When will Housing Market Return in Ireland?

I read over the weekend in the Sunday Independent, an excellent publication in my view an article whereby the journalist asked 6 economic and property experts when they thought the housing market in ROI would improve. I read with interest the thoughts of these people as its certainly a topical debate in Ireland right now. Interestingly enough the first 3 experts reckoned the housing market would start to turn the corner in the next 12 months, yes that's 2014. The remaining three thought between 3-6 years.

To answer a question like this i believe it would be prudent to look at what has happened up the road in Northern Ireland, a different jurisdiction however NI has suffered just as much as ROI from an economic point of view regarding the banking crisis and property crash.

It is worth noting that the banks in the North over the last 2 years have taken a firmer approach on defaulters and generally are going through their mortgage books with intent and a more aggressive nature. The net result of this is that the supply of housing stock has dramatically increased resulting in house prices falling through the floor. In fact last night i looked at the Colliers auction coming up in Belfast in the next two weeks and notably you will be able to pick houses up for as little as £15-£20k throughout the country - startling!!

In Belfast since 2012 ,investment buy to let properties have been making as little as £30k in the auction room and the same properties will comfortably return £350 per month. The yield on this kit is generally between 7-10% - not a bad return, much better than a toxic banks impotent 1%. This trend in NI will continue in my view until the banks get their balance sheets in some sort of order and i would suggest a minimum 3 years from now for this to be within reach.

 

OK so I've set the scene - so what have the ROI banks been up to in the past 2 years whilst their friends in Belfast have been working through their problems - emmm...... Not much to be honest. Facts remain that the banks in ROI have waited to the turn of 2013 to waken up and take action regarding the mortgage problem facing them and the country.
GDP has been working in the debt advisory business in NI since 2010 and are well up to speed with where banks are and their policies. We have been working with distressed borrowers in ROI since 2012 and in January of this year we opened our Dublin office and since then have been swamped with people and SME's who are completely overwhelmed with debt. An observation would be that the banks in NI are about 18 months ahead of their southern counterparts in terms of dealing with the debt. We have seen in NI thousands of properties literally come to the market in the past two years and largely house prices have torpedoed as a result.
In 2002 i did a parachute jump onto the loveliest beach in Byron Bay Australia and i think house prices in N Ireland is the only thing to match the speed at which i was travelling towards the floor on that occasion as exhilarating as it was!!.

Considering the above, where are we with the housing market in ROI? OK so yes Dublin will be the least effected and if there is any stability at all in ROI, for obvious reasons it will be around the Capital. However for the rest of the country, i wouldn't be putting the kettle on for a recovery anytime soon.

I listened and watched with interest a Prime Time debate in January on RTE with what seemed to be a handpicked audience of very positive professionals and "industry experts" discussing the fact that they believed and were seeing the evidence of a recovery on the go or in their words "Green Shoots". Consequently on "Q" the very next day "Moody's" credit agency released a report stating that house prices in Ireland to soften another 20% in 2013 - such a contrast. If i was a betting man id have 50cent on Moody's forecasts.

OK so let me get off the fence. There is likely thousands of buy to let property and other housing stock coming to the market through banks in the next three years in ROI. My view off the back of my GCSE economic schooling is that when supply increases, prices normally soften.

Facts are that the Irish banking sector is under water, has been dragged up towards the shallow end, which is still too deep to stand up unaided. The housing market will continue to soften until the banks sort themselves out and also start lending again. i have a great imagination trust me, but this is not going to happen in 2014. The banks decision to sit on their hands will come back to haunt them. Some say they were waiting to the new insolvency bill was passed before they started to move. Well if that's the case then fine but lets be honest a piece of legislation that's created to punish people is hardly going to be a game changer for anyone. What a missed opportunity that was. 

One thing that is for sure is that there will be no recovery in Ireland until the banking sector sorts out the debt overhang. Their is way too much sovereign debt, SME debt and personal debt in the country with little surplus income, resulting in the country being economically on the life support. machine 

Lets hope we all try and contribute what we can to make things better in the long term for all. However hoping for miracles and ignoring the bottom line economic facts is in my view, very unhelpful.

