Tuesday 21 October 2014

Risk to taxpayer highlighted as Anglo takes hit

Investment properties overvalued by 40pc -- report

Donal Buckley and Charlie Weston

Published 07/05/2009 | 00:00

Anglo Irish Bank faces a loss of €63m from a shopping centre development in Wakefield, Yorkshire, which is in administration (PETER MUHLY/AFP/Getty Images)

The level of risk facing the Irish taxpayer in taking over the banks' property loans was highlighted yesterday as Anglo Irish Bank took a 90pc loss on a UK shopping centre and a report warned that Dublin investment properties are 40pc overvalued.

The recently nationalised Anglo Irish Bank faces a loss of €63m from a shopping centre development in Wakefield, Yorkshire, which is in administration.

In a separate move the nationalised Irish bank has also appointed a receiver to four UK properties owned by subsidiaries of Athens Investments Holding Group.

Anglo had lent more than €71m for the Wakefield development known as Trinity Walk which would consist of 520,000 sq ft of town centre retail when it was developed. It was placed in administration in March this year after it ran out of cash.

Meanwhile a report by Irish Mortgage Brokers and PropertyWeek.ie revealed that investment properties are 43pc overvalued in Dublin and 50pc overvalued in Cork and Galway.

The analysis compared rental income against deposit rates. It found that current rents would need to be 70pc higher in Dublin, 91pc higher in Cork and 89pc in Galway for an investor to see any kind of return from property over five years. This is based on the current average asking prices of property, the Residential Propety Investor Report found.

Karl Deeter, of Irish Mortgage Brokers, commented in the report: "Residential property does not look good as an investment option in the current market. "Falling rents, declining property prices and changes in both lending and taxation policies have combined to bring confidence in this sector to an all-time low."The premise of the report is that there should be a "risk premium" over the "riskless reward" for putting money on deposit. But at the moment this is not the case.

"So, either prices drop or rents increase and because rents are not likely to increase then prices will have to come down more in order to attract investors."

He added that the taxation changes in the recent Budget made property investment even less attractive.

However, Mr Deeter said property was still a good asset class.

"The property crash does not mean that the housing market is gone, but potential investors should run the numbers for their own circumstances to determine target buying prices."

Pressure

In Britain, Anglo has appointed Allsops as receivers for the four UK properties owned by Athens Investments Holding Group.

Athens paid £38.35m (€44m) for the properties. Sources suggest that a speedy sale of these would enable Anglo to recoup its loans.

Other financial sources say that Anglo is not under any immediate pressure to sell the property as doing so would crystalise its losses.

Other options that it could consider include a joint venture with another developer or locking up the site until the market cycle recovers.



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