March 31, 2014

What are the similarities between Man U fans and Irish property investors??

Posted in Euro · 41 comments ·

Have you noticed the way Irish property investors are like Man Utd supporters? Last week, the poor Man Utd supporters trending on Twitter swung between optimism and anger. Deep down, both emotions come from the belief that a couple of results back to back must signal a return of the glory years. The hurt this week at being demolished by Man City is more a function of believing in the divine right of United, rather than an honest assessment of a world that has changed.

As result of these denials, when United beat some Greek outfit at home and Wayne Rooney manages to lob an off-form West Ham keeper, the Stretford Enders rally around each other singing ”Glory, Glory Man Utd, dreaming of former glory when the reality is they have just beaten two second raters.

Similarly, the Irish property investors, the ones who are not bankrupt, see a few months of slightly rising prices as being the signal that the new boom is under way.

Like the United fans, they tend to be driven by memory, rather than reality. Aided and abetted by the forces of hype, the banks, the estates agents and the property pornographers in the media, the entire property apparatus whips itself into hysteria.

The utterances and editorials from these jaundiced sources are like reading the manager’s note in a match programme, or relying on a fanzine to give you an assessment about the true strength of a team. The fanzine approach to property postulates that property could again move back to the glory years of 2006.

At the more effervescent end of the property market (usually the ones whose balance sheet is most damaged), investors want to get back to the ra-ra days of the glossy brochure, 100 per cent mortgages and mezzanine financing deals. Now, while they will never say this openly and are sensible enough to deny this in public, this is what they hope for. They pray for the day when fear is replaced by greed once more.

Yet, similar to the chastened United supporter, they realise that expectations count and they all protest that the market doesn’t need to go back to the boom years but rather make a “transition” to something more “sustainable”.

The watchword is now sustainability. Sustainability has a ring to it, but there’s a smugness to the word because it means that while we have recovered from the trough and we are all being well behaved now, there are just enough fees for all the various snouts – from financiers, lawyers and large estate agents – to hoover up without appearing greedy.

All the while, during the period of sustainability, big trophy property deals are bragged about in order to send a signal further down the property food chain of just what might be coming down the tracks for those in the know.

These trophy deals are the Champions League fixtures of the property game and even though United can’t even beat Stoke, their fans can still claim to be in the Champions League and salivate over the clash with Bayern Munich. Similarly, the Irish property apparatus clings onto the presence of some hedge fund or other as being symbolic of the big time ahead. So the likes of Kennedy Wilson buying a funky building on the docks is the commercial property equivalent of a Champions League clash against Bayern. It is a trophy symbol of past triumphs, rather than a reflection of the true state of the environment.

So what’s the true state of the market for commercial property based on analysis in Ireland?

The first thing to realise is that there is no credit in the country. Ads from the banks may try to say the opposite, but the numbers don’t lie.

If you look at bank lending in Ireland, it has not only collapsed, but also continues to contract.

Therefore, the main source of financing in the country is foreigners. These guys are borrowing in yen at zero interest rates in a currency that is falling against the euro – which is great if you have debts in yen and assets in the euro. They buy the Irish commercial property assets and because of the exchange rate dynamics, even if the Irish asset yields nothing, they get a deal. But the asset does yield something since rents in Dublin at least are firm.

This excludes the local buyers from the deal, because if the locals have to borrow, they will automatically be 5 per cent down against the foreigners. So what you need to be more than anything else to partake in the great Irish commercial property sale is non-Irish!

Now do you think the foreigners are natural long-term owners of Irish property? Of course not – we are! And these leveraged guys have at most a three-year time horizon to flip the asset, pick up their 30 per cent price profit and scarper. So who will buy this stuff from them? Irish investors will, but not at the discounts that exist today or existed yesterday but at massive premiums to today’s prices. And who will finance these deals? Why, the recapitalised Irish banks in a few years! So we will end up with a banking system once again exposed to expensive Irish property ten years after a property bust destroyed the banks.

Interestingly, what agency has most say in this process, which will put the Irish banks deep into the property market at high prices once again? Well, of course, Nama will be the main player in this game. So an arm of the Irish state financed by Irish taxpayers will actively give foreigners the best deals and when they sell after they have got their upside, the more expensive, and therefore more risky, asset will be bought by Irish players financed by banks which are owned by the taxpayer, who owned the assets in the first place!

