An Saoi: I have refrained from making any comment on the Commission on Taxation Report to date, mainly because of its lack of any new content and silence about many issues, in particular VAT and property-based incentives. We now know why they ignored the property tax incentives - the Government’s NAMA plan is dependent on the re inflation of the property bubble.
Rónán Lyons of Daft in an analysis of NAMA points out that rents are continuing to fall. His earlier work, the Daft Rental Report for Quarter 2 2009 showed the degree of the fall and also suggested that there was no sign of it reaching a floor. Any Government Minister who bothered to leave the bunker and take a stroll around Grafton St and surrounds would see the effects of inflexible rents described recently in the Sunday Business Post.
The developers also seem happy to put it up to State and NAMA. Real Estate Opportunities (REO) announced that they intend to go ahead with the development of the Ballymun town centre (to be called Spring Cross, not Ballymun) and are pressing for huge loans to commence the project next year. Now REO itself is hopelessly insolvent and intends as part of this project to add 35,000 sq m of office space to an already oversupplied market, 60,000 sq m to North Dublin, which already has a surplus of shops and 360 apartments to an area where there are thousands vacant. Now this company has debts of over €1,700M on its balance sheet at 30th June and wants NAMA to pony up another €800M! A quick look at their interim accounts to June 2009 paints the picture.
Dermot Ahern announced recently that he was not now going to ban upward only commercial rent reviews. This again is another part of the vain attempts to prop up the silly levels of rents. Commercial rents need to fall dramatically, at least 20% to ensure retail businesses survive and perhaps by 50% to enable the retailers pass on meaningful price reductions to customers. Rónán Lyons' piece in Friday’s Irish Times explains simply as to how rental changes influence valuations.
Apart from the dud loans the State has already agreed to take over, it appears that NAMA will be expected to produce money to complete half-finished projects. NAMA also parks approx. €13,000M of small developer/builder/speculator loans, which remain with the banks. It also leaves the residential landlord outside the tent. They account for approx. 20% of mortgage borrowing or around €30,000M of total mortgage debt. We can only presume that the banks will be back to get help with those also, particularly as the tenants continue to disappear.
Banks, builders and their shareholders have successfully transferred all their risk to the rest of us and we will pay for it for the next fifty years.
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