Since NAMA was first mooted there has widespread concern as to whether it’s the right vehicle to deal with the banking/property crisis and whether it can succeed.  In broad terms, analysts are worried about whether the NAMA strategy and business plan can deliver over the next 10+ years  given the make-up of the portfolio (particularly given the geography of assets and the amount of land and redundant property such as ‘zombie hotels’), the extent of the property crash and its continued slide, the sums being paid by the state to the banks for their ‘assets’, the validity of ascribed long-term economic values and rent yields, and the veracity of underlying economic models and calculations.   Others question the fact that NAMA is paying a notional long term economic value rate rather than present market prices, thus second guessing the market and inflating the transfer to the banks at the state’s risk; and that to recover the state investment the property market will need to be re-inflated, which will mean the re-inflation of the surrounding apparatus of interests in banking, property, planning, and government.

For those on the Right, NAMA represents state interference in the logic of the free market, disrupting its ‘natural’ recovery by artificially controlling large elements of the property market and protecting failed developers and speculators in the short term who otherwise would have gone bust, thus blocking the growth of more resilient players or new start-ups.  For those on the Left it protects those who created the crisis but it does nothing to protect ordinary home owners who are also underwriting NAMA’s costs.  Moreover, it is employing as experts (bankers, estate agents, property consultants, planners, lawyers) the very same people who acted irresponsibly to create the bubble, some of whom are overseeing transfers from their former employers.  These experts are being handsomely rewarded for their services.  Further, NAMA is exempt from freedom of information requests and, despite managing a vast amount of state managed assets, it is particularly opaque in its operation.

Given the commentary and debate in the media, and on blogs such as Progressive-economy.ie, irisheconomy.ie, NAMAwinelake, IAN, and others, these all seem like legitimate concerns.  One more issue raised its head yesterday that adds to the debate about potentially paying over the odds for impaired assets – an assertion by Ciaran Cuffe after the conclusion of the Senead debate on the Planning and Development (Amendment) Bill, who stated that 70% of all zoned residential land will be dezoned over the next six years.  Presumably this will mean that a large proportion of the land in the NAMA portfolio will potentially be dezoned, thus rendering it worth a fraction of what it used to be worth.  Savills reported yesterday that development land has fallen 75-90% in value.  If the land is also dezoned it is likely that 90%+ is nearer the mark, especially outside the principal cities. The Savills data suggests what has long been known, that the haircut for land has to be significantly above the 50% average presently being paid.

The dezoning issues is more thorny, however.  NAMA has no way of knowing in advance what land will and will not be dezoned.  Therefore does it pay a rate based on present zoning, or does it try to pre-guess what parcels of land are likely to be dezoned, or does it work on the principle that a land asset will be dezoned, or does it try to force the planning system to only dezone non-NAMA assets?  If it pays on the basis of land being zoned and it is then dezoned then it will have paid over the odds for an asset that is highly unlikely to ever pay back the amount paid for it.  Whilst Cuffe might be doing the right thing with respect to trying to get the planning system back in order, the decision to dezone land might significantly impair the the potential for NAMA to succeed.  It’s a hell of a conundrum and in my view it needs some attention, with NAMA and DEHLG needing to get together to work through potential issues for both sides.  If its not worked out then the danger is that it’ll be the taxpayer once again picking up the tab.

Rob Kitchin

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