May 11, 2009

Exposing the lie of the land

Posted in Debt · 125 comments ·
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Take a long look at the chart below. Digest it. Maybe look again if you have to. This happened in the most sophisticated economy in the world.

This is what happened to the price of development land in Japan. Prices roared upwards and then collapsed, ending up below where they started at the beginning at the boom. This is likely to happen here; development land is likely to settle back to 1996 prices. We haven’t seen the half of it yet. When we hear some property lads talking about green shoots, this chart should be enough to tell them to snap out of it.

But we can’t seem to snap out of it. We are still caught in the trap. We seem to believe that the price of houses and land will miraculously rise again some time soon. This will not happen. It can’t and shouldn’t. In fact, houses prices are likely to fall another 50 per cent from here before we see anything like the bottom.

International comparisons bear out these forecasts. Until now, many Irish people have clung to the myth of what I call ‘Dunnes Stores economics’. You know it: it is the school that suggests ‘‘the difference is we’re Irish’’. Well, the bad news is that being Irish makes no difference at all. It offers no protection. What happened to the Japanese will happen here and, in terms of the recovery, the sooner the better.

I came home last week having been making a documentary since late February in the US, China, Iceland and Australia. In all these countries, property prices have fallen, but in no country did they ever get as high as they did in Ireland.

In the US, I went on a repossession bus tour, where houses were being sold at between 50 per cent and 30 per cent of their peak value. In Iceland, we saw failed banks sell off their portfolios at even bigger discounts. The original loans in hard currency will never be paid back. Last Wednesday, I was in Perth in Western Australia, where property prices are falling.

Even taking into account the fall in Irish property prices in the past few months, property in Perth is still twice as cheap as it is in Dublin – and Australia is not even in a recession yet.

The paper on the plane home, specifically the Irish Times’ property section, made for depressing reading. Not because prices had fallen, but because they hadn’t fallen half enough. We are still fooling ourselves. Irish property prices are still criminally high. Can people not understand that it is over?

Irish property, like Japanese property in the 1980s and 1990s, will take decades to recover – and will only do so after years of consecutive falls. How much more evidence do we need to conclude that the spin we were sold of the immutable triumvirate of banks, credit and property was a sick joke?

The question of how low property will go is not just a matter for people who are selling or buying, of how much equity we have or how much we owe. Given the establishment of the National Asset Management Agency (Nama),the price of property affects everyone, even those who never got involved.

This is why, according to the Japanese example, if Nama is going to buy property assets, it needs to buy them at a 70 per cent discount from their peak market value, to make sure that it is not bailing out banks. Anything less than a 70 per cent discount and the taxpayer will be subsidising bank shareholders. This is hardly fair.

So how low are prices likely to go? The best way to answer this crucial question is to start with the premise that the age of property speculation is over. There can be no more ‘hope value’. There can be no more belief in the notion that there will be a big capital gain in buying a property, any more than there will be capital gain in buying a sofa.

The value of the asset will have some relation to the yield the asset returns. In houses, the yield is the rent. In the US, a house was traditionally valued at some multiple of the rent it generated. Typically, the value of a house was calculated at 12 to 14 times its annual rent. This relationship has held in the US for over 100 years. There is no reason to believe that this shouldn’t be the way to value Irish houses.

This is a normal price/earning ratio that we would use in the stock markets to assess value. What the US valuation model is saying is that, over time, property should trade on a price/earnings (P/E) ratio of 14 times.

So, let’s see where Irish houses will end up. Take a typical house in a commuter town. On daft.ie there are hundreds of them. For example, in Newbridge, Co Kildare, you can buy a new three-bed house for €335,000.This is a steal, according to the ad. A bank will finance this for €9 95 per month.

According to the same website, the average rent for a three-bed in Newbridge is between €950 and €1,000 a month. This house, if it can be rented, will yield €11,400 a year. This implies that, applying the US valuation to the asset, the house should be valued at €159,600.However, in Ireland, we are expecting the house to sell at €335,000.

The Irish house, at a ‘bargain’ price of €335,000, is still more than 53 per cent overvalued. It will have to fall by half again to make the sums ad up.

The real fair value means that, in a world where house price speculation is over, Irish house prices will have to fall on average by 50 per cent from where they are today to be worth buying. Madly, even after a year of house price contraction, the P/E for the average Irish house stands at over 29 times – twice the historical average for property.

So, let’s snap out of it. Why can’t we just mark down prices to where they should get to, take the bankruptcies and move on? Why should we be any different in coming to terms with the new reality?

Maybe Dunnes Stores was right all along. Maybe that’s the reason. Maybe ‘‘the difference is we’re Irish’’.


  1. G

    “And the truth shall set you free”

    It takes a while for the penny to drop but it is slowly happening, I believe the consumer is aware of the game, thanks to articles like this, people I know refuse to buy because they know it is an uncertain/volatile time and a changing market – most will give it a year before they will even consider buying a place. With massive job insecurity, rising unemployment etc, many are holding back, and considering their options – that is what I counsel.

    Obviously those with a vested interest are doing their level best to keep prices inflated (in connivance with government) and trying to go against market forces – I personally believe these practices may lead to a worse set of circumstances, maybe even a UK style housing crash, which could bring us further down. But then it was ALWAYS profit before people, so no real surprise in these practices when you know how the game is played.

    In the movie, Dr. Zhivago there is a great line from Alec Guinness’ character who joins the Tsarist army in the hope he can convince the soldiers to desert and start the revolution. Guinness’ character comments that the only thing that got in the way was the ‘cursed Russian ability to endure suffering and hardship’.

    In the so called boom years (and now post-boom), it seems the cursed ability of some Irish to perpetually rip off their compatriots was the single most important expression of the ‘Celtic Tiger’ years. The slogan ‘because we’re Irish’ may not be a welcome boast in the year that is about to befall us but may be more associated with economic mismanagement, political incompetence and mendacity.

    12 more months should knock the sugar out of the greedy land merchants and estate agents. As you have outlined David (and you know more about economics that I do) economic precedent and market trends should see to them and their shenanigans.

    Disgraceful period in Irish history, “adding half pence to pence and fumbling in the greasy till”.

    To paraphrase the Upton Sinclair line – it is virtually impossible to get all those involved in ‘property’ in this country to understand the reality when their salary depends on them not understanding!

    • Deco

      G – Excellent Comment. The newly formed Irish Property Developers Federation ( a kind of a splinter from the Construction Industry Federation) has just been formed. Purpose being to keep up property prices, and put pressure on the government to deliver on the €6 Billion Builders Bailout introduced by Lenihan last October.

      The only thing preventing the Irish from reforming the system is their attachment to status, and reluctance to admit that they were stupid enough to believe the last decades lies….

      • Robert

        Deco,

        I typed “Irish Property Developers Federation” into Google and ended up at the CIF website.

        I ended up at this:

        CIF ASSOCIATIONS:

        Alliance of Specialist Contractors Associations (ASCA)

        Association of Suppliers Floor & Tiling (ASF&T)

        Bricklaying & Allied Trades Contractors Association (B&ATCA)

        Civil Engineering Contractors Association (CECA)

        Concrete Manufacturers Association (CMA)

        Electrical Contractors Association (ECA)

        Environmental Services Contractors Association (ESCA)

        Equipment Hire Association (EHA)

        Floor Covering & Tiling Contractors Association (FC&TCA)

        Formwork SubContractors Association (FSCA)

        Insulating Contractors Association (ICA)

        Irish Association of Demolition Contractors (IADC)

        Irish Automatic Sprinkler Association (IASA)

        Irish Contractors Plant Association (ICPA)

        Irish Drilling & Sawing Association (IDSA)

        Irish Home Builders Association (IHBA)

        Irish Kitchen & Fitted Furniture Manufacturers Association (IK&FFMA)

        Irish Preservation & Damp Proofing Association (IP&DPA)

        Irish Property Developers Association (IPDA)

        Irish Shopfitters Association (ISA)

        Irish Steel Fixing Association (ISFA)

        Irish Window Association (IWA)

        Joinery Manufacturers Association (JMA)

        Master Builders & Contractors Association (MBCA)

        Master Glaziers Association (MGA)

        Mechanical Engineering & Building Services Contractors Association (M.E. & B.S.C.A.)

        National Association of Master Painters & Decorators of Ireland (MPDI)

        National Association of Scaffolding & Access Contractors (NASAC)

        National Concrete Producers Association (NCPA)

        National Furniture Manufacturers Association (NFA)

        Natural Stone Association (NSA)

        Plastering Contractors Association (PCA)

        Plumbing & Heating Contractors Association (Cork Branch)

        Roofing & Cladding Contractors Association (R&CCA)

        Road Safety Marking Contractors Association (RSMCA)

        Roof Manufacturers & Suppliers Association (RM&SA)

        Sheet Metal Manufacturers Association (SMA)

        Soil Recovery Contractors Association (SRCA)

        Structural Steel Manufacturers Association (SSMA)

        • Deco

          I am rolling around laughing here. The old joke that “the mafia came to Dublin, but they had to go home to Sicily, because the competition put them out of business” applies. Now we know the CIF.

          The CIF are a kind of an IBEC for anything that can be stuck into a residence. I bet they are subsidiary to IBEC as well. No mention of auctioneers, solicitors, architects, etc.. They are obviously too well represented by their own lobby groups. And anyway they have contempt for the CIF, because the CIF is full of people who get their hands dirty. Oh yeah. Being able to get a salary without getting your hands dirty has important social status connotations in Ireland.

          And of course we have “Honest Tom”. Plus the annual jamboree in Ballybrit. I think they should have mentioned their connections with the Financial Regulator and the Bankers Federation – who are also an essential part of the story !!

          • Robert

            Oh yeah Deco – the snobbery is very much alive and well. Even among the associations “associated” with the CIF!

            I mean . . . . Why would you join the Irish Window Association (IWA) when there is a Master Glaziers Association (MGA)??????

            Tired of being a member of the “Natural Stone Association (NSA)”? Why not join the “Concrete Manufacturers Association (CMA)”?

