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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