NAMA Part 1: The Christmas gift from the Irish taxpayers to the super wealthy and vulture funds

Rory Hearne: Tis the season for 'good will' and 'giving' and all that but NAMA is giving away too much from Irish taxpayers to property vulture funds and speculators. Last week NAMA outlined how it intends to provide 20,000 ‘starter’ homes by 2020 and invest €1.9bn in Dublin’s Docklands. But these so-called ‘starter’ homes will be sold to the international vulture funds who currently see Irish property as the ‘hottest’ investment in Europe. NAMA actually has the land and finance to provide 50,000 homes over the next decade. The Minister for Finance should order NAMA to move away from speculative office and residential development with global financial investors to focus instead on providing affordable housing.



We are in the midst of the worst housing crisis in decades with over 100,000 on social housing waiting lists, a mortgage arrears crisis and on-going issues of lack of affordability of rental housing and home ownership for families. This is on top of the horrendous homelessness crisis where 1,500 children are living with their families in unacceptable emergency accommodation and 70 to 80 new families are becoming homeless every month. Yet we have the illogical situation where our state agencies and government policy are encouraging the sale of much-needed housing and land to international speculative financial investors and property developers.

Let’s be clear. NAMA’s 20,000 housing units will not be affordable housing for young couples. They are to be sold on the basis that they are “commercial ventures…designed to maximise the return to Irish taxpayers on NAMA’s secured assets”. This follows NAMA’s current (government supported and mandated) roles to achieve a maximum commercial return to the State through optimising the ‘income and disposal value’ of its assets and to ‘sustain the strong performance of the Irish property market’. But maximising ‘ commercial return’ means selling to the highest bidder (which is likely to be wealthy foreign investors who can pay much higher prices than young Irish couples on average wages) at what is likely to be a very ‘unaffordable’ price.

So NAMA is actively trying to increase prices in the Irish property market in order to maximise its commercial return. A key way to do this is by attracting in international finance which can pay more than Irish first-time home purchasers. In fact, NAMA is actually arguing that prices need to rise further in order to attract in further foreign capital into the market. Frank Daly, Chairman of NAMA has stated on the record that “many of those who are interested in buying development land in the Dublin area at the moment will have rate of return targets of 15%-20% and realistically those targets are unlikely to be met unless market prices rise significantly from current levels”.

But it’s not just NAMA that is encouraging the global investment and vulture funds to buy and up and finance Irish housing and office development. Tax breaks were given in the 2012 Budget to Irish-based real estate investment trusts (REITs) which include large international property investors like StarWood Capital Group (see Image 1), UK-based Barclays bank and billionaire investors like George Soros. The Government also recently established the Ireland Strategic Investment Fund (with €7.6bn of our National Pension Reserve Fund) which has partnered with, amongst other investments, KKR Credit, a global investment firm to finance €500million new private housing development in Ireland.

No doubt encouraged by all this promotion of the Irish property market, the US private equity group Lone Star, has bought a portfolio of Ulster Bank loans, in partnership with Irish property group Cairn Homes including 1,700 acres of prime residential land in Dublin.

This process is a further deepening of the financialisation of the Irish housing and property market, and particularly, an increasing foreign based financialisation of property. It is worsening inequalities in the Irish housing and property system whereby finance is provided to enable the fast delivery of huge developments of high end offices and apartments while there is no delivery of much needed social and affordable housing. Of course the former provides a high return to those who have massive wealth while the latter is just for those with no wealth and low incomes. Just contrast the fast progressing development in the Docklands of the ‘SOBO’ development by Hibernia Real Estate Investment Trust with the delayed Dublin City Council St Theresas’ Gardens social housing regeneration project in Dublin.

Image 1.

Image 2.

Source: R Hearne (Taken November 2015)

The 2015 PriceWaterHouseCooper Global Real Estate Index (see link to report here) highlighted that Dublin, in particular, is gaining “heightened interest as a property investment centre, particularly from foreign investors”. Figure 1 below shows how it was ranked the second best European city for property investment in 2015.