            My favourite is the “Mechanical Engineering & Building Services Contractors Association (M.E. & B.S.C.A.)” . . .. WOW ! What a title!!
            They have letters after their name which just happen to resemble university qualifications like M.E. and B.Sc. There was I – like a fool -spending years studying for my B.Sc. when I could have just joined them instead!!

            Jokers!

          • wills

            how about the ‘sprinklers association’ for god sakes;;;;;;;;;;;;!!!!!!!!!!!!!!!!!!!!!

          • Robert

            Sorry wills – How could I be so blind??

            Ha Ha – The sprinklers association – In a country where it pi**es rain 350 days a year!!!!

          • Robert

            What was Tom Parlon thinking when the “Irish Association of Demolition Contractors (IADC)” rang up looking for a chat?????

        • Tim

          Robert,

          A bunch of developer Qangos? Is that right?

          What a load of…………???£$$^&^&)_

        • wills

          brilliant post robert. Holding the POnzi Rep up to the light for what it is.

        • hahaha my favourite is ‘Irish Automatic Sprinkler Association (IASA)’

      • René

        Wow, I think your comment: “attachment to status, and reluctance to admit that they were stupid enough to believe the last decades lies” hits it on the nail. We can all do with a much needed reality check of our future and we better accept it now .

      • G

        @ Deco – thanks for your comment.

        As for this new association or whatever the hell they think they are – they’ve made their idiocy and greed official, with its own organisation, logo and probably with slogans like Operation Irish Property Freedom. You know the old Orwellian double speak is needed now more than ever.

        Look, these guys are all cut from the same stone and are probably more at home in the Pentagon or a nuthouse. The flood of the soon to be ‘property collapse’, should carry them all away, and banish bulls**t property conversations from the dinner table (and hopefully be replaced by art, music and type of society we want to leave behind us).

        Once this has happened, the fangs will retract from the voracious and we may see some good, decent people on the scene, with the better Irish characteristics coming to the fore: our warmth, sincerity, humour, bonhomie, consideration for the neighbour, for the less well off – I certainly hope so.

        Someone cracked a joke that demolition will be the growth business over the next year or so, removing those empty building estates and ‘grand’ towers heralding ‘the new experience’, ‘the world of the future’ nonsense. It’s back to the future we need to go.

  2. Garry

    David is a voice in the wilderness, pointing out the real value of houses……and the real cost…

    When you look at things this way reading the Sunday papers is an eyeopener …. the business sections are where the action is. On the front pages, its all wishy washy; whether about aspiring models wanting to make a difference or concerned social parners making difficult choices in the national interest….

    In the business section the reporters are not that coy; the grasping, threats, thievery, shafting and jockying for position are all part of the game and are reported on.
    1: http://www.tribune.ie/business/news/article/2009/may/10/irish-subprime-loans-selling-for-30-cent-in-the-eu/ Sub prime lenders are selling on debt for 30c in the euro. Now I’m sure everyone reading this blog knows what this means but tell your friends. Bankter A is selling Mr. Byrnes mortgage on to Bankter B at a 70% discount and writing it off. If Mr Byrne had a mortgage of 300k, Bankter A will take 90k as payment from Banker B… BUT Bankter B is free to chase Mr Byrne for the full 300k. Another example of the system being bailed out and rigged to suit the established players. Even when the debt is written off the effort is there to pretend that price hasnt fallen, and to keep the little guy on the hook. No chance of them going to Mr Byrne and saying… Give us 90k, we’ll call it quits.
    2: http://www.tribune.ie/business/news/article/2009/may/10/tom-parlon-nama-must-not-undermine-the-property-ma/ Tom Parlon, fluffing for the CIF, calling for further rigging of the property market to benefit the established players… He even has the brass neck to call to incentivise ‘experienced’ developers to do their magic, Apparently, this is rocket science and we can only hope these supremely gifted people stick around and stay motivated!!! Unbelievable…

    The consequences are in the same papers, but cant be confined to just the business sections, they have spilled over….
    http://www.independent.ie/business/were-in-danger-of-being-left-in-soviet-time-warp-1734566.html
    http://www.tribune.ie/business/article/2009/may/10/paddy-kelly-secures-new-funding-from-anglo-irish-t/
    http://www.independent.ie/national-news/8364118m-bill-for-renting-from-rich-1734468.html
    http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=IRELAND-qqqm=news-qqqid=41653-qqqx=1.asp londis deciding the best way to compete is deal with a british supplier.

    All our money and effort is on trying to sustain the unsustainable, propping up the market, keeping prices high…This will fail, but only after condemming more generations to debt slavery and destroying jobs and competitiveness.

    Competitiveness is not just a problem for the workers of Dell, Intel, Kingspan etc., something to be preached not practised by the social partners no matter how much they want to pretend otherwise. When our Taoiseagh is paid more than the British Prime Minister, our central bank governer even our army chief paid more than theirs, all the way to our qango pseudo CEO’s, regulators, public servants, teachers, nurses, gardai etc then we are not competitive. When its cheaper to go north for groceries, hardware or dentistry we are not competitive… When its cheaper to rent or own a property almost anywhere else than in Ireland, then we are not competitive.

    So we must restore competitiveness on what we can control, we must call in the debts, sweat the debtors and their assets. Get to the bottom quickly, to hell with the consequences…..from there we can start looking up. A new generation will emerge, take on and beat the incumbents who flew too close to the sun.

    But thats what the incumbents at the Law Society, IBEC, ICTU and Leinster House are afraid of…change… If these guys were rewriting Greek mythology, Icarus would’ve had a soft landing and lived off the rent on his broken wings.

  3. gadfly55

    Bravo, bravo, David, now you are talking. The country is in total denial with the Euro election and locals showing how these fools can’t stop talking the way they have been thinking for the last 30 years. There is a long way to the bottom, and NAMA is the biggest con going. The banks must be nationalised now. Spell it out, and keep repeating it. Thank you for looking at the rest of the world and telling us like it is.

  4. G 1 ……..’and prayer to shivering prayer until you draw the marrow from the bone ‘…..Ouch !

  5. gadfly55

    This crisis demonstrates that cultural learning/conditioning counts for more than numeracy and rationality in determining the ways to escape and recover. We will be revealed in our deficiencies clearly to the entire world for exactly what we are, deluded and maniacal, with huge elements of hystericia bordering on collective fantasy. Away with the fairies, on moonshine and mushrooms, and isn’t the craic great, it’ll be all right when we are all singing the Patriot’s Song.

  6. pk

    I think it is also important to note that rent rates are also contracting. So that we are actually chasing moving target with that P/E ratio…

    http://manyeyes.alphaworks.ibm.com/manyeyes//manyeyes/visualizations/rate-of-change-in-rents-by-county-ir

    • This point can’t be overstressed. If the huge increase in rental properties were to cause rents to fall by 40%, that would make David’s argument even scarier.

      Rents have already fallen almost 20% since their peak just a year ago, and look likely to fall probably the same again between now and mid-2010, so the only question is whether you believe Ireland’s property market will revert to P/E ratios similar to those David outlined.

  7. severelyltd

    You have articulated what everyone knows in their gut but is afraid to admit. Things are going to get a hell of a lot worse before they get better. I am a prospective buyer ,one of the people you said that needs to be spending their savings to boost the economy. I fear buying now more than I ever did. What I want is transparency where actual sales prices are public knowledge. I want value ,not indentured slavery to a bank. I want to live near where I grew up , not in some godforsaken hellhole and in the middle of nowhere with a 2 hour commute.
    Realistically the quicker prices hit bottom the quicker things will improve, but NAMA is designed to fight this and artificially stabilise prices at taxpayer expense. History has proven that interference in a free market of this scale will only backfire as it scares prospective buyers like me away from the obvious government endorsed bank Ponzi scheme. Do they really think that people are that stupid? The 3 bed semi example will be on Sale in 3 years time for 70K, mark my words. Having though about it though I may buy sometime in the distant future when I see the Germans that left west cork in the 90′s return because its cheaper to buy there than in Germany. The government are the drunks at the party that don’t know when to leave. They need a dose of reality for them to see the error of their ways. Role on the elections.

  8. René

    I moved from Holland to Ireland with my family in 1990 when we noticed that Ireland is getting better economically (1990 worldcup) and also for family reasons. (wife is Irish) In Holland we owned a house 20 miles from the capital in a small town worth £50.000 in 1990. Then we packed up and sold our house to start a new life in Ireland. We then decided to buy a similar property in Ireland for £54.000 also in 1990. The property is in similar size town and same distance from the capital and also at the coast. However, the property in Holland was located in a town with all the necessary public amenities you could imagine, shopping centre, cinema, several primary and secondary schools, several soccer/sport clubs, public transport, medical services, youth facilities, playgrounds, etc. It is impossible to compare the public amenities we had in Holland with the one in Ireland.

    All those years I’ve wondered why our new Irish property is more expensive considering what public amenities there are in this Irish town. I still haven’t found out why, apart from the fact that property ownership is the preferred option for accommodation, and therefore similar Irish property can be more expensive than on the continent. Since the early 1990 I’ve been gobsmacked by the ownership obsession but I was glad after all to see that the value of our Irish property went up so high due to our own foolishness. My three children are now adults and (maybe) unlike other parents I’ve discouraged them from buying property in Ireland.

    I agree with the points in this article. However in addition to what is said I think the (job) security, the poor local amenities in small towns, infra structure and the acceptance of a nomadic working life among young people may be an important factor in property prices going down even more than the 50%. I also think that after we’ve hit rock bottom people come to realize that Ireland is in fact an ideal place to live because of the mild climate and unlike other EC countries there is very little or no social unrest among minorities in Ireland. This will then bring certain qualities of life again which makes Ireland a very attractive place to live and to buy property. We just have to be patient.

    • Interesting personal angle, thanks René.

    • Deco

      Ren̩ Рinteresting perspective. I was in Germany a few years ago, and walking around a small town with other Irish people. As you say there were amenities. A ice rink. AstroTurf. Swimming pool in a town nearby. Train commuter link. Medical centre. etc.