Conor Devine MRICS ~ Principal GDP Partnership Belfast / Dublin

Bankrupt in Ireland - No Thanks

A number of the leading publications in Ireland from time to time continue to run stories highlighting the fact that Irish debtors seem to be continuing to go to another jurisdiction to declare bankruptcy, most notably Northern Ireland, England or Wales.  Some of the articles are written in such a way that the author appears to be in some sort of shock that with the new insolvency legislation now about to be launched in Ireland why would people still want to do this.  In fact I have listened to so called financial experts in the Irish press and on television and radio over the past few months, and it seems that they too seem to misunderstand the new legislation.
Let me be very clear - the new insolvency legislation will do little to stem the race across the Irish sea or into Northern Ireland to resolve the personal debt crisis facing the country.  The new law which has been drafted to air on the side of the banks is designed to punish people, and if you do this, well - would it not be reasonable to assume that many will decide to put the two fingers up at it and take measures into their own hands - I think so.

It has been leaked in the past few weeks that the banks themselves had some influence in the drafting of this legislation, and to be frank having been working in this industry for quite some time now, I am not surprised to hear this and when you see the papers, its clear they likely had some influence over the documentation. The bottom line is though, its not going to work.  If you are seriously expecting people to live on beans and toast sorry just beans for six years, well then I am sorry it wont work.  If you give the bank a veto on the arrangement, well its unlikely people will fall for that one either.  The facts are that the new bankruptcy law will bar you from being a director in a company for 3 years and ....if you have any chance of making a few euros after that there maybe a five year claw back. 
Take the scenario whereby you have a pretty sharp young entrepreneur who has 6 buy to let properties and a good SME business with lots of potential.  He is studying the new legislation with the help of an advisor trying to work out what his best options would be, to move on with his life. If he stays in Ireland, well there is a good chance it may take him 8/9 years to deal with his debt.  If he decides to go to NI or England - 12 months.  Question? Where is that guy going to want to resolve his debt problem? Well the droves of people we are seeing in GDP Partnership in our Dublin office are telling us that they will be moving to England or up to NI for a period as they just are not prepared to put their life on hold for up to 10 years in the Republic of Ireland - and to be fair who would argue with them.  This has to be a huge problem for the country as a whole as the one opportunity the government had recently of devising a bill that would work for everyone, is actually making people take the law into their own hands and go to another jurisdiction - a sensational failure!

A few months ago a BBC journalist described Ireland as Europe's only remaining open air debtors prison  - well that's one way to look at it and I would certainly agree with this to a large extent. The majority of the banks are obsessed with putting borrowers through the mangle several times, dragging their heels regarding the personal debt issues and SME's are going through a slow death as they are swamped with bad debt that will never be repaid.  We see all sorts of confusing reports recently of green shoots for Ireland and reduction in unemployment only last week - what the figures didn't say was that unemployment maybe fell slightly but it was as a result of part time jobs increasing.  The trend for people on part time contracts is that they don't spend, hence no real benefit for the economy - so the wheel goes round and round.

Tourism bankruptcy will continue to be a very real choice for people living in the Republic of Ireland and to be quite honest there is very little anyone can do about it.  Its unfortunate that the government in their wisdom didn't duplicate (or design something that resembles it) the insolvency legislation that works quite well in the UK and NI, as this would have sent out certainly a more positive message to the borrowers themselves. 

Most notably I read with interest at the weekend the USA is now starting to pull back out of recession and jobs are increasing and even the housing market is picking up.  How can this be?  The reason is that the government took strong decisions three years ago and had the gumption to stick to their resolve and now are getting the rewards. Oh yes and the USA banks deal very aggressively with bad debt writing it down and starting again - more or less!! Go to the opposite end of the spectrum and you will see the Irish government model, which is floating in thin air, economy awash with debt, it's airports full of young talented professionals with one way tickets to far away fields,  and those left behind in the country emotionally if not financially bankrupt and struggling to see the wood from the trees. As the band D-REAM hit record suggests.... Things can only get better!

