WITH the Government intent on pressing ahead with the National Management Agency (NAMA) to take control of €90 billion of bank property assets, several key questions still remain to be answered.
Perhaps the most pressing of these is how to value those assets without destroying the market in the process?
One of the real dangers at present is, because of the absence of any real demand in the market for properties or land, using conventional market values could be a disaster for the sector.
Chartered surveyor Conor O’Brien, who has been involved in the market for many years and is familiar with the Berlin bubble, warned if NAMA goes the market value route it will “be lights out for the sector for decades to come”.
In a small, fragile, open economy a wrong move in dealing with banking and property could delay recovery for 10 to 15 years, O’Brien warned.
He makes a case for looking at asset values for properties that are already built.
This would result in less severe write-downs and would, in his view, be a fairer way of trying to put a realistic value of what a building might be worth.
He claims if we go the market route, then the write-down in values on the banks’ books and the implications for developers could be massive.
In short, however, there is no simple answer to this conundrum.
The Government had to act, indeed was requested to act, by the banks in the first instance when they put the guarantee in place.
In Dublin yesterday, in an address to the Construction Industry Federation, the chief economist with the Economist Intelligence Unit, Dan O’Brien stressed the importance of outsiders being brought into NAMA.
In his view, that outside presence will be critical to how the new ‘bad bank’ is configured.
It is vital that jobs be given to those who are not close to the powers that be if the situation is to be dealt with honestly and realistically in his view.
Calling for calm in the current difficult circumstances, O’Brien said the circumstances surrounding the meltdown were unprecedented and governments and others around the world have to deal with this crisis on a trial and error basis.
Within banking a huge concern is the uncertainty of not knowing how the valuing process will work out eventually.
That unknown is actually affecting lending by the banks, which are afraid that good loans could be swallowed up in NAMA within months of being issued.
This concern has been expressed directly to this paper by a leading banker instructed to put a substantial loan on hold by head office, despite the undisputed merit of the multi-million euro loan and the track record of both the banker and the client involved in the property deal.
The bank’s concern was the loan could or would get sucked into NAMA within months.
That is just one example of the uncertainty surrounding the proposed toxic bank.
O’Brien’s argument is that if those rules are applied it will put such low valuations on the entire sector that it will increase the problems in the sector even further.
As we are all painfully aware, we are in a pretty fragile state at present Mr O’Brien openly questioned our ability to pay our debts in the future at a briefing for the construction industry in Dublin city yesterday.
Too sharp a write-down in property values at this juncture would impoverish the nation even further and weaken the banks to the point where outright nationalisation might be the only option left open to the Government, which is not what it wants to see happen.
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