Pushed out of the market

gaius c

Piriz wrote: »

It was reported on Newstalk FM that mortgage arrears dropped a % point in the last 1/4. However, the number of long term arrears non-payment of 720 days or more has increased by 1700 in the last 1/4.

I would argue that banks are doing deals and restructuring mortgages that have some potential but there is a cut off point mostly for loans in long term arrears.
Banks will be seen to offer reasonable time periods and restructuring to mortgage holders. The courts will view them as meeting the criteria laid out by the Central Bank..
At some point in the future they will have restructured the loans with potential and they will repossess in reasonably large quantities the loans with no-potential..

Don't forget that a good proportion of the reduction in arrears is "arrears capitalisation", where the arrears are added onto the loan total value and the clock is reset to zero. These loans are very likely to slip back into arrears again so it's just shuffling deckchairs on the Titanic really.

Piriz

in light of Prof. Morgan Kellys recent lecture perhaps we should reopen the Glut of Repossessions thread?

whippet

Piriz wrote: »

in light of Prof. Morgan Kellys recent lecture perhaps we should reopen the Glut of Repossessions thread?

I don't think the loans that Kelly was talking about are going to be family homes etc .. the amount of SME owners who bought commercial buildings and leased them back to the company during the bubble was massive and also putting money in to shiny new offices in commuter-belt zones .. that is where the stupid money went and will cripple SME's.

The_Conductor

whippet wrote: »

I don't think the loans that Kelly was talking about are going to be family homes etc .. the amount of SME owners who bought commercial buildings and leased them back to the company during the bubble was massive and also putting money in to shiny new offices in commuter-belt zones .. that is where the stupid money went and will cripple SME's.

What is the proportion of non-performing commercial loans like? How big is it- and what is it in comparison to? Aka- is it 10 times larger than the non-performing residential loans- and how much is it in absolute terms? How much is the security on the loans valued at (conservatively)?

There are too many unknowns here- perhaps the good Professor is 100% correct- perhaps he is being pessimistic- time will tell. One way or the other- the ECB are going to purge these debts- this is not a new policy- its been signaled loud and clear for quite some time.

Piriz

whippet wrote: »

I don't think the loans that Kelly was talking about are going to be family homes etc .. the amount of SME owners who bought commercial buildings and leased them back to the company during the bubble was massive and also putting money in to shiny new offices in commuter-belt zones .. that is where the stupid money went and will cripple SME's.

It will include non-performing mortgages too.

“There’s going to be a big cleanup. It means foreclosures on mortgages and it means dealing with small business loans. What you had during the bubble, owners of SMEs [Small and Medium Enterprises] borrowed a lot to buy property. That was the way you made money back in the happy times. So a lot of these companies have got very big losses on property and they’re basically surviving through bank forbearance. Banks aren’t calling in these loans.”

whippet

Piriz wrote: »

It will include non-performing mortgages too.

“There’s going to be a big cleanup. It means foreclosures on mortgages and it means dealing with small business loans. What you had during the bubble, owners of SMEs [Small and Medium Enterprises] borrowed a lot to buy property. That was the way you made money back in the happy times. So a lot of these companies have got very big losses on property and they’re basically surviving through bank forbearance. Banks aren’t calling in these loans.”

The_Conductor wrote: »

What is the proportion of non-performing commercial loans like? How big is it- and what is it in comparison to? Aka- is it 10 times larger than the non-performing residential loans- and how much is it in absolute terms? How much is the security on the loans valued at (conservatively)?

There are too many unknowns here- perhaps the good Professor is 100% correct- perhaps he is being pessimistic- time will tell. One way or the other- the ECB are going to purge these debts- this is not a new policy- its been signaled loud and clear for quite some time.

I was actually coming at this from the angle of the actual thread here about being pushed out of the market and saying that the portfolio of properties that may be dumped on the market in the SME property loan book clean up won't alleviate the supply problems that are pushing prices up in certain parts of dublin.

the properties that were bought by SME and Owner Managers during the bubble were not 3/4-Bed Semi's in SCD, they were commercial properties or apartment blocks that are now gathering dust etc ... not property in high demand. If they were worth anything there wouldn't be that much of a problem for the banks.

Villa05

Would an sme buy a residential property as part of the business and rent it out, that way the tax would be less on the rental income as opposed to an individual.