Autrhor Conor Devine MRICS : Principle of GDP Partnership

Coroner warns financial institutions not to harasss people in debt

                                                                     

I read with interest an article in the Clonmel Nationalist printed last week by South Tipperary’s coroner where he publically warned financial institutions and debt collectors they are breaking the law if they harass a person for debt repayments and has called on them to ensure they have policies in place to prevent their staff harassing under pressure debtors.

Mr Morris has raised the issue in light of the huge increase in the number of suicides in South Tipperary and nationally in the past four years and the fact that some of these suicides were committed by individuals under financial pressure due to the impact of the recession.
There were 18 deaths by suicide in South Tipperary last year, which was double the number of such deaths in the South Riding in 2009.

Mr Morris, who was one of the speakers at a high profile Suicide Awareness meeting in Clonmel last month, said he hadn’t analysed the suicide cases that have come before South Tipperary Coroners’ court in recent years but acknowledged the recession has been a factor in some specific cases.
He believes there is a need to “chip away at the awful ruthless culture” where a “kind of merciless Darwinian approach” is taken to people in financial trouble.
He said he suspects the policies of some financial institutions and debt collection agencies in relation to collecting money owed to them don’t comply with the provisions of the 1997 Non-Fatal Offences Against the Person Act.
He said the manner in which financial institutions communicated with a debtor could be the last straw for a person under severe financial pressure and lead them to entertain suicidal thoughts.
Under Section 10 of the Act, it is an offence to harass a person by persistently communicating with them by any means including by telephone in such a way that it intentionally or recklessly seriously interferes with their peace and privacy or causes alarm, distress or harm.
And Under Section 11 of the Act, a person who makes a demand for payment of a debt is guilty of an offence if the frequency of their demands is calculated to subject the debtor or a member of their family to alarm, distress or humiliation. They are also committing an offence if they falsely represent that failure to pay the debt will result in criminal proceedings or that they are authorised in some official capacity to enforce payment or utter a document falsely representing to be official.

Mr Morris urged financial institutions and debt collectors to have policies in place to ensure their staff don’t harass debtors and breach the law.
He advised people in financial difficulties to invoke the Act if they feel they are being harassed.
“If a person is being harassed by a financial institution or debt collector they can point out to whoever is directly contacting them that he or she is the offender and they are free to make a complaint to the Gardai,” he explained.
Interestingly, Mr Morris recommended to people in financial difficulties to hire an independent mediator with the necessary skills to negotiate with the banks and other creditors on their behalf, and he urged financial institutions, companies and other agencies collecting debts to deal with these third parties in cases where they are engaged rather than dealing with the individual debtor.

I couldn't agree more with Mr Norris as over the past three years our team at GDP Partnership have encountered endless cases whereby the debtors are at a complete loss and really struggling under the duress being applied by institutions in terms of debt recovery,  An observation would be that the solicitor or accountant in many cases who is introduced to assist the case, actually fails to understand the process and policy of the bank therefor is not in a position to bring forward proposals in line with banking policy, resulting in an impasse.

Thankfully, through our team at GDP partnership based in Belfast and Dublin,  where we have invested in a group of highly skilled multi disciplined people who are sympathetic to the borrowers position, have been able to mitigate this problem in some way, however there is so much more work to be done. Indeed there have been a number of cases in the past twenty four months whereby we would have encountered very distressed borrowers who are in a seriously fragile mental state and have lost all hope in the process and challenges they face.  So I think Mr Norris timely airing of the connection with suicide cases and the debt burden in the country can only be a positive development.

There is a saying that in every bad situation there is good come out of it.  Lets hope that some of the mistakes of the past in this financial arena are acknowledged and rectified in the future so we are not talking about the disastrous subject matter of suicide in the same sentence as the debt burden facing Irish society.
  
