Nama – the largest property owner in Europe – looks set to start selling its assets, but will it allow them to be sold below the buy-in values?

WHILE the formation of the new Government will raise hopes of some easing of the turmoil in the banking sector it is another thing altogether to expect the new administration to get the property market moving again.

Everyone knows that since the property bubble burst there has been a steep correction in values, but even with prices back anything from 50 to 85 per cent over the past four years, there is little evidence that either the residential or commercial markets have bottomed out. Realistically, that might well have happened over the winter months but for the long period of political instability allied to the deep economic crisis and the absence of debt finance.

In the meantime, professional valuers engaged by Nama have been scouring the country, inspecting development sites which have landed the developers and their bankers in deep trouble. No one is yet admitting it, but a great many of the very expensive provincial sites – in some cases costing several million an acre – will probably revert to farming use by the time this exercise has been completed. However, as a large proportion of the overall landbank has development zoning, the valuers are assiduously seeking out evidence of other land sales in recent months. It’s not easy to find precedents as sales have been few and far between. In some cases the “benchmark” prices cited by estate agents are at best perfunctory. We don’t have a functioning market to provide a reliable estimate of values. By now it must have dawned on Nama that buying some loans on development land at discounts of up to 50 or 55 per cent may prove to have been on the generous side. The recent sale of a housing site in Carrickmines at a discount of 85 per cent must have sent shivers down the backs of Nama executives. If a top class site in south Dublin could be so heavily discounted what write-down in values will have to apply in places like Portlaoise, Portarlington, Portumna or even Pullathomas.

The fact that there is a large number of new and second hand-homes overhanging the market and that the issue of ghost estates has not yet been satisfactorily dealt with continues to undermine confidence in the housing sector. The forthcoming auction of “distressed” properties at rock-bottom prices by British auctioneers Allsops and Dublin estate agents Space may well shine a light on future trends and values.

Up to now Nama has been preoccupied with valuations, business plans and crunched credit markets . As the largest property owner in Europe it is obviously keen to get a move on with the sale of assets at a profit. A disposal programme is already under way in the UK and in due course, obviously, the same will happen here.

The new Government will be careful not to undermine the good work already done by Nama but like everyone else will want the sales to proceed now that the first three blocks have been sold to Google. In spite of the credit squeeze there are any number of buyers willing and able to take on some of the Irish investment properties held by Nama. It hardly makes any sense for the State asset manager to hold off any longer , particularly as receivers for non-Nama banks are due to bring a range of development sites and other properties to the market in the coming weeks. Overseas investors who have already shown up in the Nama offices in the hope of picking some of the low-hanging fruit have been told to hold off as in time they will have an opportunity to bid against others for the desired properties.

But, waiting for the action to begin, they could hardly have missed the signs of falling rents which are diluting capital values in Dublin and elsewhere. The other issue is whether prices will fall further if bank credit becomes even tighter. All this must prompt the new Government to enquire as to whether Nama is prepared to allow assets to be sold below the buy-in valuations. To do so could obviously undermine its own balance sheet and possibly scare off investors worried about values falling even further.