Nama properties may easily rise 10% over 10 years, says property industry

PROPERTY MARKET:MANY OF the properties acquired by Nama should easily recover in value by 10 per cent over 10 years, according to the property industry. Minister for Finance Brian Lenihan said this week that Nama could break even if the properties it will come to own rise in value by close to 10 per cent over the coming decade.

A recovery in both the commercial and residential markets is expected once banks start lending again, which should happen once Nama has started to take responsibility for the toxic loans.

A 10 per cent rise in the value of Nama properties “is not a big ask”, chartered surveyor Bill Nowlan, who runs property asset management consultancy WK Nowlan, said yesterday. “I would be amazed if a market that fell off a cliff didn’t recover by at least that much.”

The Government’s decision to take over the loans at a discount of 30 per cent has been welcomed by the commercial and residential sectors of the property industry, and of course by developers, whose properties are worth 40 to 60 per cent less than their original value.

The country’s two largest property investment funds, Irish Life and Irish Property Unit Trust (IPUT), have seen capital values in their funds fall by between 40 and 50 per cent.

Residential sales and values have also fallen sharply since the peak over two years ago, although the property market is not completely inactive, Mark FitzGerald, chief executive of estate agency Sherry FitzGerald, said yesterday.

His agency will have sold about 3,500 homes (houses and apartments) in 2009, about half the number at half the price as at the peak of the market.

FitzGerald said that a significant percentage of the Nama portfolio – the 21 per cent of the assets held in the UK – should perform well given that the market there, especially in the south, has begun to do well. He also believes that the Government’s estimate that the value of assets could increase by 10 per cent over 10 years is a conservative figure.

Lisney managing director Peter Stapleton said it was reasonable to expect the Nama properties to rise in value by 10 per cent, although some would take a lot longer than 10 years to do so. “Quite a lot of it is agricultural land for which people paid far too much.”

Stapleton, who is vice-president of the Society of Chartered Surveyors, says that valuations will be done to international “Redbook” standards established by the UK’s Royal Institute of Chartered Surveyors.

He believed once Nama swings into action, the property market generally should start to recover, although not as quickly as after past recessions. “And the market will recover at different rates, just as all asset classes – commercial, residential and land, for example – deteriorated at different rates.”

Economist Paul Murgatroyd, who specialises in the property market, says the Government’s estimate of a 10 per cent rise over 10 years is a very safe play “but it’s not risk-free because it depends on how accurate the current valuation of the assets at €47 billion is”.

“If the property market doesn’t recover by 10 per cent over 10 years we’re all in trouble,” said Alan Cooke, chief executive of the Irish Auctioneers Valuers Institute (IAVI).

“It’s a conservative estimate. The industry would expect values to rise by more than 10 per cent, taking into account that certain properties will never recover their value,” said Cooke. This could apply to tax-driven developments built in areas where there was never much underlying demand.

He believes residential values could rise by over 20 per cent in urban areas.

Many sources in the industry indicated that a 10 per cent – or 1 per cent a year – recovery took into account the possibility that values might fall again in that 10-year period. But real estate agents do not think property values will fall much from now on.

“The general view of IAVI agents is that the market has more or less bottomed, but that it may be a year or more from around now before residential values start to rise,” said Cooke. It will depend on when banks are genuinely open for business, and mortgages are available.