Author: Conor Devine MRICS
Partner


 

Banks Not Passing Rate Cuts on...!

Earlier this month, the European Central Bank cut interest rates to a record low level. This was the first cut in just over ten months and whilst the new 0.50% rate is as low a rate that has ever been seen in the Eurozone, the ECB also indicated that there was the possibility of further action in the future.

Sounds good, but it gets even better. As well as providing as much liquidity as possible to the banks and helping smaller firms to access credit, Mario Draghi, the ECB president also suggested that they were 'technically ready' to cut their deposit rate from the current 0% into negative territory. This means that they would start charging banks for holding their money overnight encouraging them to lend more money rather than deposit it at the ECB.

So we've got record low interest rates and banks being encouraged to lend. It sounds ideal but the benefits are stopping well short of those who need it most. President Michael D. Higgins has said that the banks need to restore trust and confidence, I couldn't agree more. Since 2008 they have largely been the villains of the peace and trust is at an all time low, rather like those interest rates that I started this article with.

The Irish Banks have chosen not to pass on the interest rate cuts. Everyone, rightly questions why? Senior Bank Officials regularly trot out the same rhetoric, 'If we pass it on, it will ultimately cost the tax payer more'. That' s only if they avoid another bailout which in my opinion is unlikely. The standard mantra seems to be the taxpayer pays, the taxpayer pays, the taxpayer................pays. Banking is such an easy game!! For the lucky ones who own a 'tracker' mortgage the banks have no option but to pass the rate on. For all other class of borrower, there is a degree of discretion on behalf of the bank. Rather bizarrely, earlier in the same week that the ECB cut rates, the so-called pillar banks raised them for certain types of borrowers. There is absolutely no way that trust can be restored when this happens, it's quite simply counter intuitive. I also associate the word 'pillar' with an upstanding, contributing member of society. Perhaps there is a better description.

 

Up until recently, mortgage interest rates in Ireland closely tracked movements in the ECB's main refinancing rate. This occurred because of the higher proportion of tracker and variable rate mortgage products in the Irish market which are linked to the ECB's rate. But the banks have been hammering away at you all long before this month, over the past nine months, prior to this rate cut, the average Irish interest rate on outstanding mortgages had already diverged from the ECB's main rate. The ECB's main refinancing rate has remained constant at 0.75%, whilst the applicable Irish rate increased by 14 basis points. Naturally enough this divergence is increased even further by this most recent cut. The domestic banks are clearly breaking from their traditional policy of automatically passing on rate cuts.

 

Why is this happening? Banks traditionally lend long term in the form of mortgages and term loans but borrow short term from their own deposits and the money markets. Quite simply the cost of their borrowings in the short term market have increased following the global financial crisis and as well as losing money on their loan to book values they are also losing money on the difference between the rate they have lent long term and the rates at which they are able to borrow.

 The borrower is taking all the hits and being pushed closer to the edge of despair. The banks had a duty of care when they lent you the money, they have a duty of care throughout the term of the mortgage and they have a duty of care when you are in difficulty and need assistance in solving your difficulties. There has been a certain amount of wilful neglect at each level. We see many borrowers in Ireland who have not made any payment on their mortgage in several years, this is incomprehensible but is a fair indication of how far the situation has deteriorated. Denial on behalf of the bank and the borrower has only made the situation far worse than it needed to be.

There are very few positives to find for the borrower that is being pushed around. The banks most recent methods to address the problem in the Republic of Ireland, split mortgages may solve some of the immediate problems but will present more issues long-term and many of these may be more unmanageable. Those with tracker mortgages remain in a stronger position but should resist any temptation from the banks to change these. In years gone by the borrower has been sold the 'pup' with the like of endowment mortgages, now that the banks are on the wrong end of one of their products, let them sit with it and resist any attempt luring you to change to a variable or fixed rate mortgage.

My own personal view is that this thread is going to run and run and whether you reside in the Republic of Ireland or Northern Ireland you need to watch this space very carefully to see what develops.