      We were walking down the street, on a Tuesday night. And then an Irish woman starts complaining. “This place is dead. Nothing going on here. Nothing. I would hate to live here. There is nothing here. It is so dead”. I knew well that she wanted pubs. She wanted pubs and crowds like Temple Bar. Inside I was burning to say ‘idiot’. But I held my tongue. Fact is that her view was widespread amongst Irish people at the time. But instead I said. ‘Yeah, well, you know different people have different ways of living. In Ireland you only get pubs, in other countries you get other facilities’. She refuted what I had said. There were no pubs. She threw contempt on the Germans. She unleashed bile. She really started to get into a pile of abuse. Even then I could tell that she was loaded with delusions and arrogance.

      It makes an interesting backdrop to the fact that we are now begging the Germans for a digout,to the fact that ECB ‘bonds’ are all that is preventing this country from bankruptcy.

      We Irish badly need to ‘get’ responsibility. It is an amazing concept, if only it was used more frequently.

      • René

        Deco – Glad to hear that you understand. I think I know where she is coming from though. Irish pub life is unique in the world but is it is also a disappearing culture as we all know. That is what made Ireland so special to so many. I hope we will get one more chance to get it right with digout and if we get it this will be our very last.

        • Deco

          René – I think that while the Irish pub culture might sometimes appear quaint, and it can be very socialable. You are right it is disappearing. The level of trust in Irish society is disappearing. This is really sad. But it is a reflection of the “gombeen age”. Unfortunately, in it’s place we have even higher levels of excess alcohol consumption, based at home. The Irish drink culture is also very stiffling. In Ireland it has had far too much influence, and has effectively held back intellectual development. I know that is a strong statement. But I have thought it through very carefully, and I am certain that this is the case.

          Apart from that – Ireland was improving in 1990 because it was getting out of a deep hole. From what I remember, the prospects were dire. Ireland did not get out of that until about 1996. The years 1990-96 were extremly tough, and the job market was a complete disaster. People were still leaving. Ireland was generating surplus technical graduates who were being scattered all over Western Europe. Ireland also had a deep recession in 1993, and a currency devaluation to boot. This was the time when the Irish soccer team were at their peak. I think the association with Irish soccer is an urban myth. The national soccer team went nowhere after 1994, but the economy took off. [Now both are cathastrophes]. I think that this comparison might have applied to the Netherlands in the 1970s when a combination of Johan Cruyf and North Sea Hydrocarbons combined to give the Netherlands a new feel good ear. But in Ireland it was always more media marketing, than hard fact, I reckon. It gave us a temporary escape. But we still had to work very hard to get ourselves out of the mess we were in.

          • René

            Deco – I’ve been coming on holidays to Ireland every summer for a couple of weeks during the 80s.
            It was so sad indeed, not the holidays of course but to see Ireland in such deep depression and all I have to do is drive back home and all is fine.
            Year in year out.
            But believe me in 1990 there was hope (upcoming IT industry) and I did believe that hope was so strong and yes, I agree it did toke a couple more years to take off. I believed in that Irish passion that was there at the time but sadly it is mismanaged by some big players. I see Ireland as a young society that is only coming out of oppression compared to oppressive Holland with its colonies from the past where it found endless wealth.

          • G

            @ Rene – glad you raised the issue of Europe building its wealth by exploiting so called ‘Third World Countries’, the Dutch benefitted enormously from their colonies in the South Pacific, but you don’t hear that very often.

            Walter Rodney wrote an excellent book back in the 1970s – How Europe Underdeveloped Africa. He returned to his home country of Guyana and was assassinated so his thoughts obviously touched a chord somewhere.

            I would encourage all to read, first chapter a bit drawn out, but the book really picks up pace mid way through.

            For more see: http://www.blackherbals.com/walter_rodney.pdf

  9. VincentH

    The question is do you think that the three-bed you are on about will continue to yield the 950-1000 in rental income. Personally I do not see it, for that 12000ish euros works out at 30% of average income or thereabouts.

  10. Johnny Dunne

    ‘Stock of properties available for rent on Daft has more than doubled from 10,817 in April 2008 to 22,161 in April 2009’ and there could be over 250k vacant residential properties in Ireland !

    “According to the same website, the average rent for a three-bed in Newbridge is between €950 and €1,000 a month. This house, if it can be rented, will yield €11,400 a year. This implies that, applying the US valuation to the asset, the house should be valued at €159,600.However, in Ireland, we are expecting the house to sell at €335,000.”

    With an oversupply of property for sale / to let all over Ireland rentals will be going in one direction ‘down’ until we have some stimulus in the economy to stop job losses and get back to employing over 2 million people again. If this does not happen then when banks eventually force owners to put the ‘investment’ properties on the market rents could plummet to much lower levels. Given a multiple of 14 – €100k property should yield €600 per month rent.

    Could this mean some of those ‘multi-million euro mansions’ in Dublin now renting for less than €2,500 per month have an ‘intrinsic’ value of only €400kish — better not tell anyone because no one that owns a property in Ireland wants to believe this…. try it in the pub next time and see the ‘defensive’ arguments to say we have reached near the bottom because no one wants to believe it could get a hell of a lot worse if we don’t stimulate the productive economy!

    Japan has always had great international brands with huge exports from indigineous companies like Sony, Yamaha etc yet property stagnated in price for 20 years after a massive drop from the highs…

    • Dilly

      I have been in a few of these situations lately, there are many who are still in denial, and god help you, if you try to put them wise. They cherry pick the news they want to hear, picking up on the “green shoots”, and “recovery in 2011″ headlines. Then they have a go at you for bringing up examples, sach as, Japan in the 90′s, or our debt levels.

  11. wills

    David, it’s time to call a spade a spade and point the finger and declare the truth over and over and over and over and over.

    Property in Ireland is been used to destroy our community.

    Those that are carrying out this destruction are those that buy property to speculate to make money.

    Keep at it David, the property bubble must not be re-inflated.

    House price must return to a reasonable market equilibrium price as explained in your article.

    It is now a matter of our future as a society for our children.

    NAMA must not buy assets with our taxpayers cash over 30%.

  12. ste

    Another example of a house price crash is the house price crash in Finland in the late 80′s, early 90′s. In 1989 their housing bubble burst and house prices collapsed. It took around 12 years for the prices to return to were. This is a good example as it is a country that is very similar to Ireland in many ways except they took charge of the situation and pulled through it over a number of years. House prices now are still very reasonable today but the approach to housing is different than here. Many people got burned very badly and those lessons were learned.

    I agree with everything that David has said, I am not an economist but for the past year I have talked with friends I have given these examples of both Japan’s crash (and Finland) and also value of apartments being a multiple of rental income. People have been very slow to understand. If people understand it more then the crash will be quicker and we can recover quicker. If we drag this out then we’ll only suffer longer.

  13. Deco

    { The Irish house, at a ‘bargain’ price of €335,000, is still more than 53 per cent overvalued. It will have to fall by half again to make the sums ad up.}

    David – I don’t know if you ever heard the phrase -”price is a perception of value”.

    Basically it means that you saturate the target population with advertising, in order to stiffen the demand curve and make buyers less reluctant to squabble over price. Cultural mores and fashion concepts also, are influential. In Ireland over the last ten years the demand curve for residential property was very stiff. Every idiot thought he/she was getting value for money. [Strangely enough women were less likely to squable over the price of an over rated property, but desperate to get a cheaper loaf in the local shop].

    Well the media,and the lemming culture ensured that “the price is a perception of value” dictum worked so as to convince the market participants that they were getting value. Really it was a perception trick. All them ads in the IT Property Supplement etc.. convinved people that their property must be great value.

    It was completely idiotic. And now it must end.

    Price has returned to becoming a factor of demand and supply. And there is plenty of supply. And Dan McLoughlin has shut up talking about demand.

    • René

      Deco, couldn’t agree with you more. “media,and the lemming culture ensured that “the price is a perception of value” dictum worked so as to convince the market ….

      Apart from that we all needed to have that designer kitchen with granite counter top plus an American fridge that can spit out ice at any time of the day. All due to media and adversing lunacy.

      • hahaha you have it there René.. god we were such fools. Tis all over now though thank god.

        and dont you worry.. the pub culture will be back. it was born out of hardship and served more modest and humble times. it was severely wounded by the wicked witch of affluence. but we all know what happened to that wicked old witch dont we children; thats right – crushed, by falling HOUSE (prices).

    • wills

      Deco: Can i jump in there deco and just add, FEAR, huge influencing factor at play in this contemptuous POnzi property bubble. Another sickening betrayal of citizenry perpetrated on one class of irish citizenry upon another, tapping into their fear and coercing lemmings in through the banks door, over to the loan officer, signature onto the contract and debt enslavement on an asset two thirds less in value than the actual debt itself taking out in order to buy the property in question.

      FEAR FEAR FEAR used on the dopes and less confident and more vulnerable, thousands of them, all shackled to negative equity and interests rates on the way up soon,.

      DEBT CANON FODDER. Turned into this by their own. Their own people, screwing them into debt oblivion, most of them with no guile to claim bankruptcy or a bailout or to hatch another POnzi scam.

      • G

        @ wills

        Did people really have a choice, I mean say you have a baby or two (in or out of wed lock), surely you’d want to put a roof over their heads. Or newly married, you don’t want to be living with your parents – real estate agents and bankers were sitting on their arses while people who wanted to get on with their lives who wanted a humble abode, walked in and were promised the stars by snake oil salespeople.

        The game was rigged and now a lot of people are badly exposed. I am still amazed that there has been no major eruption on the streets, I mean this is a national calamity – but are these events slow burners?

        • wills

          @G: precisely my point G,.. people are under pressure at that point and good ‘ol reliable fear arouses up and good ‘ol bullyboys are ready to go and play on this to fatten up property prices to fleece these people into outrageous debts on assets not valued to market efficiently and this is a criminality enterprise made legal by our miserable cultural values,.

          It make people desperate and perpetuates the debt slave money system nicely thank you very much to sucker in the next round of debt canon fodder whose fear is dominating their decision making.

          The gangster white collar POnzi merchants are in control of the fear factor and the whole thing is rotten rotten rotten to the core, predatory lending is a nice term for it and predatory lending has done a better job destroying this community than sex abuse ever did.

