Monday 23 October 2017

Outlook grim for professional class playing with property

HEALTH Minister James Reilly's financial difficulties shine a light on the huge debts run up by Ireland's professionals during the property boom. Hundreds of the country's top barristers, solicitors, doctors and accountants are now encumbered with debts which, unlike Dr Reilly, they cannot possibly hope to repay.

Last week Dr Reilly suffered the embarrassment of being listed in Stubbs Gazette. This followed complex and convoluted legal disputes between various members of a consortium, of which Dr Reilly was one, that built a nursing home in Carrick-on-Suir, Co Tipperary, in 2001. In January the High Court issued a €1.9m judgement against some members of the consortium, including Dr Reilly.

Unlike Dr Reilly, who has pledged to pay the amount owing under the judgement as soon as the legal disputes have been settled, many other professionals are not in a position to repay their debts. Dublin solicitor Brian O'Donnell, who filed for bankruptcy in the UK last March with debts of up to €886m, may be an extreme example but he is certainly not unique.

During the Celtic Tiger, hundreds, perhaps thousands, of professionals piled into highly leveraged property syndicates. The collapse of the property market has left syndicate members with huge un-repayable debts.

Just how big is the problem? A possible indication was provided by Nama chief executive Brendan McDonagh. Appearing before the Dail Public Accounts Committee in January 2011, he told TDs that following Nama's decision not to purchase smaller property-based loans with an original value of between €5m and €20m, AIB and Bank of Ireland would transfer "in the region of" €13bn less loans to the State's bad bank than had originally been anticipated.

While some of these loans would have been to small builders and property developers in many cases, that is almost certainly a distinction without a difference as a large proportion of these small players were being bankrolled by the professional syndicates. And that's only AIB and Bank of Ireland. What about the other banks? Even on a pro- rata basis it's difficult to see how the total of such loans could be less than €20bn.

Dr Reilly has been merely embarrassed by last week's events. For many of his fellow professionals the outlook is far grimmer.

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