Author: Nick Leeson – Principal at GDP Partnership www.gdpni.com

The bottom of the Property Market?

I see in Dublin today news has been released that USA real estate and finance company Kennedy Wilson have secured an high end Investment portfolio of offices for some €305m euros.  This is a significant deal in anybodies world and certainly another one to note down in what some say is a turning point in the property market in Ireland.
An observation over the past 6 months would be that certainly there are a number of high end institutional type investors circling the skies of Ireland eyeing their prey trying to swoop in and pick up what they deem to be excellent value in the form of bricks and mortar investments.  This would lead many to believe that the property market in ROI is maybe at the bottom and trundling along the seabed.  My own view would be that yes there maybe an element of truth in this analysis.

Most transactions that take place in the property market either inspire confidence or a lack of it and I would suggest that the perception of this deal and others like it will certainly add confidence to the market place as a whole.  Lets face it although Ireland came last in the Eurovison song contest at the weekend, we would certainly top the polls globally right now in terms of a market place which is highly fragmented and seriously risky, and rightly so.

The health warning on this would be that all of these deals are being done at huge discounts which ultimately will have a ripple effect across the market place and send shock waves through each of the board rooms of the banks.  However to get any form of stability back into the market place this has to happen so from the property markets perspective I certainly welcome news of Kennedy Wilson's deal.

Have we reached the bottom of the market - I don't think so and my reasoning for this is that there is a fair amount of sorting out to be done in the Irish banks before we hit the bottom of the market.  Sure the housing market in areas of Dublin seems to be strong and the demand for product is good however once you start to leave Dublin you can take your pick from the hundreds of houses that have been on the market for over two years - this trend is continuing and likely to do so in the short to medium term.

From a commercial point of view with one bank in Ireland clearing the decks and all the others deleveraging and shrinking their loan books more product is going to come to the market place in the coming period.  So I believe its slightly premature to call the bottom of the market.

Ultimately Ireland's property market - North and South will start to pull out of this and confidence will come back as the banks strengthen their positions and start to lend again.  However I wouldn't be putting the kettle on for this  to happen anytime in the next couple of years.

Author: Conor Devine MRICS Partner GDP

Debt Write down - Let's get on with it....

 

2013 is moving at a hectic pace and it has to be said that the doom and gloom regarding debt in Ireland hasn’t gone away.  Banks across the island are not in good shape as they struggle to work out how to deal with the massive debt overhang from the glory years and also how they deal with borrowers who are running out of money.  Our practice is currently working in this space trying to find solutions to this problem in both jurisdictions. It is very interesting and more so frustrating to watch the whole process play out BETWEEN Banks and Borrower and indeed Government .

Memo to anyone who is reading this -   Debt is an affordability issue – if you cannot afford to pay a mortgage (s) every month, then you cannot afford to pay.  GDP Partnership is still the only practice in Ireland who is promoting Mediation as a way to sort the debt issues facing most of the country.  We have found that over the last twelve months the banks in Northern Ireland are now becoming more open to this form of solution all be it very slowly.

 In the Republic resolution was at a standstill for the past few years, as the nation waited for the introduction of the miracle Insolvency bill which many of the politicians must believe will sort the whole problem out.  Unfortunately our view is very clear:- The new legislation will not sort the problem out as for one the bank has a veto on the SOLUTION.  This simply will not work and is a missed opportunity for the country as a whole.

We have noticed in the last month or two that banks in the Republic have upped their game regarding dealing with borrowers and calling them in.  There is no coincidence that this new approach is tied in with the pressure the IMF and Irish Central bank have been putting on Irish banks to deal with the debt problems and correct their widely impaired balance sheets.  This is a fundamental problem within the Irish banking sector today.

Former President of USA Bill Clinton said in October 2011 on a visit to the Emerald Isle that “Economically, Ireland will not move on, until there is debt forgiveness” – interesting thought.

