NAMA has unveiled a scheme to shift new homes that it owns. With buyers extremely thin on the ground, the agency has taken the unprecedented step of in effect insuring buyers against price falls of up to 20pc.
Under the NAMA scheme, buyers will pay 80pc of the purchase price up front. Then, after five years the property will be valued, and if the value is unchanged from the original purchase price, the purchaser hands over the remaining 20pc.
If, on the other hand, prices have dropped, NAMA will pick up the tab on any price fall up to 20pc. In other words, if the value of the house falls by 10pc, the purchaser only hands over 10pc. If the value falls by 20pc, the buyer hands over nothing.
So what’s not to like about the NAMA scheme?
Well, in the admittedly unlikely event of prices falling by more than 20pc, the buyer will find himself on the hook for all losses above that figure.
There is also the problem that, initially at least, the scheme only applies to a very limited number of properties: just 115. While NAMA chief executive Brendan McDonagh has said that it could eventually be extended to up to 750 properties, that’s still relatively small beer in a market with 300,000 unoccupied houses and apartments.
In practice, the NAMA scheme will be largely confined to good properties close to the major cities of Dublin, Cork, Limerick and Galway.
Which still leaves us with houses in “ghost estates” away from the big cities. With vacancy rates in counties such as Leitrim and Longford running at almost 30pc, who in their right minds would want to buy in these locations, even if NAMA was prepared to offer incentives such as guaranteeing purchasers against price falls?
The problem with such badly located houses and apartments is that they are now essentially unsellable.
No one wants to live in them, no matter what the price. The best that can happen to many of them is the bulldozer.
Unfortunately, that would force NAMA and the banks to take further large write-downs, something they have so far been reluctant to do.
And that’s not the only flaw with the NAMA scheme. As the huge crowds attending the auctions of distressed properties demonstrate, there are buyers out there – provided the price is right. All too often the price has not been right, as sellers, including NAMA, hold out for unrealistic sums.
Will the scheme announced this week fall into the same trap? Already housing market specialists have voiced their concern that, even when the price guarantee is taken into account, the prices that NAMA is seeking for the properties it is selling under the scheme are too high.
While only time will tell if this is so, there is little doubt but that buyers are highly suspicious, and rightly so, of the prices being asked by sellers.
Not to put too fine a point on it, buyers don’t trust the prices currently being demanded and expect them to fall further.
Not surprisingly, no one wants to buy at unrealistically high levels when prices are falling. It is only when prices fall to realistic levels that buyers will re-emerge. The danger of the NAMA scheme is that, far from restoring confidence, it will perpetuate buyer mistrust instead.
If this happens, then NAMA, far from kick-starting recovery, will dent confidence even further.