I think posters are underestimating the number of resedential properties in this sector

Glenbhoy

Villa05 wrote: »

Would an sme buy a residential property as part of the business and rent it out, that way the tax would be less on the rental income as opposed to an individual.

I think posters are underestimating the number of resedential properties in this sector

There may be schemes, but from a pure tax perspective that wouldn't work.
Apart from possible surcharges on rental income as opposed to trading income, at some point, the sme owner has to take the money out of the company, in which case tax will be payable as normal etc..

Glenbhoy

Piriz wrote: »

It will include non-performing mortgages too.

“There’s going to be a big cleanup. It means foreclosures on mortgages and it means dealing with small business loans. What you had during the bubble, owners of SMEs [Small and Medium Enterprises] borrowed a lot to buy property. That was the way you made money back in the happy times. So a lot of these companies have got very big losses on property and they’re basically surviving through bank forbearance. Banks aren’t calling in these loans.”

And even worse, SME's employ vast numbers of people, problems in the SME sector mean job losses which will impact further on residential mortgages.

riclad

MAYBE banks are slow to call in the loans,
COS to do so would increase unemployment,
make the economy worse. reduce house values,causing more homeowners to get in to
difficulty re paying their loans.
its a vicious circle.
Anything that hurts sme s hurts the banks too.

A SME CLOSES down, suppliers ,wholesalers,reduce their staff levels.
Maybe smes made stupid loans,etc
see arnotts, northern quarter development plan etc
but they only got those loans cos the banks were throwing money at them.

jay0109

riclad wrote: »

MAYBE banks are slow to call in the loans,
COS to do so would increase unemployment,
make the economy worse. reduce house values,causing more homeowners to get in to
difficulty re paying their loans.
its a vicious circle.
Anything that hurts sme s hurts the banks too.

A SME CLOSES down, suppliers ,wholesalers,reduce their staff levels.
Maybe smes made stupid loans,etc
see arnotts, northern quarter development plan etc
but they only got those loans cos the banks were throwing money at them.

I'm sure they asked for them! Some even perhaps dollied up the application form....it takes 2 to tango:rolleyes:

riclad

SO the banks are at fault for making crazy loans, to speculators,

if someone owns an apartment block in dublin,
cant sell it,
CAN it not be rented out,
for monthly income,
or is there some technical ,reason, or tax issue which makes this difficult?

Glenbhoy

riclad wrote: »

SO the banks are at fault for making crazy loans, to speculators,

if someone owns an apartment block in dublin,
cant sell it,
CAN it not be rented out,
for monthly income,
or is there some technical ,reason, or tax issue which makes this difficult?

Bank lending practices were very much part of the problem, someone said it takes two to tango and it does, but, banks were actively encouraging people, especially successful sme owners to enter into these schemes. Yes, people should have held firm, but, when you're going well and people whom you think have a good knowledge of the financial world (ie your local bank manager) is throwing money at you, sometimes, it's hard to turn it down. Especially, when you consider that these sme owners saw johnny come lately developers making fortunes by flipping a site, the kind of money that even after running a successful business for years, they would never see..

As for the second part of your query, if the apartment/block is in Dublin, then yes, rent will be collectible and the property will be saleable, however, the development may not be in Dublin. There's no technical tax break reason for not renting out, the biggest issue would be how far below water these investments now are, think one apartment in negative equity and now think 50 apartments in negative equity.

Ray Palmer

Was SME property investment really that much of a problem? I am not saying it didn't happen but the talk here suggest every SME did this. This is certainly news to me. I know very few SMEs involved in this.

Anyway it can be prudent to have a rental loss on your business if it is making a profit elsewhere. It reduces your tax bill. This allows you to invest in property that will increase in value over time while making a loss on rental income. Ideal if you buy a property with great development potential.

Just because some people jump into a market with out any real understanding doesn't mean somebody else with knowledge can't utilise the market for a profit.

whippet

Ray Palmer wrote: »

Was SME property investment really that much of a problem? I am not saying it didn't happen but the talk here suggest every SME did this. This is certainly news to me. I know very few SMEs involved in this.

Anyway it can be prudent to have a rental loss on your business if it is making a profit elsewhere. It reduces your tax bill. This allows you to invest in property that will increase in value over time while making a loss on rental income. Ideal if you buy a property with great development potential.