This is coming from a man who lives in a country whereby the banking sector deals with debt predominantly by writing it down to a dollar and starting again.  There is a lot to take out of this as my fear is as we are now in the sixth year of this recession which has turned into a depression for many, and unfortunately most banks are continuing with this slow death policy.  We have many clients on our books that very clearly have lost everything in the last few years and in many cases their whole life’s work, and the banks are still saying – we want all our money back, we want more security, we need a better return.  Quite frankly – it’s not going to happen.  People need to remember that everyone restructures their debt and most notably in the past five years Governments and a range of Financial institutions.  Our whole philosophy at GDP partnership is very simple – Why is it so unrealistic or unreasonable for a borrower to do the same thing as banks who have already restructured?  The simple answer is, it’s not.

Ireland is facing one of its worst crises in modern history.  Sure there are some who are taking their money out of the banks and buying property to get a return at low ball sale prices.  However many people are living on the edge or very close to it.  It’s a precarious situation to be in and there is a lot of spin and incorrect PR being printed in publications about green shoots and economic recovery. The facts are simple; there is too much sovereign debt, SME debt and consumer debt in the country.  The banks need to genuinely engage with borrowers and agree to restructure loans in such a way that is fair for all. Banks were a major part of the problem but must be brave enough to become an equally important part of the solution. 

Bankruptcy is not the solution and certainly not the answer albeit many professional organisations seem to be in favour of it – I wonder why that is? The new insolvency law in Ireland is clearly designed to punish people, and considering debt problems occur as a result of a life event, you have to question the mind-set of the people who drafted such legislation – they themselves need a holiday and some time to unwind and clear their own heads I would suggest.

Mediation is the way forward and our practice for one will continue to fly the flag for this type of solution with the hope that the banks be a little bit more open to this type of approach and embrace the opportunity to sort the issues and move on. 

I agree with Bill Clinton and it has been proven in other parts of the world over the last fifty years that debt forgiveness / debt write down or whatever name you want to call it, is what needs to happen sooner rather than later if the country is to start pulling out of this dreadful situation we all find ourselves in.

Conor Devine MRICS is Principal at GDP Partnership Belfast and Dublin

Twitter: @Conor_Devine  @Gdp_Partnership

Green Shoots in The Irish Economy - Really?

Multinational companies who have relocated to the Republic of Ireland for tax purposes without investing in the country are distorting the economic statistics and exaggerating its export led recovery reports the FT in todays publication. An example of the distorted statistics is; in 2012 the official current account surplus was 6.1% of gross national product but that falls to 0.6% when the retained profits of these foreign companies is removed.

This distorted data is leading the Republic of Ireland into a false sense of security as there is less room to increase domestic productivity and demand. The Irish economy’s competitiveness and  ability to service debt is hugely exaggerated in the official figures being released to the public.  Therefore the Irish economy may run into significant head winds when they exit the bailout programme in the near future

 

This flaw in the statistics was discovered when official data on foreign companies was release for the first time to economists outside of Ireland’s Central Statistics Office. It would appear that the establishment in the Republic of Ireland are trying to gloss over the inherent structural problems in the economy by broadcasting that there are green shoots appearing. However this may not be the case

 

One of the main constraints on domestic productivity and demand is a lack of credit, this is preventing any green shoots appearing. Credit is mainly controlled by the Banks which as well all know have massive issues with their loan books. Only when banks address their loan books and deal with both personal and corporate debts will credit flow again and allow the real economy to function. The most efficient and effective way to deal with this debt issue is by mediation, whereby Bank and Borrower work together to achieve a amicable solution. GDP Partnership have pioneered mediation between borrowers and banks and have successfully resolved numerous debt issues to the benefit of both borrower and bank.

We would expect this trend to continue in the next three to five years as the banks start to recognise Mediation with the borrower as the optimum solution to the problem.  In the meantime we recommend you treat data and statistics released by government and other sources, which relates to green shoots for the economy with caution.

Author: Louis Waters ACA Senior Relationship Executive