NAMA - future potential
NAMA and the possibility of MAKING money in 15+ years.
This seems to be the jest of the pro NAMA lobby. Below I have listed reasons why each part of the NAMA property portfolio won’t give a return; please can someone please explain why they think this won’t be the case?
1. Landbanks: I won’t dwell on this as everyone seems to understand and accept this risk. Basically sites earmarked for development outside the likes of Longford will never be sustainable, and on those grounds when they attempt to extend planning permission in the next year or two they will be refused, (planning permission generally lasts 5 years, and most of NAMA land got its permission during the tiger years so 2007 at the latest, time runs out 2012).
This land will never recover, and will need to be rezoned as agricultural (cost involved) before NAMA can sell it for 10% of what it cost. So NAMA buys for 70% loan value, it sells it for 10% = loss of 85%.
2. Residential: we should note that Le Corbusier perhaps the 20th century’s greatest architect called a house “a machine for living in”. The Celtic Tiger never built machines for living in, but the smallest box possible to generate a profit.
Take the nature of Tiger speculation. Paddy the developer wanted to build 100 units but to do this his bank wanted 15% of them sold off the plans to counter some of the risk. Paddy decided to “share” with his employees and friends a profit making venture and “allowed” them to purchase some units for €200k, the employees jumped at the change, knowing that before they needed to draw down the cash, they would sell them for €300k, a cool €100k in two weeks. Paddy “had” to do this to secure his 100% loan on his share. Now in 2004 Mr. And Mrs Bogelton notice how Paddy and everyone who works for him has the latest urban jeep, and “get in” on the property game, and after purchasing a unit for €300k, find that they sell it for €375k 2 years later. Not quite the €100k in two weeks but a respectable profit none the less, especially when done in multiples?
2007 and the DOE have finally noticed that families do not wish to live in 70sqm storageless boxes with tacked on balcony spaces no good for the proverbial cat to swing in. Given that all of the speculative development is designed for profit and not to be actually lived in, someone at the DOE must have thought: “are we building future slums?” and introduced new spatial standards. Still even after 2007 the 3 bed in Dublin had to be 100sqm, and only 15% of a scheme, while such family (not luxury) units in the USA and Germany (places where families generally live in such units) range from about 150-200 square meters.
Someone with an interest in future development probably spots an opportunity here, build family units, there’s no competition!!!!
Not only does size matter, which won’t help NAMA land, but one of the basic provisions of buildings, is shelter. The Green’s have in fairness pushed along the sustainability agenda, and now homes must be airtight, and very well insulated to meet current Building Regulations, in fact cavity wall construction needs 180mm of high density insulation, not the 60mm in NAMA land, and even then it is doubtful if such a technology will work, external insulation being the future. So all these NAMA homes are significantly under dressed compared with the homes built from now on. Also the regulations have changed several times this decade alone, each time to a higher standard. With a carbon tax on the horizon how much will a NAMA home cost to maintain?
It’s kind of like you take a 1989 Eastern European post USSR car, it has no air bags, no power steering, and can only run on leaded petrol. It takes ½ an hour to start up on the morning, after you pour boiling water on the engine to “heat her up”. Now should the automobile industry likewise pick up again in a few years, what do you think the chances are of selling a few thousand Ladas? Not unless we have a Mad Max Thunderdome world, I should think?
3. Commercial: Again similar green policies have an impact here. Now such developments need to meet higher regulations and be capable of natural ventilation, employ passive environmental controls such as twin skin facades, have energy recovery systems and in some cases capable of energy generation. So it will be for the future. Here again NAMA’s portfolio looks a bit like that old Lada.
But also one should realise that shop and office sizes have changed through the years. There are optimum sizes based on cost of rent to foot fall ratios. In offices technology changes, wires and cables require space and fire spread considerations, if we go wireless, why pay for fossils? Let’s not even speak of the new accessibility regulations, and equality laws!
I have just skimmed the surface above, I’m an architect, and although I may find technical details, regulations and building procurement fascinating, I can imagine that most people will have no interest or understanding of issues outside of their own field. Hopefully I have not bored you but made you aware of exactly how the wool is being kept over your eyes.
When I hear anti-NAMA economists argue that the failure of NAMA is that it requires a resurgence of the property market, I am filled with despair, they are still thinking in 2006, that the public will want to buy any dog kennel.
This will not occur, developers will exist where the market requires buildings, with a general economic recovery say in 15-20 years, there will be new developers ready to supply the market with buildings designed to future standards suitable for their needs. This need won’t be to sell on a shoe box for an outrageous profit; no one will fall for that again. So the NAMA portfolio will be seeking to punch way above its weight, competing against technologies and spatial requirements not yet dreamt about.
NAMA land will rot! Think the Ballymun Towers, in their day the future, within a decade leaking and costly. The real return on investment for NAMA will be whatever the diminishing rental yield amounts to, I believe it just covers the interest? We’ll never recover the capital!
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