    • Dilly

      Property Porn also serves to convince people they did the right thing, it stops the public from holding up their hand and going “umm I think this is over-priced”. It convinces them, that they made the right choices, and everything is just great in the world.

  14. HeavyEnlightenedOne

    Thats fine and true, but how can an average Joe admit to being ripped of somewhere close to a multiple of 2? More easily than a not-so-average-Joe, I suspect.

    Who though, is going to direct them to default, as they likely should, and likely will, eventually.

    And that is not the worst thing about all of this. The worst is having what was perceived to a intermediate dwelling in a “plan” to upgrade to a better property where one is actually happy to live forever. Instead, many are paying too much for semi- detached and terraced housing, in areas which will become modern slums – devaluing it even more and even in better times.
    How “depressing” will that be, for even the best of us who have a moral position with regard to defaulting on anything.

    Like the stock-market, an amateur shouldn’t dabble and really expect to win consistently.

    Its too simplistic to view it as greed, as we’re all greedy and its the nature of all successful animals. Its more like chemical hysteria facilitated in full, by the Banks, the “Government”, and this primitive remit. Maybe a good Doctor could have detected it, and inoculate against it – but the good doctor could hardly assess himself, by the looks of it.

    Human B.S.E. and not Bovine spongi-form encephalopathy, but Build a Super Empire, perhaps.

    A casino can deliver a lesson in a shorter time, and allow a quicker recovery perhaps.

    • I would call it ‘mass psychosis’ HeavyEnlightenedOne, or group hysteria. As it says in the Guardian article – “Much of the country was going crazy”.

      • wills

        Absolutely agree’,. Antigua on bbc1, panorama, to-nite adam’ chasing down the POnzi cricket yokemebob blandford…

        • Thanks Wills,

          Off to Minneapolis in the early am Tuesday for a week’s business. I will download it when I get back, although it
          might be on BBC World or BBC America here. World more likely.

          Apparently he might be a government informer -

          http://news.bbc.co.uk/2/hi/uk_news/8029494.stm

          He’s still a scammer though. I have shaken his hand a couple of times when I was working on a construction project
          he funded a couple of years ago. He makes a point of it, working the room, shaking everyone’s hand. You would see
          through it a mile away but the locals were lapping it up as he was buying the drinks and building all over the island as well as providing jobs. Not all the locals mind you, some of the more discerning had him rumbled but let’s not get into small island politics here. Ireland’s politics is bad enough. I tend to avoid all politicians as a rule.

          Here is him again telling his side of the story on CNBC -

          http://www.cnbc.com/id/15840232?video=1098521916&play=1

          Only time will tell, he will probably do a deal and get a suspended sentence seeing as he was helping the DEA. If the Mexican or Colombian cartels get their hands on him though, he’s a dead man.

          Did you ever read that ‘Wired’ article?

          Adam.

          • wills

            sure did, i posted you on it back at the recommendation,. POnzitis seems to be epidemic…..!! even in the on line gambling, hilarious they were running op’s out of capital of POnzi Rep, dublin.

            Panorama confirmed he was a undercover spook for the DEA and this gave ‘em immunity on the POnzi raking it in….!!!!!

  15. Tim

    Folks, this article is more dense than previous. It will take some time to deconstruct it.

    David is ” couching” his ideas, I think.

  16. Robert

    David,

    This article should be printed off by every citizen in Ireland (especially those under 35) and pasted to the head of any FF canvasser who comes knocking on doors looking for votes in the coming weeks (Oh sorry . . .Aren’t FFers just running up the garden pathway . . . dropping their propaganda . . . before legging it again?)

    The reality is that the level of denial coming from vested interests is truly shocking!

    But sometimes I wonder if it’s denial as one thing I’ve noticed over the past 6-8 weeks is that there are a number of co-ordinated campaigns (advertising bargain one-bedroom apartments for only 250K . . . Yeah Right!) underway by the developers and the media.

    It is coming increasingly common to hear from various commentators on Irish radio stating that “it looks as if we’ve hit the bottom of the market” They’re usually the same commentators who predicted a “soft landing” a couple of years ago.

    Even the advertising is nothing short of a joke. One advert (in last Fridays IT) showed an apartment block in Leopardstown and with it came an aerial shot of Dublin – with Howth marked out . . . . . as if the apartment was just around the corner.

    The fact is that last week over 600 houses were built and only around a 100 were sold. We could take in another million poles and have no problems housing them . . . there are that many unsold properties.

    Despite being on the way to being NAMA-bailed out the property developers are trying a desperate campaign to keep house prices high. (200K OFF!! – Buy this bargain apartment for only 400K).

    It won’t work.

    • wills

      As in USA, all who have an interest in the speculating on property to make easy money will do anything, literally anything, to re-inflate the POnzi property bubble across Ireland.

      NAMA is a crony capitalist stroke to keep the POnzi property bubble re-inflation door open.

      David must blow the whistle on this rotten corrupt property speculator dictatorship that has taking control of this country.

    • G

      Pat Kenny did it a few weeks ago on the Late Late with his intro question ‘Is it a good time to buy?’

      Hmmmmmmmmmmmmmm, let me think about that for a moment you little ***k

  17. BurrenRocks

    David,

    “Why can’t we just mark down prices to where they should get to, take the bankruptcies and move on? ”

    For the same reason the minimum wage is not halved and dole payments cut – loss of order. People need time to adjust their expectations.

    For an insight in to how the other half thinks – see TED talk from Jonathon Haidt.

    http://www.ted.com/talks/view/id/341

    • wills

      don’t think so burrenrocks.

      The prices are been stopped coming down by a very orchestrated effort on all fronts by the bankers, speculators, gov, council’s, media, etc etc etc in order to pull off the greatest stroke of all, to keep the POnzi bubble re-inflation escape route open for these gangsters to escape and get away.,,, you see burren, these guys were caught on the hop with theri pance down..!!! they never anticipated this bubble bursting so fast and were not prepared and were caught re handed with their fingers in the till trousering the celtic tiger’s productivity.

      • BurrenRocks

        Agree with your POnzi bubble theory wills as far as I understand it – credit as a utility solution works for me too but punishment of the gangsters will not be enough to appease – there is little chance of re-inflation with emigration as a sink and increasing the risk of civil disorder will not improve the perception that Ireland is still open for business.

        • wills

          burrenrocks,… I’ve am anti-violence, anti disorder, anti anarchy, anti riots, anti mob,…

          I am also anti gangsterism, anti POnzi and anti bubble blowing.

          Agree fully with you on Credit = utility and not for trousering.

      • G

        Spot on Wills, it’s a bit like the Falaise pocket of Northern France, 1944, major Nazi army virtually encircled by British and US forces, the Brits apparently failed to close the trap (thus prolonging the war) and the Nazi’s got away………………nearly all the efforts to date have been about saving these guys chestnuts and yet couched in terms of saving the economy with a dash of patriotic duty thrown in – no bailout for the people who got taken in by these suckers!!!!!!

  18. René

    Robert, great Idea.
    But will an article like this only be accepted by those who have “seen the light”?

    BTW: the dodgy practices that you mentioned are applied all over the world. Think Spain, South America, Florida and Bulgaria, etc. So not only in Ireland. Some in the Irish media in past number of years has warned about the “dangers” of buying property abroad. These warnings are only to ensure that people spend their money at home. Even our own government had big warnings that Irish people with property abroad will be tackled. I wonder, Is this to ensure the money is spent here?

    • wills

      Disagree rene, with respect,..

      The % of people in power giving over to launching this POnzi property bubble and maintaing its inflation so vehemently has never been seen before,,,,… the whole country was giving over to it in one way or the other. You were either been shafted up the hole by it or creaming off it. FAmalies were split down the middle by it, Parents fleecing their house like a atm card while their grown up children paying disgusting rent prices for living in a shed.,,

      This 10 year fleecing of the Irish is a news story waiting to explode all over this POnzi ridden god forsaken country.

      • G

        spot on Wills – interesting how money drove a wedge between families, parents alienating themselves from their children who were often in rented accommodation………………..

  19. wills

    Bloggers………….BEWARE……………

    new POnzi bubble re-inflation line on lisbon ……………. higgins on vincent browne……….

    “….if we dont vote lisbon we wont get in the slipstream of the upturn in Europes economy….”

  20. wills

    Oh look, another POnzi property bubble banking stroke been pulled over the taxpayer courtesy of AIB.

    http://www.rte.ie/business/2009/0511/aib.html

  21. Malcolm McClure

    A search of David’s piece and the responses above didn’t return a single occurrence of the word “location”.
    It is impossible to understand the value of any property without taking account of its location. Thus it is not valid to generalize and say that property prices still have 30% to 50% to fall. Some houses will just not be sold because the occupants have long term local commitments and have no need to sell. These must be excluded from the calculated fall. Others belong to speculators who can no longer afford the mortgage. These will be sold at auction by the bank for a song, biasing the calculated fall on the low side.

    The value of any property is always a personal decision by the purchaser who can see how that house makes sense to his/her lifestyle. It depends on their perception of their job permanence, their family circumstances, their tolerance of longer commutes, information about incoming investment to the area, currency devaluation, and many other factors.

    If a house makes sense to you, and you can find a way to afford a negotiated contract price, then buy it.

