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Who are Government & Nama Trying to Fool?

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Supplementary documentation published by the Department of Finance alongside the Nama Bill about property yields contains some extraordinary statements (starting on page 10):

  • It indicates that property yields (rents as percentage of prices) are higher in Dublin (7.25 percent) than in other major European cities and that Dublin's yield is well above its 20-year average of 5.6 percent.

  • It then states that as "yields move towards their long term average this would indicate an increase in property prices". To re-enforce this view, it expects the exceptionally large difference between property yields in Ireland and key euro interest rates to narrow as a result of rising interest rates or rising property prices!!!

Whilst acknowledging that property prices have fallen by almost 50% in the past few years, the document completely ignores the possibility that the exceptional yields may be anticipating a sharp decline in rents. It not so long ago that the Irish banks offered unprecedented double-figure dividend yields before they were obliged to suspend dividends and their shares collapsed.

Furthermore, the Government could be accused of conspiring with Nama by not implementing legislation to permit downward rent reviews for commercial leases, as has happened already in the residential sector. This has the effect of artificially underpinning high property yields and thereby supporting property prices for the benefit of Nama, the banks and their developer friends. 

Hopefully, the European Commission is taking note of the Government's and Nama's approach to property valuation and their use of taxpayers' hands to catch falling knives.

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Good catch! Nama is all about transferring an enormous amount 77,000,000,000 euro into a government controlled agency. It will receive loans with very dodgy security as you point out. The taxpayer will pick up the tab for this and the interest charged by the ECB. Over ten or twenty years! Nama is supposed to sell off the land and partly developed sites. To whom exactly? They will have to borrow billions just to afford it. And the banks? Well they will only lend a few years after the economy gets better, which with Nama will be a few more years away. Nama will artificailly keep the price of land high, they hope. So much for competitiveness!

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This page contains a single entry by Brian published on October 4, 2009 4:26 PM.

Questions about Nama was the previous entry in this blog.

Nama - Three Suggestions is the next entry in this blog.

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