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Tuesday, 19 April 2011

At Last ! A Plan...

At last! A plan to kick-start property...

Nama's €1bn 'financial muscle' to get sales moving and help balance books.

Frank Daly, the chairman of Nama, which has €1bn at its disposal, has said that the State agency intends to use its "financial muscle" to "kickstart the property market".

Yesterday, Mr Daly told the Sunday Independent that the provision of "limited financial support" for the purchase of property was a "natural next step" for Nama.

He said: "What we're aiming to do is build market confidence at sustainable levels -- to use Nama's financial muscle to kickstart the property market in a way that will benefit the project itself and provide people with an opportunity to own their own home."

The disclosure that Nama has up to €1bn to directly intervene in the moribund market comes after an auction of property in Dublin on Friday which has generated a huge level of excitement.

A total of €15m was spent on over 80 "distressed" properties, in many cases exceeding the stated reserve. This may be an indication that the Irish love affair with property remains undiminished, particularly when perceived bargains are available.

The prices fetched at the auction will further inform Nama as to the state of the market as it prepares to sell off thousands of properties around the country.

All of the properties sold at the five-hour auction went for in excess of 50 per cent below prices they would have realised at the peak of the boom. The outcome has generated a feel-good factor, which many experts hope will serve as a precursor to a sustainable recovery in the market.

Yesterday, financial adviser Eddie Hobbs said the proposed intervention by Nama would be a welcome "upward pressure" that would help the market recover somewhat.

However, he urged caution against expectation that the market was poised to rebound: "It won't," he said, "there are still too many downward pressures."

Mr Hobbs said the property auction at the Shelbourne Hotel in Dublin was another indication that the "mood" of the country had changed for the better since the new Government was elected.

Figures published last week show that consumer sentiment rose sharply in March, after the Government was elected. The gain was the third largest monthly rise in the 15-year history of the index.

"The auction caught a little of that pulse, a very low pulse, but it is there," Mr Hobbs said. "It is perceptible, many business people have said it to me since the Government was elected. There is a little pick-up and that should be protected."

Figures recently published by the Department of Finance reveal there is €126bn in retail deposits in Irish banks -- in fact, people here are the highest savers in Europe.

It seems certain that a majority of bidders at the auction were such 'cash buyers' who could afford to purchase the properties outright.

Therefore, irrespective of whether prices fall further or not, these purchasers will be satisfied that they have achieved a good deal as most of them secured properties for less than construction costs, including site value.

For the property market to recover, Mr Hobbs said that "downward pressures" would have to be addressed.

He added: "The cost of borrowing has almost completely offset the fall in property prices so far. For example, the cost of a €200,000 mortgage today is almost the same as the cost of a €300,000 mortgage a few years ago. We won't see the floor and a recovery until the banks' margins on mortgages tighten up."

There is a view among experts that a recovery will not be widespread, but that good properties in urban areas, or established suburban areas, will recover relatively within the next year or two.

Mr Hobbs also said that the Government and the European Central Bank should force banks to introduce mortgages on a fixed rate between 20 to 30 years.

A Nama spokesman yesterday said: "Nama's aim is to work with the existing banks to help them provide adequate finance for people who wish to purchase Nama assets.

"The customer will still deal with their bank, but behind the scenes part of the finance may be supplied by Nama or part of the risk of providing a mortgage to a customer may be borne by Nama. We'll be talking to the banks in the coming weeks about the proposals."

Mr Daly said: "Nama's proposal to explore how it can provide liquidity to the market is a sign of strength and reflects the progress it has made in the 15 months since it was formally established."

The chairman also said that some of the top property developers were being co-operative and "they will help us recover money for taxpayers". But he added that some were "still in denial" or were "refusing to co-operate".

In those cases, Nama would move to begin enforcement proceedings, he said.



Report by Jody Corcoran and Ronald Quinlan - Sunday Independent

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