The report notes that global sovereign wealth funds and institutional capital investors are looking for “new opportunities to achieve better returns” and “to preserve and create new wealth.” The report also notes that property price increases are likely to continue as “office rents and values …still have some way to go before they regain their pre-crisis peak.” This is what makes Dublin and Irish property attractive: the likelihood of rising prices. So all this activity that is bringing in foreign investment is driving up prices and also locking in the necessity for rising prices into the future. The report also warns that this flooding of investment into property is likely to cause more property bubbles in coming years. That should ring some alarm bells for policy makers in this country. Attracting in high-risk, high-returns, chasing investment is not the foundation for a sustainable and equitable housing system.

Figure 1 The top European Cities for property investment, 2015.
Source: PriceWaterHouseCooper, 2015

This means housing will become even more unaffordable in Dublin and across the country. It will entrench the growing inequalities within our housing sector. This is bad news for renters and those seeking to buy a home. It is also bad news for the 50,000 home owners in arrears facing repossession and the 30,000 private rented buy-to-lets in arrears. Because as prices rise the banks and the vulture funds who have bought the loans covering these properties will try to evict home owners and private tenants to enable them sell and take advantage of rising prices.

There is also a need to challenge the apparent consensus that it is a ‘good thing’ that NAMA is selling off its assets and paying down its debt quicker than was planned (it aims to have all the senior debt repaid by 2018). It is being sold as a good news story because it ‘deals’ with the problem of the toxic loans and even returns a €1.75bn ‘surplus’ to the tax payer by 2020. This is why the consensus view is wrong. The Irish taxpayer is actually losing multiple times. We are losing billions from the sale of massively discounted assets, losing from the higher prices from foreign investment, and losing the potential to use these assets to provide a social return over the longer term through the provision of social and affordable housing.

There are further unjust and unequal aspects to the current homelessness and housing crisis as it results in large part from the very austerity that was required to pay for the bank bailouts and the losses from the toxic developer’s loans transferred from the banks into NAMA. The cuts to the housing budgets resulted in the loss of 25,000 social housing units that would have otherwise have been built between 2009 and 2014.

And, through NAMA as it is currently operating, the Irish tax payer continues to pay for those losses from the crash. NAMA had over €70bn worth of assets transferred into it and is selling these off at a significant discount resulting in considerable losses to the Irish taxpayer. The sale of NAMA loans and assets must be suspended. At the moment it is providing super wealthy investors the opportunity for massive wealth accumulation. They gain from escalating rents and house prices as they purchase NAMA land and assets at a discount and then sell them on for inflated prices.

For example, it is selling the Elm Park development in Dublin 4 for €185 million which is a 66% discount or loss of €365 to the Irish taxpayer on its original loan value. Another stark example of who has benefited from the crash is Lone Star the aforementioned investment fund which has just bought (as a minority partner with Cairn Homes) a portfolio of Ulster Bank loans including 1,700 acres of prime residential land in Dublin to add to the other Anglo and AIB loans and real estate it bought at discount from NAMA.

Lone Star is a €45bn fund which is owned by a ‘Texan private equity tycoon’ John Grayken who became an Irish citizen in the late 1990s. He is the fourth richest person in Ireland according to the Sunday Independent Rich List 2015. They state that Grayken made his fortune by making up to 20% return on his investment in ‘buying distressed assets in bombed out economies and flipping them as markets improved’. NAMA is giving Grayken and other super wealthy investors another opportunity for massive wealth accumulation. They gain from purchasing NAMA land and assets at a discount and then selling them for higher prices and they gain from the escalating rents and house prices. They are making hundreds of millions in ‘super profits’ on their investments. For example, it was reported that Blackstone, the world’s biggest private equity firm, made in the region of €40 million profit from the sale of buildings it bought in Dublin’s south docklands from NAMA. Similarly, it has been speculated that Cerberus, the US company that bought the controversial Project Eagle loans from Nama could make a few hundred million in profit on the transaction. These profits don’t come from thin air –they are being paid for by the Irish people through the on-going repayment of the bailout debt and escalating rising rents and house prices. And we wonder why inequality and the housing crisis are worsening?

Part 2 of the blog post will be published tomorrow and it looks at possible ways that NAMA could be redirected to address the housing crisis.

Some useful references for further reading on this:

Dr Mick Byrne has excellent research: Link

Prof Michael Aalbers, What is Financialisation and How Does it Relate to Housing. Link