood that the Government is looking at applying a tax rate of 0.3pc to houses in different valuation bands, which was one of two options presented by the commission. This would mean that houses valued up to €150,000 would generate a tax of €225 a year.

Houses valued at between €150,001 and €300,000 would be charged €675.

This is the valuation band that applies to the majority of houses, according to housing statistics.

For houses valued between €300,001 and €450,000, the annual tax would be €1,125, while a a tax of €1,575 would apply to houses valued at between €450,001 and €600,000. Houses worth between €1m and €1.5m would be taxed at €3,750.

Stamp duty

Many people who bought houses during the housing boom paid huge amounts of stamp duty.

This tax did not apply to new homes at the time, but someone who bought a second-hand house for €300,000 would have paid €15,000 in stamp duty between 2004 and 2007. Stamp duty rates have since come down. The commission recommended that there should be no stamp duty at all on the purchase of a home.

It also recommended that house-buyers who have already paid stamp duty will be exempt from the property tax on their main residence for seven years.

Exemptions

People on low incomes, the jobless and those with disabilities will not have to pay the tax under the plans being considered by the Government. Social and affordable houses and nursing homes are also likely to be exempt.

Revenues

The commission report says that the annual property tax should be used as a source of local government funding.

An Oireachtas committee heard last week that the introduction of a property tax would have the potential to generate between €1.5bn and €2bn a year for the Exchequer.


Report Charlie Weston - Irish Independent