You couldn’t make it up.

This is the equivalent of Man United selling its best players to pay the debts of the club, allowing the club to falter and watch these players help other teams to glory at United’s expense. Then when United are battling relegation a few year hence, they buy back these players who are old and over the hill, hoping that their experience will help them avoid the drop.

Once they avoid the drop, the salad days of the treble are in just in sight again.

Glory, glory!

  1. Liverpool for the league.

  2. Very good analogy and pure lunacy,

    • Grey Fox

      Well said

    • Deco

      The biggest link between the Dublin property market and Manchester United.

      ….Bertie Ahern.

      The ManU Taoiseach. In the end his only regret was that he never got to build the Bertie Bowl.

      Cowen threw 400 Million Euro at the Dole Bowl instead. Ever since…austerity.

  3. michaelcoughlan

    Hi David,

    Superb article. If you remember you posted a graph a few weeks back where a graph form of a boom to bust cycle was presented. In it if you remember there was an upturn called a bull trap and this article is prima fascia evidence of the “return to normal” nonsense the whole establishment is pedaling.

    If you could produce an article which also highlights domestic property that would be great. I read recently a Canadian reit is trying to buy north of 7000 apts at the moment in Ireland for renting out. They will get north of 10% yield meanwhile prices will remain below the costs of production for years to come for the apt itself. This means our people are going to be royally screwed on rents for decades.



  4. dorn

    And of course Ireland doesn’t do accountability, responsibility or forward thinking – so we are doomed to repeat our mistakes until the natives are all on social welfare paid for by foreign nationals imported just to do some work and pay taxes.

  5. Colin


    Excellent article, this is where you are peerless David.

    Poor auld Marc ‘wrong again’ Coleman is setting himself up for another almighty clanger if he believes what he writes.

    Back to levels seen in 2004, eh Marc? I remember 2004 Marc. It was property porn mania Marc.

    • roc

      2004 is Coleman’s latest “sustainable” level for property prices. It used to be “sometime between 2004 and 2006″ as he put it himself. He bought his own house in 2006 (he acknowledged in 2008 that “it was probably slightly over-valued at the time”… Some economist, eh!). In Coleman’s eyes, all the property market needs is a bit of “tough love” and 40 year mortgages, or multi-generational mortgages, even. “It’s always a good time to buy a house” he reckoned even back in 2007 and 2008! What a shill. :(

  6. ART6

    Your paragraph in which you refer to the activities of NAMA, a state agency, really sums up the reality that this country is run by a gang of politicians who are incapable of looking to the long term because they cannot see past the next general election, jobs as EC commissioners, and maybe a lot of lies and false promises that might just preserve their jobs and pensions for another five years if the suckers who provide the money choose to listen to them.

    If we ever had a true and independent media in this country, your blogs should be published in every national newspaper, so that at the next general election the people can make their choices based upon reality and not upon political spin.

    • You’re dead right ART6 and people wonder why I am ‘bitter’ even though I don’t have any particular worries on a personal basis.

      It’s not nice watching 5 million people get ripped off though by a small coterie of perhaps 50,000 or less.

      • ART6

        Bearing in mind that your “coterie” is maintained by a dozen or so in what is called a “Cabinet with a mandate” — a Cabinet that lied and manipulated itself into government when no-one voted for the coalition in the first place, but will very likely do so again. For God’s sake, will the people ever wake up? How can a nation that fought for eight hundred years for sovereignty continue to lie down before this?

  7. pauloriain

    Superb take on the situation. In terms of economics, how can you have a shortage of property on an island with only 5 million people and the lowest density of population in the EU. The idea that there is a shortage of property proves that the market has and is being rigged. Anyone and everyone needs to understand, Ireland has so much vacant land, so much development land, there can never be a shortage of property or premium prices unless someone is setting it up to be that way. All we have to do is look at countries like the UK with 60 million people, who have enough property to house their population enough water for everyone, so how can there be shortages in Ireland.

