The Irish Times reported two interesting stories on Saturday which both raise questions about NAMA.

The first story concerned the re-valuation of two development sites.  The first site in Athlone, Westmeath, valued at €31m in 2006 has just been re-valued at €0.6m (a drop of 98%).  The second site in Sallins, Kildare valued at €17.5m at the market’s peak is now valued at €4m (a drop of 73%), holding up a little better in value one presumes because of its proximity to Dublin and its siting on a commuter rail line.  As we’ve posted previously, these drops in valuation are not exceptions.  City centre prime sites such as the 24.9 acre Irish Bottle Plant site in Ringsend bought for €412m in 2006 is, according to the Dublin Docklands Development Authority (DDDA), presently worth €50m (a drop of 87%), while its Long Term Economic Value (LTEV) is €62.5m.  The national average price paid for farmland in 2009 was €9,678 per acre, a drop of 43.3 per cent on the average price of €17,081 per acre in 2008 (and this was on top of a drop in 2008).  It therefore seems likely that both zoned and serviced development land and unzoned land in Ireland has dropped substantially in value, probably somewhere between 70-98% depending on the site and the original amount paid.  36% of NAMA’s portfolio is land, with loans worth €27.8b attached to them, and it is likely that a proportion of the ‘development loans’ category (28%, €21.8b) also consists of development land.  67% of NAMA portfolio relates to land and property in Ireland, and although we do not have details of the geographic location of all NAMA land holdings it is probably a fair bet that 67% or more of it resides in Ireland.

The value of land destined for management by NAMA then is likely to be far below the 30% ‘haircut’ the government has proposed to pay.  It is difficult to see how a profit, one of the aims of NAMA, could be made with respect to land holdings over its proposed life span unless a 70-90% haircut is applied to the original loan valuation.  It is also hard to believe that prices will rise back up to anywhere near 2005/06 prices any time soon given the grossly inflated prices paid for land at the peak of the market and the present supply of zoned land.  As Sinead Kelly has posted on IAN, land values spiralled upwards in Ireland in the early 2000s, jumping in value from just under €10,000 per hectare in 1998 to over €58,400 per hectare in 2006 (see Figure 1), making Irish land the most expensive in Europe, nearly twice the cost per hectare of any other European country and 3 times greater for all but 4 countries (Spain, N. Ireland, Luxembourg, Netherlands) (see Figure 2).  According to the DEHLG housing stats, in June 2008 there were 14,191 hectares of zoned, serviced housing land in the state that could accommodate 462,709 additional housing units (to put that in perspective, the number of households grew according to the Census by 342,221 between 1996 and 2006), and this doesn’t include other kinds of zoned land.  Which brings us on to the second story.

Figure 1: Irish Land Values 1973-2006 (€ per hectare)

Figure 2: European Land Values by Country (€ per hectare)

The second story concerned the Waterford County Draft Development Plan which went on display on Friday and proposes to rezone 70-90 percent of the 800 hectares zoned in the previous plan, bringing it into line with changed circumstances, projected population growth and national and regional planning guidelines.  According the Irish Times, one of the maps shows ‘large tracts of land, acquired in recent years by developers at astronomical prices, reverting to agricultural use.’  Such rezoning makes a lot of sense and Waterford should be commended for taking the lead, but it also raises a number of questions.  Why was the zoning in the previous plan so excessive (and likewise in other counties)?  Will such rezoning occur in other counties as they formulate their draft development plans?  How much of the rezoned land is projected to be moved into the NAMA portfolio and what are the implications of any rezoning for its projected value?  Will there be political pressure to make sure that it is NAMA land that is kept zoned to maintain some kind of value above agricultural prices?  Clearly the answers to the latter questions will have an impact on the valuations attached to NAMA managed land and need to be factored into any calculation of present and future valuation.

As these two stories illustrate, there are good reasons as to why people are concerned about NAMA and whether it will be able to fulfil its remit.  Already the IMF has noted that it is unlikely that NAMA will get credit moving in the Irish economy.  If the valuations of land and property are wildly inaccurate, and the ‘haircut’ paid by the government is in excess of the true value, then NAMA could be a very expensive exercise that the Irish tax payer will shoulder for years to come.  One can hope that government knows what it is doing, and maybe they can reassure on all the questions above, but one can’t help being worried pending such reassurance.

Rob Kitchin

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