One month from now, Ireland’s Fine Gael-led coalition government will reveal its 2015 budget – the last before the campaign for the 2016 general election gets under way. The budget is widely expected to contain another pronouncement on the future of Nama, the bad bank set up in 2009 to work out €77bn (£61.4bn) of bad debts incurred after the Irish property bubble burst.
In a statement in July, finance minister Michael Noonan indicated that the agency planned to accelerate its wind-down, with a revised target of redeeming 80% of senior bonds by 2016.
If this is achieved, it would enable Nama to wind down significantly ahead of its original 2020 deadline. However, speculation is building in Dublin that the bad bank may bring its end date even further forward through an accelerated disposal of loans and assets.
“One school of thought is that now is the time for Nama to cash in, given the strength of the market and the level of international demand for Irish property,” said Adrian Trueick, Irish investment director at Knight Frank.
The buoyant Irish market appears to support this thesis.
Ireland’s commercial property sector has delivered stellar performance in 2014, with a total return of 8.5% in Q2, its highest level since 2006, according to the IPD/SCSI Ireland Quarterly Property Index.
And Nama has capitalised with a series of successful sales.
Private equity firm Cerberus snapped up the agency’s entire €5.6bn Northern Irish loan book in June this year and a succession of smaller portfolios has since traded at above asking price.
So while the agency still has €56.8bn of the €77bn it started with left to work through, the pace of sales appears to be picking up exponentially, raising the prospect of an early wind up.
Of the estimated €20.2bn Nama has sold since inception, 37% has been disposed of in the past five months.
But although conditions look good for a quick sell-off of the remaining assets under the agency’s control, there is one big reason politicians may decide against an early wind-down: the Dublin housing crisis.
The city needs 7,000 new homes a year until 2020 to correct a growing mismatch between supply and demand, according to Irish think-tank, the Economic and Social Research Institute. And recent statements from Nama suggest the agency sees itself as the key to a longer-term solution to the problem.
Nama has undergone a shift this year, from focusing on the sale of loans and assets to giving more attention to unlocking the development potential of properties on its books, particularly in the residential sector.
This was flagged up in Nama’s July update, which said the agency would prioritise the development of grade A offices in Dublin’s Docklands, and the delivery of housing to some of the capital’s most undersupplied areas.
And the bad bank has now begun to galvanise those development ambitions. Last week, Nama chief executive Brendan McDonagh said the agency planned to build 4,500 homes in Dublin over the next 18 months. It is also in the design and planning process for up to 25,000 homes for the capital, and has the capacity to supply up to 40% of Dublin’s housing needs in the coming years, McDonagh told the National Housing Supply Conference on 11 September.
Earlier this week, Nama chairman Frank Daly told members of the Irish Labour Party that the agency was considering providing up-front funding for social housing.
“All this suggests that Nama is going to be around until 2016 at least,” said John McCartney, economist and director of research at Savills Ireland. “Speculation about an even earlier wind-down has been overblown.
“This is a well-timed intervention on Nama’s part. There is no housing supply coming online as entrepreneurial developers either can’t access finance or are held back by rapidly rising land prices. There’s an important role for Nama to play here.”
So while a wind-down of Nama at the earliest possible date – with a respectable return to the Irish taxpayer – may seem the most politically expedient step for the government, the worsening housing crunch could shift its priorities.
Showing the will to take action to provide more homes for Dublin may be the more popular step for Taoiseach Enda Kenny in the run-up to the 2016 election.
sophia.furber@estatesgazette.com