  22. Isn’t it Great what’s happening here right now I am very excited and see it is time to leave this spot on the web as I feel my work is done here , as today after watching this site grow the last few years I can see it is lacking the edge it had two years ago, now today so many people want to jump on the band wagon but it’s too late guys !
    In twenty years time I’ll be sixty and I dream of sitting in the sunshine of Florence with my Lady and reading the book on how Ireland Grew Up.
    With the breaking of the establishment founded under the pre text of our civil war to break from the British Empire. Yet over time the desendents of our lands hero’s became more greedy than the Monster we had ran from our southern shores. The breaking of FF power at local level will lead to loss of power in the Senate then we can disband the talking shop.
    Yes the houses here will fall further but so will social standards which presently are not great any way this Tuesdays Independent will frighten you when you see the pay rise been given to civil servants while all around sites are closing down and daily more offices lay without tenants. I sat in a room of a regional newspaper today and listened to a commercial manger tell his property sales executive that he had been in Dublin this weekend and was told property is moving again as those with the cash can see the good value !!. I felt like hitting him as his lies are as bad as the words of a heroin dealer.
    I owned shares in a few Orish Pubs a decade ago and have seen the cultural change here which started with the smoking which when added to the Car, House and Visa was the last straw for the green shirt wearers . Now as a Nation we have to stay off ‘the drink’ for a few weeks and stand up to these lying bullies and criminals our Bankers, developers and Politicians .
    I watched Vincent Browne this evening spin this horse shit about Declan Ganley where he gets his money , when Ireland Inc is it’s self such a benefactor of ould Uncle Sam , an utter joke but Tims man Pascal Mooney was the funniest on the panel , as this man who believes he is entitled to 20 times the average wage screamed when he was not in the spot light ‘Talk about Me’……. The time is comming when Irish men brothers and sisters will be fighting between them selves again simply because of the lie we have been leading for the last few decades . We thought we were the Americans of Europe , unfortunately our Hollywood’s ain’t a good movie any more !!

    • Robert

      “any way this Tuesdays Independent will frighten you when you see the pay rise been given to civil servants”

      BrendanW – I’m one of those getting a so-called “pay rise” of a massive 8 Euro per week (before tax of course). How selfish of me to be taking that 8 Euro per week – especially when I consider the fact that I pay 41% PAYE on two jobs (before all the other “levies” of course)

      Must be a very slow news day for the Independent if this is todays headline – As this so-called “news” is hardly news!!

      Don’t fall for the BS! that everyone in the private sector is on a pay cut – That’s not the case at all. In fact I know many within the banking industry who will be getting their “bonuses” as usual this year – Of course they’ll drop the xmas party as a gesture (Don’t be to be seen to be doing an AIG!).

      Don’t get me wrong! There are many problems in the Public sector – No doubt about it.

      • G

        I have a friend in ‘business’ (property speculation) repeat that mantra about those in the private sector taking 30% salary cut etc – I was rather amazed at how quickly he was parroting all the main phrases, need to feel the pain, do our duty, public service need to contribute etc – I wondered if there was a central briefing room, a kind of room 101 for the selfish and wealthy, sure some have lost their jobs, but others do see value out, are still making large profits and are using this as an opportunity to offload people, I mean what an excuse – “sorry Mary, the recession got us, we have to let you go”………the Shock Doctrine thesis of Ms. Naomi Klein…………..It’s the bosses who should be targeted and enough of this public and private worker divide.

  23. We ran it from Dominica actually Wills – beautiful island, paradise on earth. It was Internet gaming, with a valid license, no more a ponzi scheme than the American Social Security system. All the players knew the risks, they were clearly stated, most of them got off on that. A few bad losers complained (without basis) to the Feds. If a gaming enterprise doesn’t pay the winners from the wagers of the losers then where does it pay them from? The judge in Boston ruled in our favour but the SEC held up things so long in appeal that we couldn’t go on with our business. Eventually they gave back most of our money quietly, declared victory in public and kept what they could under the guise of a fine, basically to contribute to their own nefarious activities. It was great fun though!

  24. jim

    So we have 1….. house in Newbridge renting @950 per month or 11400 per year ,which the owner and evereybody thinks is worth 159,600 yo yo’s. 2…..We have same house in Newbridge which the Banks claim they own and say its worth 335,000 yo yo’s and they will let you buy it for 995 per mth. 3…..decisions, decisions what to do ?……..(a) rent a 159,600 house and leave all the worries to the Landlord or (b) buy at 335,000 @ 995 less 25% discount of interest thanks to Brian, lets say net 747 (like the jet ha ha ) add back in Insurance @ 100 pm.=====Total net 847 yo yo.approx….However I know that the Banks offer is Interest only for 2 years to catch Me or the 847 net will rise after 2 years……So there am I pacing up and down the front lawn of this Newbridge Nugget when a thought suddenly strikes Me and it is this ” I go up to the Landlord,declare Him the owner @ 159,600 which I will now buy from Him,spit on the hand ,deal done.Then I ring the Bank borrow the 159,600 which they will Finance for ( lets see 995 less 53%=468,less 25% TRS gives 351 plus Insurance of 47 give grand total of 398 approx)……Im driving back up to the side of the road where the Wife,2 Children and Dog have been living while all these shenannigans were going onn when the Devil lands on My shoulder and say’s to me “Jim rent the house out for the next 2 years ,say nothing to anyone and pocket the difference between the going rate rent of 995 per month and what your paying the Bank 398 yo yo’s.After 2 years say nothing again because even if the repayments go up to say 650 p.m. some gobshite will come back and tell you that based on a multiple of 12 times 650 your house is still making you money on a rent of 12 times 950 so stay where you are on the side of the road…..When I arrive back to the campsite with its glowing open fire and the fresh smell of boiling tae and the Wife tells Me the Guards were up to shift us onn and ask ‘s what do I think ,I tell her its one of two shibboleths either (a) house prices always go up or (b) rents always come down. But for now I’ve found us a grand sheltered spot up the road with a grand view of Dun Aengus after all I tell her its all down to location,location,location.

  25. liam

    @David and also @G

    G, you have captured much of what I have to say on this matter, so apologies in advance if my ramblin’s are repetition. David asks the question “why don’t we just revalue…” etc and the answer is of course its not up to ‘us’.

    In the very same town David mentions, there is a development of 30 or so 2 and 3 bed flats, not houses, flats. Its on a corner of a fairly busy junction on the way in to town. Its got a lovely poster of a cosmopolitan type sipping on a latte next to meter-high lettering declaring that these fine properties can be had for just under a quarter of a million Euros. Needless to say they remain empty for the most part. Judging by the for sale signs in most windows, three quarters of them have never been occupied since the development finished in late 2007. The price has not moved since them either. Now, let me put this in perspective for you:

    The other day I spent a VERY happy afternoon browsing through Yodobashi Camera in Yokohama. Its a chain of very large electronics stores in Japan. Electronics porn galore etc, but one thing: most of what was in that store was made in Japan or made by Japanese companies. Its a producer economy, yet for what is being asked for those flats in Newbridge, you could buy a nice two bed apartment almost anywhere you want in Tokyo.

    There are a lot of demands on the resources of the state. My family (and others too) is directly affected by the unmet need for support for an ageing member, despite the boom, despite the HSE standing under a money shower for years. The state bailout of the banks and developers has been signalled for a long time, and those are exactly the people on the hook for these Newbridge apartments. I think I mentioned it in a previous post but I am certain they long ago gave up hope of flogging those things and are waiting for the state to bail them out.

    So it will be very interesting to see what kinds of valuations NAMA comes up with for the trash they are about to buy. In a more cynical moment (I seem to have a lot of these types of moments lately) I might claim that NAMA was set up in order to facilitate this fleecing of the tax payer, and bailing out their buddies, while violating its own citizens (especially those who need its help and with whom it has the longest standing social contract, arguably embodied in A45) by robbing them. A state that will not (never mind cannot) protect its own citizens is not worth of the name.

    My father is one of those really old school types, born not too many years after the formation of the state, brought up in the Dev years, full of pride in being Irish, always saying what a great country it is and with perhaps a pernicious pride in the country, but all the same a pride in it. The entire country should be ashamed… no this is inadequate. Harney, Lenihan, Cowan but most of all that Ahern guy should be compelled to commit ritual seppoku because of the way my father and those like him are being treated, as a result of successive “Governments” treating the citizenry as a cash cow for them to milk when their buddies, backers and family need a dig-out, and treating the opportunity for corruption that political office brings as just reward for the hard work they have supposedly done. As a result, Ireland is a collection of historical memes, a deteriorating culture that is increasingly focused on just getting as drunk as possible, a language that nobody cares to speak, a history that is focused on dewy-eyed nationalism and sectarianism. It is a state only in the most superficial sense and barely a nation, apart from a few islands of sanity, such as these comments.

    So instead of David’s question about property, I’d ask: when are the Irish going to get out of the pub, sober up, turn off the telly and do something about this?

    -L

  26. The Lisbon Treaty :

    http://www.youtube.com/watch?v=8iTrkuUJu-s

    Is this where we are going to ?

    • Tim

      John ALLEN, that is pretty bad. I always find it difficult to watch Liam Neeson at the end of Schindler’s List, when he realises that the gold Nazi pin on his lapel could have bought more lives, and the man who did so much good weeps for not having done more.

      However, here is the worst cruelty I have ever seen (and I have seen some bad stuff):

      “Sophie’s Choice”

      http://www.youtube.com/watch?v=RYQjsbn4KCM

  27. Philip

    Spot on article.

    A little story to illustrate why I believe David is an optimist and to illustrate what I believe is the highly rigged aspect of our property business in Ireland. I even explain why I suspect its rigged.

    For my sins I found myself chairing (in an unpaid capacity) a management company for an apartment complex a few years ago. The complex is a nice well development is an established and well serviced area. So, it’ll always be attractive because it is part of a buzzing community. The challenge is to ensure the place is well kept and that means collecting management/maintenance fees from landlords and owners. It so happens that wealthy “professional” speculator landlords of this complex have about 25% of the development for themselves and ,surprise, they are the one group who try every trick in the bag to avoid paying fees much needed to keep the place.

    The trick with management companies is that they are owned and run by the owners of the complex. AGMs need to be held and auditied accounts are available to all to see where all the money is going. We have a well run operation by our own efforts – something which I know is not replicated in 90% of the complexes around the country. Indeed, I would guess that a majority are collapsing with the resulting collapse in the maintenance and upkeep of these complexes. So come 2-3 years from now what will these places be worth?? 50% of current values is way too optimistic. More like 100%. And all of this is due to the horrendously poor legal and institutional systems to make sure these management companies are made to work properly and for the benefit of the occupiers.

