Friday, 28 August 2009

NAMA and "long-term" economic pricing

The basis on which NAMA buys assets from the Irish banks is a key issue, as highlighted below. Something that all should bear in mind when making any sort of forecast for the prospect for returns on Irish property (be it equity or debt exposure) is likely to be remote when there is so much spare capacity:

A survey from the Irish Brokers Association has today found that the number of buildings left vacant in Ireland rose 150pc from 140,000 last year to 350,000 today.

To put that into perspective, there is around 1.5 million household in Ireland. So this represents more than 20% of present demand for housing and is spare capacity. OK, there is likely to be some mismatch in terms of type of accommodation and/or location wanted versus available, but that is a second order concern when you consider the amount of excess supply. And excess supply in economic terms generally means only one thing; lower prices and poor returns (if any).

In this case the "long-term economic value" of these assets could be far, far less than people think.

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