Taxpayers will have a bitter pill to swallow
The level of prices and rents applied to determine the valuations “were inflated and geared up by the ease of access to funds”.
The report pulls no punches and makes the point that using the comparable method of valuation on its own could be misleading if the market was in any way artificially inflated. In addition, the method did not allow the valuer to accurately reflect inducements such as rent-free periods and fit-outs at future stages in the life of the investment.
The report warned also that “a review of valuation practices” was more essential than ever within the auctioneering industry.
It said also that in recent years the number of chancers (“unqualified people”) involved in the valuation process was far too high at a time when greater caution was required.
As a result in a growing industry there were too many under-qualified and inexperienced auctioneers who were providing valuations of properties for secured lending purposes that were totally out of touch with reality.
Such valuations ultimately relied exclusively on comparable data which simply was too lax in the heady market environment of the time.
Rooney argues in its report that a much tighter method of valuation is needed to meet a radically changed market.
They are pioneering the ARGUS system which permits them to project market rates in uncertain market cycles, something they claim is vital in today’s climate.
This might sound dismissive but it looks like the Rooney method is arriving about a decade too late for the lunatics that have been in charge of Irish property and the banks.
As a result of what has gone on in the sector we know now the National Asset Management Agency is faced with the dilemma of having to put a true worth on how to value those same assets the banks so nonchalantly lent against in the past.
It’s beginning to become obvious that many of their clients were into as many as a half dozen banks who lent against land and buildings not worth a fraction of what they were before the crash.
Whatever the valuation method used, one thing is certain, if the state was to insist on it the value of assets would have to be knocked down by as much as 80%.
That’s especially true for assets located outside the greater Dublin area.
If NAMA was to go that route it would wipe out the assets of the banks and as Conor O’Brien, a chartered surveyor and property consultant warned recently, if we were to go that route “it would be lights out for decades to come” because it would mean NAMA, and by extension the taxpayer, would be left with pretty worthless assets for years to come.
As O’Brien sees it, the statement by the Finance Minister Brian Lenihan that he is moving away from the market valuation approach regarding the €80bn to €90bn of bank assets that will transfer over to NAMA for the Irish banks as a highly positive development.
While many would dearly love to see the banks and the developers take the full brunt of their excesses the bottom line is that we as taxpayers will get sucked into that backlash as well.
It’s a case of having to “muddy the waters” a tad at this stage so that we can eventually manoeuvre our way out of this awful mess.
Such an approach will offer some hope for the banks and the property sector, but going the other way will just make an awful situation simply worse than is already the case.