    • Grey Fox

      “If the Market doesn’t exist…create it!” we do not have a Government for the People and therein lies the problem…

    • Grey Fox

      ……so how can there be shortages in Ireland….”If the Market doesn’t exist…create it!” you are absolutely correct there are no shortages in Ireland other than a shortage of grey matter and regard for the men,women and children of this country, we do not have a Government for the People and therein lies the problem…

  8. Bamboo

    Fantastic article comments from all.

    • michaelcoughlan


      Much higher quality since the traffic volume dropped as a result of the unnecessary diversions from bonbon.

  9. Bamboo

    Just looking at for Dublin.

    Around 1175 houses sold in 2014.
    Total sales and registered since the implementation of Price Register 01/01/2010 around 30200.
    That is roughly 3.8 % of all properties sold since 01/01/2010.

    A question for all you statisticians: Is this sufficient data to draw conclusions?

    • Deco

      In a market as manipulated, as the Dublin property market, with banks refusing to release property onto the market….with NAMA being very opaque….and with real estate agents taking forever to sell…plus foreign buyers with no clue….and the entire ediface propped up by

      a state system that borrows 15Billion Euro per year,
      a technology bubble,
      transfer pricing, and double tax agreements.

  10. Adelaide

    Superb article. Great analogy.
    I would also equate David’s ‘Champions League’ red-herring with Intel’s announcement.
    As someone on the ground in the IT sector travelling the country, all I’m witnessing since Christmas is rounds of redundancies in every Irish IT company I deal with. No single company’s numbers are dramatic enough to make the news but collectively they point to a widespread contraction. Over 30 years in the industry I always considered ITC as a niche industry in regards to the modest quantity of employment it generates. It was and always will a modest employer due to its very nature. What has changed is that it’s no longer well paid for recent entrants and this diminishing remuneration trend will eventually cover the whole industry. Could I hand-on-heart recommend a career in ITC in Ireland to a school leaver these days, I would sadly have to say NO, there are easier ways to make a modest living, only if they intend to emigrate with their skillset would I recommend it.

    • michaelcoughlan

      Hi Adelaide,

      David take note: “As someone on the ground in the IT sector travelling the country, all I’m witnessing since Christmas is rounds of redundancies in every Irish IT company I deal with”

      Field evidence McWilliams none of the spindo rte/pravda shit here.

      “What has changed is that it’s no longer well paid for recent entrants and this diminishing remuneration trend will eventually cover the whole industry”

      Deflation in wages means cost increases even if prices remain constant which they are not. In other words if inflation is measured only in price increases then the authorities will never know the true figure by this standard.

    • ART6

      But our government is going to create a high-tech society, isn’t it? No doubt when that initiative also fails at vast public expense, there will be endless media soundbites about what was meant by “high tech”.

      • Adelaide

        But it already did fail. Does anyone remember the ‘Silicon Liberties’ initiative at the turn of the century? I had a small part to play in its establishment, there was the newly established Guinness Enterprise Centre, The Digital Hub and another nearby building that housed (memory’s foggy) either MIT or Boston Scientific. This cluster was predicted to evolve into a digital quarter in the Dublin 8 area. Yep, a white elephant of tax payers money. Admittedly it made great PR for the government but was it all style no substance. I’ve not been back in years, but would be curious to see how many IT companies of note emerged from it. I know that most of today’s Dublin’s animation studios were early start-ups there but their success is down to the world-class product of Ballyfermot Senior College than any “office with internet” which was essentially the pitch sold to sell the ‘Silicon Liberties.’ An Office With Internet. Fond memories.

  11. Bamboo

    I’ve always worked for American IT companies and it is always “restructuring” as the excuse for letting people go. The procedure is to lay them off bit by bit so it doesn’t hit the media and their customers. This trend/pattern has been like that during my 20 year career in the this sector. Always bit by bit. Especially just days before Xmas seem to be the preferred period to do a big clean up of contractors. Some of them are taken on again a couple of months later. As a permanent member of staff I was lucky all the time to escape this but was laid off in 2010. Restructuring was again the reason. My own opinion is that I became too expensive. No hard feelings – was tired of the industry anyway.
    Now, (back to the topic) after so many years of redundancies I can comfortably say that I was able to predict who of my colleagues are going to go in the upcoming months. Whenever there is a pep talk from CEO then one should be aware of trouble ahead. Many of my colleagues have taken on big mortgages months before they are let go. Being foreign as well as old and wise enough to see that property prices in Ireland were absolutely ridiculous I couldn’t convince any of my colleagues to stay away from buying property. Senior Management knew exactly what was going on I the company and they never stopped their own colleagues from taking on mortgages or loans. That would have looked very suspicious.