    It gets better. By law, landlords are required to ensure that their properties are registered with the Private Residential Tenancies Board. The loophole is a) one cannot force a landlord to join the PRTB and b) if there is no registration, the tenant or troublesome landlord/tenant cannot be chased becasue if the PRTB do not know about, there is no mechanism of correction, eviction etc. The PRTB take about 18 weeks just to process a registration and if there is a disagreement after that, you’ll be lucky if the case is heard in 18 months – meanwhile, the complex occupants suffer (so that 50% lower floor to prices is starting to wobble a bit).

    It gets even better again…A circuit court proceeding last April dealing with a non-payment of management of fees. The judge found that such issues need to be addressed by the PRTB (who as you see are not really well resourced). However, for the PRTB to be of any use to you even 18 months later (if you are lucky), the complex management company has to be register with all the Landlords/ Owners treated as tenants. In other words, the Management Company has been effectively denied the right to collect fees for maintenance and upkeep by dumping on an ineffective and unresourced agency.

    Having chased fees off these wealthy speculators, I found just how useless the rights of the tenants were relative to obfuscation of the law, the uselessness of the PRTB and now this bombshell (which goes against the lease agreement of the properties) which effectively incapacitates the management company to collect fees. What was even more worrying was that the legal eagles supporting the speculators seemed well aware of this roadblock.

    What I suspect is happening is that we are witnessing a shorting exercise in action on the property market. NAMA maybe a mechanism for denuding the taxpayer, but that’ll just last for a short while. I suspect the strategy is to let the market fall – like a stone if necessary and then mop up afterwards. If what you own is falling by 50%, you may as well force a drop to 20% or less (by lettingb the place rot a bit) and mop up and pump the revenue via rent. These guys only care about collecting rent, not providing quality living accomodation. Slums suit them and in the long run – 10-20 years out they are holding all the aces.

  28. Philip

    Here is an article on the decision on service charges …http://www.irishtimes.com/newspaper/ireland/2009/0429/1224245599156.html

    Aside from the absurdities highlighted, what it does not highlight is that a) the PRTB is the sole owner such issues and b) how underresourced/ innefficient the PRTB actually is.

  29. Garry

    David is a voice in the wilderness, pointing out the real value of houses……and the real cost…

    When you look at things this way reading the Sunday papers is an eyeopener …. the business sections are where the action is. On the front pages, its all wishy washy; whether about aspiring models wanting to make a difference or concerned social parners making difficult choices in the national interest….

    In the business section the reporters are not that coy; the grasping, threats, thievery, shafting and jockying for position are all part of the game and are reported on.
    1: http://www.tribune.ie/business/news/article/2009/may/10/irish-subprime-loans-selling-for-30-cent-in-the-eu/ Sub prime lenders are selling on debt for 30c in the euro. Now I’m sure everyone reading this blog knows what this means but tell your friends. Bankter A is selling Mr. Byrnes mortgage on to Bankter B at a 70% discount and writing it off. If Mr Byrne had a mortgage of 300k, Bankter A will take 90k as payment from Banker B… BUT Bankter B is free to chase Mr Byrne for the full 300k. Another example of the system being bailed out and rigged to suit the established players. Even when the debt is written off the effort is there to pretend that price hasnt fallen, and to keep the little guy on the hook. No chance of them going to Mr Byrne and saying… Give us 90k, we’ll call it quits.
    2: http://www.tribune.ie/business/news/article/2009/may/10/tom-parlon-nama-must-not-undermine-the-property-ma/ Tom Parlon, fluffing for the CIF, calling for further rigging of the property market to benefit the established players… He even has the brass neck to call to incentivise ‘experienced’ developers to do their magic, Apparently, this is rocket science and we can only hope these supremely gifted people stick around and stay motivated!!! Unbelievable…

    The consequences are in the same papers, but cant be confined to just the business sections, they have spilled all over the papers, so many examples from an airport extension costing the same as 3 airports in Poland to londis dealing with a British supplier to try to compete with Tesco..

    So all our money and effort is on trying to sustain the unsustainable, propping up the market, keeping prices high…This will fail, but only after condemming more generations to debt slavery and destroying jobs and competitiveness.

    Competitiveness is not just a problem for the workers of Dell, Intel, Kingspan etc., something to be preached not practised by the social partners no matter how much they want to pretend otherwise. When our Taoiseagh is paid more than the British Prime Minister, our central bank governer even our army chief paid more than theirs, all the way to our qango pseudo CEO’s, regulators, public servants, teachers, nurses, gardai etc then we are not competitive. When its cheaper to go north for groceries, hardware or dentistry we are not competitive… When its cheaper to rent or own a property almost anywhere else than in Ireland, then we are not competitive. When we are not competitive, jobs and wealth go elsewhere.

    So we must restore competitiveness on what we can control, we must call in the debts, sweat the debtors and their assets. Get to the bottom quickly, to hell with the consequences…..from there we can start looking up. A new generation will emerge, take on and beat the incumbents who flew too close to the sun.

    But thats what the incumbents at the Law Society, IBEC, ICTU and Leinster House are afraid of…change… If these guys were rewriting Greek mythology, Icarus would’ve had a soft landing and lived off the rent on his broken wings.

    • Tim

      Garry, great post. We have to get back to education, education, education; instead of “Location, location, location”.

      Today in the IT, heads of MNCs Microsoft, pfizer, HP and Wyeth offer their view that there must be greater investment at primary and second level to give the high calibre teachers here the resources they need to keep up the good work:

      http://www.irishtimes.com/newspaper/education/2009/0512/1224246315911.html

      Dr Kevin Marshall, of Microsoft says:

      “Ireland has a huge advantage in that we have great teachers in primary and secondary school. Teaching in the UK and the US simply does not attract the calibre of candidates that it does here. We need to provide teachers with the skills and the technology to maximise their potential.”

      This must be capitalised upon.

      • Philip

        These MNCs just want more cheap malleable bright people who have been put thro’ a murder machine (as Pearse coined it). Said people get sucked in on big company glamour and nice wages and blown out in bubbles, ill-health and a debt ridden future.

        I want an education system alright. But not the current system. It’s broken and needs a major reform. I attribute the current mess in no small way to our current educational system.

        • G

          Absolutely spot on Philip.

          @ Tim – pick up a copy of the documentary ‘The Corporation’ – these entities are totalitarian organisations whose only motive is profit – they don’t give a rats ass about people or our education system – that’s just PR talk. We need to move rapidly away from the US model, not embrace it.

          Just look at Dell, please don’t tell me that you need to stick your finger in the wound to believe…………….

          • wills

            The educational system is not a reflection of competent teachers. It is a system engineered to take competent teachers and match them up with children and produce brainwashing factories to pump out automatons to be picked up the other end and put to work in the 21century woolen mills – corporatism.

      • paddythepig

        Tim,

        How does Mr Microsoft know that Irish teachers are superior to those in the UK? How can he make such a sweeping statement?

        Casting my mind back to my own schooldays in Ireland, we had some really terrible teachers, and a few very good ones. But some awful gimps it must be said.

        In university, it was pretty much the same.

        I knew a UK teacher very well once upon a time, and she was one of the most high-calibre people I ever met. So anecdotally, I have my doubts about the gospel according to Mr Microsoft.

        Paddy.

      • Garry

        I think the education thing is very complicated, as is the needs of MNC’s, building a better society.

        So while I agree with the spirit of most written here, its all a question of making the next step to something better rather than solving all problems at once. I think the property thing is stopping all progress, e.g. Niall O Dowd warning today on the US tax policy but everying in Ireland is too busy focussing on NAMA… Whatever way you measure it, euros, column inches whatever, it is destroying our capacity to act or even think straight

        Being stressed working in an MNC is much more preferable to being hungry with no job. As our circumstances improve we invent worries and problems, its the human condition.

        but yep, anti-marketing or skeptism should be a Leaving cert subject … The only problem is how could you grade it :)

        • Tim

          Folks, I was not intending, in any way, to promote Microsoft’s views on anything; just presenting the article and the positive things that the heads of some major multinational employers have said about our education system.

          We have enough negative things being said about our country’s banking and business practices these days. This is, finally, something positive being said.

          That is why I said we should capitalise on this.

          Paddy, I do not know how Mr Microsoft came to his conclusion, nor will I offer my personal opinion – I can do without the attacks on teachers.

          I would expect, though, that a man in his position would have read the successive OECD reports called “Education at a Glance” and these could lead him to only one conclusion, based on the empirical evidence they present: the opinion he has expressed.

          Euro per euro invested in their education, Irish 15 year olds outperform ALL oecd countries. Ireland has what they call :”The highest Educational Dividend”.

          Here is the link to the latest report from 2008, if you want to see for yourself:

          http://www.oecd.org/document/9/0,3343,en_2649_39263238_41266761_1_1_1_1,00.html

          • paddythepig

            Tim,

            The head of Havok software would not agree with Mr Microsoft. Havok is one of our few truly indigenous world-class technology companies.

            http://www.businessandleadership.com/technology/news/article/13258/leadership/govt-policy-harms-investment

            You continually blow the trumpet for teachers, and don’t show the same interest in other sectors of the workforce. You have an agenda on this topic, and it is to promote the interests of teachers.

            I was careful to say that there are some very good teachers out there ; I remember one particularly excellent teacher from my own national school days, to this very day. However, it would be remiss of me to buy into your propaganda when my direct experience tells me otherwise. What about the teacher that used to punish kids by putting them at the back of the class with their arms over their heads, and if they dropped their arms, he’d run at them and boot them up the arse. (I’m not making this up). Or how about the guy who used to come into class for the first 5 minutes, say ‘Go to page and say ‘Read that lads’ .. and then feck off for the remainder of the class. I could go on.

            I don’t rate the OECD either to be honest. I knew someone who worked in the OECD, and she told me she did nothing from one end of the day to the next. To me they are like a super ESRI – way too comfortable in their own skins.

            If you look at it logically, why is the country in such a mess if we are truly producing such world-beating students, with such world-beating educators? One would have thought a top class education would yield benefits in broader society?

            I thought the article from Mr Microsoft was cliche-ridden mumbo-jumbo.

            Paddy.

          • Tim

            Paddy, my agenda is to promote education; you cannot do that without teachers. My two children are cramped into overcrowded classrooms and that will be even worse in September, due to the budget cuts. Children’s teachers are being fired because of the new pupil teacher ratio. My kids are very upset.

