A welcome stimulus

 

THE NATIONAL Asset Management Agency (Nama) is the largest – and for now – the only major player in the Irish property market, which has shrunk in size and activity since the building boom peaked in 2007. The agency was set up three years ago to take property development loans off the balance sheets of banks that had incurred huge unrealised losses on such lending, and were facing insolvency. Bank recapitalisation, which has cost taxpayers some €64 billion so far, was meant to ensure that banks could start lending again: something they have proved reluctant to do for a variety of reasons.

Until now, Nama has performed the role of property manager. It was initially involved in organising the transfer of property loans from the banks to the agency, and more recently in operating and selling properties. The announcement by Nama chairman, Frank Daly, of a €2 billion investment marks a further stage in the agency’s evolution as an asset management company – that of property developer.

Nama proposes to spend the money in Ireland over four years to finish construction work in progress, and to develop new sites before future supply shortages occur in parts of the property market. Mr Daly cites Government and industry studies to underpin his claim that the agency’s investment could generate up to 25,000 jobs in the construction sector, and a further 10,000 in the wider economy. Nama’s loan portfolio has, according to its chairman, more potential than was first envisaged, and he is confident that two-thirds of the agency’s debtors have a commercially viable future.

Nama’s investment decision provides a much-needed economic stimulus to the construction sector, and a timely boost to the property market. Recent research by the Central Bank suggests Irish property prices, which have halved since their peak, may well have substantially overcorrected. The Nama chairman remains “cautiously positive” about the property market outlook.

But, as yet such relative optimism is not widely shared by those most concerned – the lenders and borrowers. Both are beset by a range of financial difficulties and uncertainties. Banks are struggling to cope with a rise in mortgage arrears among existing customers, and they fear further credit losses under the proposed personal insolvency legislation. The banks remain risk averse and are unwilling to lend. Likewise, borrowers faced with evidence of falling property prices and worries about job security are reluctant property investors. Against that bleak background, Nama’s current pilot project – albeit small – is an imaginative response to the property crash.

The State agency is offering a small number of properties for sale, with purchasers protected against price falls of up to 20 per cent for a five year period: up to 750 properties may be sold in this way.

Where Nama leads, others – in the private sector – might now usefully follow by producing some equally creative initiative to encourage buyers, and to revive a paralysed property market.

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