Just because some people jump into a market with out any real understanding doesn't mean somebody else with knowledge can't utilise the market for a profit.

the real problem is that many SME's are struggling with cash flow and high repayments on non-core investments mean that ordinary cash flow for working capital and current expenditure are strained. There are calls from all and sundry for banks to lend to SMEs for working capital etc .. however the elephant in the room is the actual viability of these businesses. In my experience if SMEs are viable banks have no problem lending for working capital.

the reality is that many owner/managers of SMEs have deviated from the core business with commercial / tax incentivised property investments which are harming their otherwise viable businesses.

SpaceTime

It's hard to know where this market is really. It still appears to be dysfunctional.

All I see is spikes in a few historically very expensive areas. That's not really surprising.

I also find it ridiculous the way they keep talking about houses 'in Dublin' and in 'the rest of the country'

There's basically no way you can take anything meaningful from stats that lump Cork City and Leitrim together as if they're the same market or on the same trend.

Ray Palmer

whippet wrote: »

the real problem is that many SME's are struggling with cash flow and high repayments on non-core investments mean that ordinary cash flow for working capital and current expenditure are strained. There are calls from all and sundry for banks to lend to SMEs for working capital etc .. however the elephant in the room is the actual viability of these businesses. In my experience if SMEs are viable banks have no problem lending for working capital.

the reality is that many owner/managers of SMEs have deviated from the core business with commercial / tax incentivised property investments which are harming their otherwise viable businesses.

I agree that could be a problem for some SMEs that invested in property. I just don't know why you think it such a large portion of them that it is a problem. I am just pointing out it doesn't mean a bad thing for all those who invested but I also don't think it is that many either. How much as a percentage do you think we are talking about 10%,50%,90%?

whippet

Ray Palmer wrote: »

How much as a percentage do you think we are talking about 10%,50%,90%?

impossible to tell unless you would be privy to the banks books. But with the mentality of what happened during the bubble it would be no surprise that there were plenty of SME owners looking at cash sitting on deposit earning next to nothing on interest; while they could leverage that to buy rapidly inflating property on interest only mortgages - which could be flipped to make nice returns apparently

Ray Palmer

whippet wrote: »

impossible to tell unless you would be privy to the banks books. But with the mentality of what happened during the bubble it would be no surprise that there were plenty of SME owners looking at cash sitting on deposit earning next to nothing on interest; while they could leverage that to buy rapidly inflating property on interest only mortgages - which could be flipped to make nice returns apparently

Yes possible, probable no. I don't know what evidence you have this is happening in any large scale. I know of no indicators hence I am asking why you see this as a huge problem. I just don't get it

whippet

Ray Palmer wrote: »

Yes possible, probable no. I don't know what evidence you have this is happening in any large scale. I know of no indicators hence I am asking why you see this as a huge problem. I just don't get it

again I am just going by anecdotal evidence.

In the last 12 months three customers of mine have gone bust, all SMEs, all viable businesses in their own right .. but couldn't pay bills. When the dust settled it turned out that all owners had quite large property portfolios that were linked to the business.

I can't give figures, facts or evidence apart from what I am hearing anecdotally.

But thinking about it; how many people who had excess cash during the last decade plunged it in to property? SMEs were no different.

the guy from ISME mentioned on the radio that of the €57BN of borrowings from SME in the economy approx €32BN of that was non-core business related (in other words - property)

That alone would tell you that over 50% of SME borrowings are nothing to do with the running of the business and servicing that debt will make a massive impact.

MouseTail

Interesting article in the Guardian today about the housing shortage in the UK, and "generation rent".
http://www.theguardian.com/society/2014/mar/16/generation-rental-housing-crisis-shortage?CMP=fb_gu

Jaybor

whippet wrote: »

again I am just going by anecdotal evidence.

In the last 12 months three customers of mine have gone bust, all SMEs, all viable businesses in their own right .. but couldn't pay bills. When the dust settled it turned out that all owners had quite large property portfolios that were linked to the business.

I can't give figures, facts or evidence apart from what I am hearing anecdotally.

But thinking about it; how many people who had excess cash during the last decade plunged it in to property? SMEs were no different.

the guy from ISME mentioned on the radio that of the €57BN of borrowings from SME in the economy approx €32BN of that was non-core business related (in other words - property)

That alone would tell you that over 50% of SME borrowings are nothing to do with the running of the business and servicing that debt will make a massive impact.

I think you are right there. A lot. Including myself and many others I know did. And a lot of people got into trouble. But it looks like now that they have come out the other side of it and are back to having performing properties.