            That’s no way to be carrying on.

            And the corporal punishment of the past, pre 1983 when the law was changed, is not an appropriate yard-stick to use today. I was beaten in school too, but our parents also beat us and everyone colluded in the notion that if you “spare the rod, you spoil the child”.

            Too many people, I think, take a negative view of today’s teachers based on their experience of the corporal punishment of the past.

            This is wrong; and it is definitely not a valid reason to allow the diminishing standards in education that are happening due to the budget cuts.

          • paddythepig

            Tim,

            Exhibit A and Exhibit B from my last post, taught well beyond 1983. One became a headmaster. Neither were ever any good.

            I agree about the importance of education. That’s why I’d like to see more emphasis on sacking the crap teachers, and rewarding the good ones. The ‘job for life’ culture, where people who are not suited to dealing with kids, can still be full-time teachers needs to be changed. I think there is too much inertia in the education system.

            I think your tendency for blowing the trumpet for all teachers in general takes away from your stated mission. Everyone knows that, as in any other profession, there is good and bad. Our children deserve that the bad un’s are shown the door, and that the good ones are looked after.

            Paddy.

  30. MK1

    Hi David,

    > This is why, according to the Japanese example, if Nama is going to buy property assets, it needs to buy them at a 70 per cent discount from their peak market value, to make sure that it is not bailing out banks. Anything less than a 70 per cent discount and the taxpayer will be subsidising bank shareholders.

    But that 70 percent figure is just a guesstiumate level. The true level may be 60.134% or 64.38354% or 71.56%. Thats the problem with Nama. Its like trying to hit a treble 20 on a dart board from 5 km with a bullet. Its impossible to get it exactly right first time with one bullet. Oh, and the target is moving and you are also blindfolded and dont even know whch direction the dart board is in! The chances of getting it exactly right are probalistically infinitesimal.

    > So how low are prices likely to go?

    As low as the ‘market’ will take it. The supply of credit, how much people get and for how long will have a big bearing as well as the general economy. Prices are “sticky” on the way down.

    > The value of the asset will have some relation to the yield the asset returns. In houses, the yield is the rent. In the US, a house was traditionally valued at some multiple of the rent it generated. Typically, the value of a house was calculated at 12 to 14 times its annual rent. This relationship has held in the US for over 100 years. There is no reason to believe that this shouldn’t be the way to value Irish houses.

    But P/E ratio’s depend on the type of asset. This is evident in stock market sectors, where energy companies have different P/E’s than retail, technology companies, etc. And the yield has all to do with the competing level of credit available. So the 12 times may not be valid. If for example a property can be funded with a 30 year mortgage for 1,000 a month and can be rented for 1,000 a month, then there is a clear valid reason to buy it and get out a mortgage. But if the credit line is only for 20 years and the rent is 1,333 a month (or whatever) then the choice is different.

    You mention Australia. There, the average rule of thumb is 5 times the average salary for the area, so if people are earning 60k AUD the price of an average property is 300 AUD.

    But I agree in principle that the commercial value/rentability is the only yardstick which fundamentally (can we use that word again?) underlines the intrinsic value of a property.

    But we all must be cognizant of the fact that property/land is a special type of asset for us humans. We cant live without it. It is not being made anymore and people have to live in a place and on land. The days of open plains with no restrictions, you pick your tree, spot, cave wherever you like have ended millenia ago. We have been fighting over land ever since, and buying it, renting, it, selling it is just another means of ‘fighting’ over it.

    MK1

    ps: didnt read other comments yet …. will try to.

  31. MK1

    correction:
    < and the rent is 1,333 a month

    should have been:
    < and the mortgage is 1,333 a month

  32. Tim

    Folks, apart from the continued drip-feed of bad news from AIB in todays IT again, two interesting articles:

    First, with opinion from Michael Smurfit and Charlie McCreavy:

    http://www.irishtimes.com/newspaper/finance/2009/0512/1224246324496.html

    Then, this well argued piece from Brian Lucey on NAMA versus temp Nationalisation:

    http://www.irishtimes.com/newspaper/opinion/2009/0512/1224246322209.html

    • wills

      tim: fascinating lucey analysis at link.

      one comment of his in article caught my eye
      “……banks also borrow to enable to extend more funds than their deposits would allow”,

      ….here we have it, the explanation for the property bubble,. right there in lucey’s article, leverage ratio abuse.

  33. John Q. Public

    That’s what was wrong with the re-capitalisation of the banks over 6 months ago: it was stipulated that 30% or so of that money (our money) was to be used to help first-time buyers. What else could that do exept fuel demand for houses and prop up prices across the board. The market should have been allowed to bottom out first. Think about it, the banks did not trust first-time buyers just before re-capitalisation but then began to trust them again after being given a chunk of their tax money. How can we entrust the present government/bankers with our taxes?
    Today’s first-time buyers could be the toxic debts of the future. There is no common sense in the system.

  34. DavidIreland

    The Fianna Fail party was hellbent on pushing its agenda over the last few years regardless of the warning signs. They deluded themselves that they were in charge of a runaway train and kept pouring fuel into the engine. Its now off the rails they’ll kill us all trying to retrack it.

    They didn’t listen, they aren’t listening and they won’t listen so let’s sent a message to them in the European elections, the local elections and the dail elections in Dublin south and central – don’t give a single vote to anyone in Fianna Fail or any other party or independant supporting them. Not a single vote.

    Come on Ireland!

  35. Original-Ed

    What really drove the P/E ratio crazy here in Ireland was the rapid fall in deposit interest rates and capital gains tax – when deposit rates were around 7% and capital gains tax was around 40%, investing in property was a long term thing. The 7% yield from deposits was more attractive than the hassle of managing rented property in poor times only yielding a similar amount. The price being 12 to 14 times the rent was based around those realities.
    The rapid fall in interest rates changed all that – Ireland full of depositors, who were either too ignorant or too scared to invest in industry, were now desperately looking for a secure home with a good return for their wads of cash and so the game changed with rental property becoming the only show in town and of course prices increasing rapidly as demand soared – the more interest rates fell the more the demand increased and so the seeds of the property bubble were sown.
    Our problem was and still is that we’re only a one trick race – the poor economy of scale arising from our small population is a problem and unless we get out there to capture a decent share in foreign markets, we’ll be still looking to property for security.
    A foreign friend recently remarked – that although we has all the trappings of an advanced society there’s still something of the yokel about us – is he right or is he right?

    • Tim

      Original-Ed, I think you’re right, there.

    • I disagree. Because of our size going after the huge markets in competition with India or China is a nonsense. The success of the electronics sector in the UK is primarily down to small (< 50 employees) companies addressing high mark-up niche markets (consumer marine radar for example). The global market for these is relatively small and therefore the big boys couldn’t be arsed with them, but the margins are good, so if you dominate you make the cash. Hence a 50% growth rate in electronics manufacturing and associated industries in the UK between 2003 and 2005, while all other manufacturing was declining and we were selling houses to each other.

  36. wills

    Is it not the case, if a country can not control i rates or money supply it puts even more emphasis on prudent banking practices.

    All monies raised to buy properties originate back to banks.

    Banks over leveraged = lent out too much monies.

    Too much monies used to but properties = excessive demand for properties.

    Econ 101 = when demand goes up prices go up.

    Thus we get a bubble unless the bank keeps lending tagged to the leverage ratios in place for the protection against bubble inflation in the first place.

    I’ve put below link to BASLE accords compelling banks to follow the bar set on ratios.

    http://www.bis.org/

    • Tim

      wills, a huge portion of the blame for this breach of leverage ratio guidelines is the greed that fuelled the “bonus culture” – or, did the bonus culture fuel the greed? – so that the bankers were encouraged to break the rules in order to “qualify” for ever-larger bonuses.

      Indeed, it went even beyond simple “gambling”, because, for a finish-up, it did not matter evenif the lender knew full well that he would lose the gamble because the borrower would default, because the banker “qualified” for the big bonus, just for getting that loan on the books.

      Now, that is where the big managers failed: their management practices did not include making sure that their lending departments properly stress-tested the borrowers by reducing/witholding the bonus without the proper tests.

      The reason the big managers did not do this is probably due to their own greed for thier own bonus based on the loan-book amount and this, I think, is what turned it into a ponzi scheme. As long as “bonus-boy” didn’t end up holding the baby when the music stopped, he didn’t care.

      • wills

        tim: and without factional reserve spending these guy’s would be in productive employment spreading their cheer…..!!!!!!!!!!!

  37. finbarr

    I always wondered about this. It’s common knowedge for years that property has a P/E valuation ration, yet the fire kept burning higher. Salaries are been adjusted downwards ( with the exception of public servants who believe they should be immune to pay cuts or paying for their own pensions), rents are going down, cars are cheaper and we have have general deflation. I think the problem lies with lack of understanding with the down part of the cycle in Ireland. People seen when house prices were going up they increased by such and such a precentage per annum, so the are doing linkwise on the way down. There were 5 or 6 bidders for a house 4 years ago now your lucky to find any bidder. Sellers are not waking up to the reality of the situation. Something is worth what someone will pay. It will take a catalyst to move things on and the setting up of NAMA has slowed the process. If there was no NAMA (and I am not saying NAMA bad) then eventually a developer would have had to have a fire sale. Once this would have happened the message would have been clear and more and more people would have got the message that prices are still over valued and ‘better’ deals can be got elsewhere. However its only a matter of time. The amount of interest only mortgages that will revert to principal and also 100% mortgages at the top of the market on now very stressed borrowers, means the crack will appear shortly. This will be very sad on those young people who are saddled with this burden. Whats the solution? who knows.. What will happen however is unions will go on strike and put more people out of jobs than they’ll protect. People with very little talent or acumen will be voted into power in a severe backlash against the centre right (I acknowledge the current crowd are awfull). This will be deemed non business friendly and the multinationals will take flight. We will be back to watching glue sniffer on the keys in Dublin in broad daylight as even they will have no one to rob for heroine money.
    On the upside, Maybe the Smith will reform in this completion of the 80′s comeback. Hairdressers will make a fortune.

