Ronan Lyons | NAMA Assumptions on Prices Not Good Enough
Ronan Lyons, economist with the property website Daft, provides a very thorough analysis of the Dept of Finances assumptions about the fall in the price of property to 47% from the peak, and the suggestion that property yields are high relative to European and historical averages.
According to the ESRI and daft.ie, the average fall in house prices in Ireland so far has been no more than 35 per cent. Suppose oversupply in commercial and residential segments of the property market leads to a 20 per cent fall in rents in the next few years.
If, as a result, yields converge to 6 per cent, it suggests a long-term economic value on these loans of €44 billion, not the €54 billion stated by the Government in the Nama framework. It is scarcely credible that Nama’s entire estimation of long-term value hinges on rents, despite evidence to the contrary, holding constant in a subset (Dublin) of a subset (commercial projects) of a subset (projects under way) of a subset (Ireland) of the total loan book – a segment that accounts for perhaps 5 per cent of the loan book in total. Is that good enough?
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September 25, 2009 5:57 pm
Today’s “Irish Times” article by Ronan substantially reproduces a post (http://www.ronanlyons.com/2009/09/17/do-the-nama-figures-add-up-a-broader-and-more-realistic-assessment-of-long-term-economic-value/)on his website about a week ago. (By the way, both were written in a personal capacity, not from his perch at DAFT).
It is really quite extraordinary that we have seen no official response to it yet.
September 27, 2009 10:28 pm
Hi Fergus, yes, I noticed that post but thought the IT version was even more direct. True too about the personal capacity. I mentioned the Daft connection not to suggest that his opinion was that of Daft’s, only really because I thought it was relevant to the fact that he was talking about the estimation of value of property prices now and in the future. Thanks for pointing it out here though.
On how extraordinary it is, perhaps if pressure mounts on this point it will be addressed at some point. But the pressure is off at the moment, and I imagine they will do everything they can to avoid this glaring problem.