Uncertainty causing property paralysis in ‘Nama-land’

for sale sign

for sale sign

CONSTRUCTION cranes no longer dominate the skyline.

Ambitious development plans have been shelved or in most cases abandoned while temporary car parks have sprung up on sites once earmarked for multi-million pound apartment and leisure projects.

The evidence that Belfast is still firmly in the grasp of one of the worst property crashes in local history cannot be ignored.

Northern Ireland’s short lived property boom has left a resounding hangover of debt in its wake and Belfast is suffering the most.

Easy credit, reckless lending and vaulting ambition resulted in a well mixed property margarita whose lingering bitter aftertaste serves as a reminder in the North that bubbles never last.  

Belfast and Northern Ireland in general is being forced to come to terms with a new reality that in part of is now being driven by the objectives of the Republic’s National Asset Management Agency (Nama).

The agency, which celebrates its second anniversary this year, was established to remove certain toxic loans from Irish banks and to provide them with “a clean bill of health”.

It has swept eligible land and development loans and the largest property-related exposures of Bank of Ireland, Allied Irish Banks, which owns First Trust in the North, EBS and Irish Nationwide under its control.

In order to “ensure best value for money” for the Irish taxpayer all loans that have been transferred to Nama were subject to a write down value – dependent on an assessment of the value of the loans and the risk to the Irish Government of taking it on board.

What this means is that there are currently 180 property developers, individuals and companies in Northern Ireland who are sitting with loans in Nama that were taken out on assets that are worth a fraction of what they may have paid for them.

These assets are unlikely to recover in value in the short-medium term which could have a crippling effect on the local economy.

Property prices, commerical and house prices, have collapsed in the North compared to where they were just five or six years ago into this mix add Nama and it is clear to see that Northern Ireland is now in unchartered territory.

Nama’s over-riding aim is to “achieve the best possible return” for the Irish tax payer how that is going to play out in the long run for Northern Ireland taxpayers and possibly home owners remains to be seen.

The agency is currently the dominant player in the local property market and could be for the next decade depending on the strength of the local economic recovery and the mood of the new Fine Gael/Labour led Government in the Republic.

It is too early for the new coalition government to start the debate on where Nama goes from here but given the myraid of problems they face it would be foolish to assume that Northern Ireland’s property woes are high on their agenda.

Nama currently holds £3.35 billion of loans in Northern Ireland which perhaps explains why some property developers believe that as far as the local market is concerned it should be renamed “Nama-land”.

Belfast City Hall For Sale sign

Belfast City Hall For Sale sign

The loans represent around 5 per cent of Nama’s total loan portfolio which in itself is not substantial but the relative amount of development land, properties and land and property under development that this represents in the North is very significant.

The majority of the loans relate to undeveloped land, around £2 billion worth while loans on investment properties total £1 billion.

Just £350 million of the loans that are based in Northern Ireland are connected to property and land under development.

According to Ronnie Hanna, Nama’s head of credit and risk more than 60 per cent of the

loans that the agency currently holds were acquired on land that is not under development, while 29 per cent of these loans are tied to commercial investments.

Just 10 per cent of the loans represent land under development while one per cent is directly related to residential development projects.

Nama’s spread throughout Northern Ireland is also extensive; every county in the North has a Nama debtor. This means there are few towns, villages or cities which will not be directly affected by the decisions that Nama takes.

Just under one third of Nama’s loan portfolio by value is based in Belfast which has given rise to a new and deadly serious guessing game about which of the city’s prime locations are now under the agency’s direct influence.

In fact if you were to take a walk clockwise around Donegal Square in Belfast some lunchtime it might be surprising to discover just how many commercial property negotiators or members of the banking fraternity are debating just which of the city’s historic building are changing ownership on any given day.

Donegal Square is a good illustration of how the city’s commercial property foundations are shifting.

Historically the square has been home to the headquarters of many of Northern Ireland’s key financial institutions and banks but bricks and mortar have proved to be no match against a prolonged recession.

At the junction of Donegall Square south the landmark-listed Scottish Mutual Building recently passed into the hands of administrators following the collapse of the Tyrone based Jermon Group.

Across the city the proposed site for what could have been Belfast’s tallest skyscraper, the Aurora, backed by McAllister Holdings on Great Victoria Street is also now in receivership.

It is not just Belfast which is experiencing seismic changes on the commercial property front as Nama’s loan portfolio in the North more than illustrates.

The agency has loans representing 21 per cent of the value of its total Northern Ireland portfolio in County Down and a total 19 per cent of its loans by value are located in County Antrim.

Nama also loans representing 8 per cent of the value of its loan portfolio in County Derry and 7 per cent in Armagh and Tyrone. Fermanagh and Derry have not escaped either.

According to one leading property consultancy which operates in Northern Ireland and the Republic there is “no appetite for land” in the North at this time.

Another key Belfast agency said the lack of finance available coupled with a “lingering uncertainty” surrounding Nama’s intentions in Northern Ireland has “paralysed” the local market.

Most agree that the North and in particular Belfast now has a surplus of apartment schemes, hotel proposals and undeveloped commercial projects that will never be “built out”.

So what is the consolidated property balance sheet in Northern Ireland now telling us about the local commercial property market and the role Nama now occupies?

First that it is in red to the tune of billions of pounds and that Nama is holding all the cards.

The major worry for many developers and property related companies is that if Nama should begin to quickly offload its assets in the North, which it has repeatedly stressed it will not do, it would be catastrophic.

Perhaps that is why the North’s current Minister of Finance, Sammy Wilson, or whoever his successor is after the Assembly elections, will want to keep the Republic’s new Minister for Finance in the South Michael Noonan on speed dial.