Property investor

More credible information about the supply and demand for property may have helped us avoid the worst of the collapse, writes JACK FAGAN

SELDOM HAVE we all looked so closely into our own financial soul. The banking crisis, the recession and the collapse of the property market have altered many of our perceptions and raised doubts about all our certainties.

For investors and developers, making sense of some of the property deals concluded in recent years will be crucial to surviving the present upheaval and planning for the future. It is easy to blame the banks for throwing money at the property industry – for that is what they did – but the straight thinking, conscientious player will want to reassess their decisions and judgement. In other words, where did they go wrong and how could they have managed their exposures more responsibly.

For a start, it is unfortunate that there is no credible agency to monitor the likely demand and the rate of development in the various sectors.

The present mismatch of supply and demand has brought the industry to its knees and, as everyone knows, could take years to clear. True, the Department of the Environment publishes an annual report on the construction industry but, in truth, it falls well short of being “the Bible” for the industry.

For such a vast industry that employed more than 270,000 workers at its peak – or one in every eight of all those employed – it must be something of a surprise that it has not been more closely studied to avoid the type of crisis it is now experiencing. It didn’t require a brain surgeon to spot that there were too many new homes being developed in places like Leopardstown and Tallaght – not to mention a spate of obscure midland towns and villages where they may never be occupied.

Similarly, there was no one to tell us that the vast oversupply of office space in Dublin – the vacancy rate currently stands at a record 22 per cent – will take several years to clear and, therefore, there is little logic in proceeding with more speculative schemes. The same goes for shopping centres but at least here the anchor tenants seem to be calling the shots and refusing to open in the present difficult trading climate.

It is no secret that several provincial shopping centres which opened in recent years are in considerable trouble; in some cases because of the difficulty of holding on to tenants but more generally because of the fall-off in consumer spending and the increasing encroachment of discounters Aldi and Lidl.

For all the mistakes that were made in the building of houses and shopping centres, perhaps the worst miscalculations occurred in the development land area where values went through the roof during the boom period for no reason other than competition from syndicates and individual developers enjoying the wholehearted support of their banks. Once the banks backed the plan, then they were convinced that it had to work out, or so they thought. Like hell it did.

Bankers, generally, have skills in the money markets, interest rate trends and even bonus procedures but, by and large, they know precious little about how the various property sectors function. Otherwise they wouldn’t have got it so terribly wrong.

In fairness to them, few people could have foreseen that the value of some sites in the Dublin area could fall by at least 50 per cent. It has been even more catastrophic in provincial cities and towns where values in some cases have dropped by 75 to 80 per cent.

While many of the developers and investors will be happy to see these toxic loans transferred to Nama, they don’t like to be reminded that, come what may, they will still have to repay the borrowings.

These obligations will obviously make it extremely difficult for some developers to embark on large projects in the future unless they are lucky enough to own other valuable assets. All the signs are that it is going to be a tough few years for all concerned.