I now mine are performing very well now, but there was a time about 3 years ago when I was wondering if rents were going to go down forever.
It looks like the market is back to the rising rents market again. Its just the bounce at the moment, but rents rises should slow down, to just normal yearly rise, maybe a little higher than inflation.

There was a time when I , and most everyone I know was questioning their decision to buy apartments too. It looks like apartments as investments are very much the best property investment at the moment now.

Things changed very fast, both on the way down and now on the way up. A bit of steadiness would not go amiss in the next few years.

The_Conductor

Location is key though- people who bought in the greater Dublin area (including the suburbs) 2-3 years ago are laughing. The sums probably added up- to say May/June of last year- thereafter, you just don't get a sufficient ROI to make it worthwhile. As a general rule of thumb- if you can't get an ROI of 7%, its not worth your while investing.

riclad

HOUSES in dublin means nothing,
prices are going up in posh, area,s or areas, wheres theres high rental demand ,
Or area,s where theres a shortage of 3bed house,s for sale with gardens.
MANY area,s in dublin have seen no price rises in the last 3 years.
Dublin is maybe 3 or 4 markets,
council,house,s ,private house,s apartments, northside,southside, etc
its too big to be considered 1 market.
Maybe it suited the banks to not talk about this sme problem.
UNTIL the day they were rescued with deposits ,gauranteed by the government they were saying there was no major problem.

MouseTail

Lots of talk in the UK about a stimulus to the construction sector and assistance for first time buyers in their budget. As Policy watchers will know, we are normally not far behind (the Action Plan for Jobs last week focussed on construction). Fasten your seatbelts.

Jaybor

riclad wrote: »

HOUSES in dublin means nothing,
prices are going up in posh, area,s or areas, wheres theres high rental demand ,
Or area,s where theres a shortage of 3bed house,s for sale with gardens.
MANY area,s in dublin have seen no price rises in the last 3 years.
Dublin is maybe 3 or 4 markets,
council,house,s ,private house,s apartments, northside,southside, etc
its too big to be considered 1 market.
Maybe it suited the banks to not talk about this sme problem.
UNTIL the day they were rescued with deposits ,gauranteed by the government they were saying there was no major problem.

Of course you are correct.
Price rises will only happen and have only been happening in the places where people actually want to buy houses.
There will be no rises in areas where people dont want to buy at all. Why would there be.
I doubt too many SMEs bought a whole lot in those unpopular areas though. Im sure a few did.

ezra_pound

riclad wrote: »

HOUSES in dublin means nothing,
prices are going up in posh, area,s or areas, wheres theres high rental demand ,
Or area,s where theres a shortage of 3bed house,s for sale with gardens.
MANY area,s in dublin have seen no price rises in the last 3 years.
Dublin is maybe 3 or 4 markets,
council,house,s ,private house,s apartments, northside,southside, etc
its too big to be considered 1 market.
Maybe it suited the banks to not talk about this sme problem.
UNTIL the day they were rescued with deposits ,gauranteed by the government they were saying there was no major problem.

Strangely enough many people want to live in desirable areas of Dublin with good services and quality property. For these peculiar people property rises in Dublin are significant.

moxin

Jaybor wrote: »

Of course you are correct.
Price rises will only happen and have only been happening in the places where people actually want to buy houses.
There will be no rises in areas where people dont want to buy at all. Why would there be.
I doubt too many SMEs bought a whole lot in those unpopular areas though. Im sure a few did.

ezra_pound wrote: »

Strangely enough many people want to live in desirable areas of Dublin with good services and quality property. For these peculiar people property rises in Dublin are significant.

Riclad is correct.

Desirable is not equal to posh. There are areas which are popular, desirable and are not posh. As far as I can see, most price rises have been mostly in the posh areas. All other areas have either stagnated or continue to see falls.

The_Conductor

moxin wrote: »

Riclad is correct.

Desirable is not equal to posh. There are areas which are popular, desirable and are not posh. As far as I can see, most price rises have been mostly in the posh areas. All other areas have either stagnated or continue to see falls.

Plenty of what would be considered rougher areas of Dublin 15/Clonee/Lucan/Clondalking/Tallaght- have shot up in price.

Jaybor

moxin wrote: »

Riclad is correct.

Desirable is not equal to posh. There are areas which are popular, desirable and are not posh. As far as I can see, most price rises have been mostly in the posh areas. All other areas have either stagnated or continue to see falls.

So not true.