State fund to enter property market with €500 million

The State’s new sovereign investment fund is set to enter the private residential property market in a €500 million plan to provide large loans to housing developers.

The Ireland Strategic Investment Fund, managed by the National Treasury Management Agency, is in advanced talks with a private investment firm to make financing available to builders via a new joint venture.

A deal could be made public within days.

Given the shortage of new properties in the market and the weakening in price growth after introduction of new Central Bank lending caps, the fund's aim is to facilitate the construction of up to 10,000 new homes.

A further objective is to support the creation of hundreds of jobs in the building sector.

Property plan

The fund, which has already declared plans to invest between €500 million and €1 billion this year in an assortment of projects, is expected to provide two-thirds of the funding for the property plan.

Its partner, as yet unnamed, would provide one-third.

The sovereign investment fund, which uses money formerly held in the National Pensions Reserve Fund, has a mandate to invest on a commercial basis to support economic activity and employment within the State.

The new lending initiative follows complaints in the construction sector about the reluctance of the domestic banks to provide financing for house-building.

Banks, which were badly burned in the property crash, have been insisting that developers themselves source up to 40 per cent of the funding for housing projects with the lender providing the remainder.

Strictures

However, developers who survived the market collapse have argued that such strictures have led to a financing shortage which has made many potentially attractive projects unviable.

This new initiative would provide private housing developers with loans for up to 90 per cent of their total financing requirement.

While this would greatly reduce the amount of money developers must provide upfront, it is anticipated in construction industry circles that the new lender may charge premium interest rates on some portions of these loans.

The new venture will lend only on a commercial basis to developers.

The fund has been directed to develop a broad-based portfolio. Sectors in which it can invest include finance, real estate and housing, infrastructure, energy, water, food, agriculture and technology.