  38. Tim

    Folks, BurrenRocks gave us a link yesterday (Monday) that lead me to this:

    http://www.youtube.com/watch?v=RYQjsbn4KCM

    It is Alex Tabarrok trying to shed some light on how the communication of ideas can change the world.

    Although I have some issues with the globalisation of business and money and Articles 113-118 of the Lisbon Treaty because of that, I really like his globalisation of Education (non-business, non-profit) idea:

    “He who receives an idea from me, receives instruction himself without lessening mine; he who lights his candle at mine, receives light without darkening mine.”

    Thomas Jefferson said that in 1813……….. why are we still “in the dark”?

    Because no-one wants to “pay-for-the-candle”, is what I would say; look at our current government’s education cuts?

    Cutting off our future nose to spite our face, I would say.

    Tabarrok adds something very interesting to Jefferson’s idea in this link; he says:
    Jefferson does not go far enough because: “When someone lights his candle at mine, there is more light for everybody”.

    http://www.ted.com/index.php/talks/alex_tabarrok_foresees_economic_growth.html

    That is just one reason why I think this DMcW site works.

    We “light candles at each-other, and there is more light for everybody”.

    Thanks, DMcW and thanks, BurrenRocks.

    • Philip

      Growth via improved smarts/ ideas than greater consumption. It’s a nice idea. It’s the knowledge economy being re-articulated.` The trouble is that our institutions do not support ideas. They will preserve the status quo. Ideas – particularly good ones have huge disruptive potential and will be resisted.

      This is why I’d like to see no more money than is necessary going into our existing educational institutions. Education needs rebirth. We need to move from production line education systems based on artificial curricula (little linkage to real life) to something which links ability to structured apprenticeships and mentoring. New ideas like this will always be resisted because of the implications for institutions.

  39. Tim

    Folks, David said: “Take a long look at the chart below. Digest it. Maybe look again if you have to.”

    I did, and it is frightening.

    David also said: “We haven’t seen the half of it yet”. Irish people kmow what this means, though others might not.

    I said that it might take me a while to de-construct this article because DMcW is couching his words in it.

    I think I was right.

    Beware!

    Most people who have been here for a while are already wary; newcomers need to be careful and read between DMcW’s lines.

    Watch “The News”, but do not trust it: apply jurgen Habermass’ hermeneutic of suspicion to everything you see, hear and read.

    Call it “The Spin”, instead of “The News”.

    Beware, my friends, beware!

  40. Tim

    Folks, I really, really wish that this man was working with me, RIGHT now, to fix what is wrong in this country, instead of defraying his REAL impact until later (after a general election, which will take nearly a year).

    We need him NOW!

    A local/European/Bi-election will NOT do it for us!

    He refers, in this clip himself, to the immediacy of the problem. What GL can “bring-to-the-table” is needed NOW, in GOVT, and not just a year from now, when FF is overthrown. We need him now, but he has signed up with FG which can do nothing now, because they are not in POWER.

    http://www.youtube.com/watch?v=J2elAkIPyEU

    • Tim

      BTW, does Enda look worried to you? Fearful of GL’s acumen and articulacy?

    • liam

      Tim,

      Sorry to say, your team does not deserve this guy.

      I have never in my lifetime heard an Irish politician speak with such clarity and purpose.

  41. Garry

    “I think the property thing is stopping all progress,….” while the acual upfront cost of NAMA, bank guarantee etc is mindboggling, its hidden costs are just as bad….

    Its dominating every agenda, eating up leadership time and stopping implementing or exploring solutions to other more manageable problems.

    Everyone has a certain amount of “bandwidth”, i.e. a rate at which they can be fed information,problems etc which they can process and act on productively. Some like Obama have broadband and can process data at great speeds. Some like Cowen are like an old dial up line, theres a lot of noise and a little gets through.

    The point is anyone can get overloaded with data, information, options etc… With this one topic of the banks dominating everything, it pushes everything else off the table, we lose sight of whats important…

    • Original-Ed

      Garry, without a functioning banking system there isn’t a table.

      • Garry

        true, just a gentle reminder that without a lot of things there isnt a table… energy security, food security, employment, cash etc… One cant hog all the resources or attention without adversely affecting the others.

    • wills

      Garry: what is awesome about link above is the blatant double standards at work and the truth exposed for what it is that the banks ‘make debt’ out of thin air against real asset value belonging to some one else and play pretend with the ignorant customer that they’ve loaned to them real monies when in fact they’ve just made accrued entries into an account and it is valueless and the banks are spoofing on it’s value to make the customer believe they;ve recieved real monies from the bank., when all they’ve received is a ‘debt’ on their future secured by an asset not owned by the bank.

      The banks do not have an equity interest.

      As illustrated in link above, the only thing the banks own is the ‘debt’ .

    • Philip

      This is incompetent management being haunted by the issues it never bothered addressing (such as review of risks and cold objective thinking and a slight paranoia). Grim stoicism is not a characteristic of fat dump and happy over promoted individuals. Stoics are the type that kick every tyre, check the whole operation out on a regular basis. They are the boardroom bores.

      All we are seeing is status quo preservation. They are slipping off the cliff to oblivion. Things are moving too fast. May as well watch the show because there naught can be done about it.

      And by the way, McWilliams is an optimist. Property values here have no floor for as long as this crisis persists. NAMA is just a placebo to try and con people into believing that the banks are savable. AIB EGM should be interesting…

  42. I wonder does obesity come under band width ? Certainly Obama has none of that . He could almost disapear if he turned sideways .We need a fine tune to our own national melody .

  43. Haveaniceday

    When it all goes belly-up and it’s as cheap as chips in little old Ireland at least we won’t have to worry about the multi-nationals heading off to developing countries. Silver lining… kind of.

  44. René

    curran_c – Personnaly, I am not too worried about the pub culture though as I am not a drinker. It’s the old crack and the general buzz of trad sessions is desippearing too. Ah .. I must be getting old.

  45. [...] about a 40% fall from peak to trough. (If that sounds drastic, probably best not to read David McWilliams’ latest comparison of Ireland and Japan.) For rents, I’ve gone for 33% peak-to-trough fall (again, there are those who argue it could [...]

  46. MCBod

    I think the original article over simplifies the pricing of housing in its statement that the long term price of housing is based simply on the rental yield of the property, in the absence of speculation.

    If over the 100 years quoted, rental yields were in the region of 7-8%, then surely long term interest rates were always below the rental yield.

    This means that any investor (even without speculation) would still benefit from a highly geared investment in property. They don’t need to put up full capital value of the property. They may simply risk the deposit, borrow the balance at the long term interest rate (on average) and then gain the difference.

    The yield model ignores this gearing possibility for investors and is the reason that property values should always be priced above and beyond the simple rental yield model.

    For example:

    If I had I had 100K to invest and property was providing a 7.5% return, I would expect 7.5K return per year.
    However the reality for property investment is that 100K could purchase 10 properties placing a 10K investment in each and borrowing the remainder at an interest rate of 4% (say).
    The investor would be exposed to repayments of 4%x900K but recive rent of 7.5%x1000K
    If you do the maths you see that the investor thus gets a 3.9% yield on their original investment, but also gets the property purchased for them over the life of a 25 year mortgage .
    This gives them a return of 900% on their original 100K investment over 25 years which amounts to an extra annual return of c 9.2% even without any capital growth (speculation).

    The point being that therefore, that the value in property investment is far above the basic rental yield due to the gearing potential of such investments, stemming from the fact that interest rates are generally lower than rental yields.

    Using the above figures the actual return is more in the region of 13.1% even with a rental yield of only 7.5%

    To use his Newbridge example where rent is in the region of 950/month with a rental yield of €11,400 a year.
    MacWilliams suggests that investors need to receive a 7.5% return and thus price this property at c. 159K
    But if we allow for the fact that the true return is actually 13.1%
    Then the long term price could be deemed to be more like 278K

    This would suggest the property market in Ireland is only 20% overpriced. And this figure could be considered to be even lower in more stable city based areas.

    • Garry

      First this “any investor (even without speculation)” and “They may simply risk the deposit,” makes it sound less risky than it is… Thousands of people who invested are finding that a lot more than their deposit is at stake right now….

      Second, the “then surely long term interest rates were always below the rental yield.” Thats the basis for your model, it might be worth checking out the facts there first, the last 15 years have been very low…

      The yield model is not based on anything real
      10 year rate is 5.21% on AIB… they arent giving a 25 year rate…. put that in the cost of money…. factor in say 1% extra for the 20 year rate. (thats taking some risk)

      On income, you are assuming 950/month no vacancies or maintenance costs… ignoring the 200k empty houses in Ireland, the declining population due to immigrants leaving… ignoring the reductions in rent allowance/dole….Again, I think revenue assumptions are optimistic

      and finally the value of it after 25 years… There will be some value certainly… couldnt speculate one way or the other…. if you buy well, it could be in a good area and worth a few bob, if you buy badly who knows…

      Great unknown is what will the country be like in 5,10,20,25 years time.

      but hey, differences are how people make money… go for it… if you make money great, enjoy your success…if you dont, dont come crying for a bailout.

      I reckon the other reply was from someone who saw some snake oil salesmen showing these types of models before in an effort to get gobshites to pay over the odds for an investment

      at some price point, property will be worth investing in… theres plenty more pain before that though

  47. mpkinse

    Ahhh well so, McBod ….and there was the whole of western civilisation panicking….you’re a fair man with a percentage equation..the christian brothers would be awful proud of you. But aren’t you kind of missing the point here. That’s last years maths, that’s when the sums stacked. That’s when bank managers where using their calculator batteries to power their flat screen remotes . Those calculations at this juncture my friend, are akin to calculating the velocity of the Titanic as it succumbs to the gentle pressure of compacted ice. it doesn’t matter dood…its soooo over. 20% you say versus Dave’s 50% … well well. If you’re so on it , where were you 5 years ago when DMcW was pointing to the emperor’s transparent kecks ….investing in a croatian landfill by the sound of it. You had your innings, take your magic numbers elsewhere …

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