    • Deco

      In American companies, the budget decides the strategy. If there is loads of money in the bank, some ridiculous projects are initiated. It has to be “invested” and a rate of return must be generated/manufactured so that the CFO looks good.

      Maintenance is an expense.

      A new project is an investment.

      Short term thinking predominates. Therefore, due to low maintenance, there is a need for new projects to replace infrastructure that is not maintained properly.

      And ten once in place, maintenance is cut back, to improve the RoR.

      Accounting madness.

  12. Deco

    Therefore, the main source of financing in the country is foreigners. These guys are borrowing in yen at zero interest rates in a currency that is falling against the euro – which is great if you have debts in yen and assets in the euro. They buy the Irish commercial property assets and because of the exchange rate dynamics, even if the Irish asset yields nothing, they get a deal. But the asset does yield something since rents in Dublin at least are firm.

    Not just an Irish problem.

    The stats with respect to London are even more ridiculous.

    It used to be that Brits and Irish were outbidding the locals for apartments in Budapests, or villas on Sunny Beach.

    Now the Brits are being outbid in their own (ridiculosusly overpriced) capital. And the same seems to be occurring in Ireland.

    The imbalances are getting so bad in Britain, that even the Telegraph (supportive of Cameron and Osborne) is publishing articles warning people.

    Meanwhile Pravda is telling us that prices on the upturn in the DART belt. Those of you living in West Dublin or Kildare need to get with the fat that there is a boom somewhere the far side of Crumlin.

    I seen a very good documentary about the failure of RBoS and Fred the Shred. One big massive mistake. But the problem was their egos were completely out of control. They were pumped up on unfounded optimism. Lazy thinking in the end. Very lazy thinking.

    The Irish banking system, and much of irish society is living in the legacy of lazy thinking.

    A frightening percentage of suburban Ireland became Bertie Ahern like.

    • michaelcoughlan

      I just Read the link Tony. Corporate psychopaths and all that…………………………………………….

  13. Bamboo

    Hello all,
    I am looking for rental accommodation. Can someone help me? Unfortunately I am a bit fussy.
    I am looking for a fully furnished six bedroom house, not an apartment. Each bedroom needs to accommodate a double bed for guests. At least 3 bedrooms must be en-suite and a bathroom/toilet on the ground floor. By fully furnished house I mean it must meet the latest standards and fashion including 50 inch flatscreen. A walk-in wardrobe is nice to have.

    I am willing to share but then it needs to have a fully fitted kitchen. Two at least. It also must have 24/7 manned security, swimming pool + water fountains. Minimum 25 meters and maybe BBQ area. No garden, just a decent size veranda will do. Must have own car parking facility for two cars within 2 max 6 seconds walking distance. Must be near shopping facilities, like Tesco, Marks & Spencers or equivalent, boutiques, Cinema, and a choice of about 30 restaurants at least within 5 and max 10 mins drive. Fastfood restaurants? OK
    If gated community, then roads, footpaths, gardens and other green areas must be kept clean at all times. No Litter around. A gardener must be seen on site everyday.

    BTW: I am willing to pay for my own utility bills and internet, etc. Other than that it must be totally maintenance free of course. I am willing to pay for all the services, like management fees, swimming pool maintenance, rubbish collection, security and gardener. As long as it is included in the rent. No separate bills as I don’t like paper work. I’ll clean the accommodation myself.

    Max rental per month 800 € (including all services). Willing to share the costs.
    PS: No more than 1.5 hour by taxi from airport.

    • StephenKenny

      Ah, Mr Bamboo, we’ve been expecting you: Welcome to your new position in the offices of the Central Committee of the European Union . You will find you’re among friends.

  14. Bamboo

    I know this sounds like a joke. But that is the standard requirement (more or less) when you have 800 euros to spend on rental accomodation in the main big cities in Asia exluding Japan Hongkong and Beijing, I guess.

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