Friday, May 20, 2011 at 12:28PM
NAMA PLANS to launch a product for purchasers of residential properties in the autumn that will offer protection against the risk of negative equity in the future, the agency’s chairman, Frank Daly, said.
It is hoped that the initiative will help stimulate activity in the market.
Mr Daly said Nama has identified concerns among debtors that house prices could continue to fall after they purchase a property as one of the “key impediments” to the sale of houses and apartments.
He said that Nama, conscious that house purchasers could find themselves in “negative equity for a long time to come”, has engaged in preliminary discussions with both AIB and Bank of Ireland to see if they can provide financial support to purchasers.
Nama expects to have “a more detailed engagement” with the two banks on this issue over the coming weeks and the product which it hopes to unveil in the autumn will be designed to generate sales of properties controlled by Nama debtors or by receivers, he said.
Plans under examination would involve Nama debtors – or receivers appointed by the agency – selling properties to buyers supported by bank loans for prices conditional on a market recovery.
For residential properties, Nama would waive 20 per cent of the purchase price if there was no recovery in the market.
The remaining 80 per cent would be covered by a 10 per cent cash deposit and a 70 per cent loan from one of the two banks.
If the market recovered, the borrower would agree under the purchase agreement to draw a further 20 per cent and pay this to Nama after about five years.
Mr Daly said the move would also seek to provide an incentive to purchasers to invest at current prices “in the knowledge that there will be a mechanism in place which will offer them protection against the risk of negative equity in the future”.
Speaking at a Cork Chamber breakfast briefing, Mr Daly also outlined a proposal from Nama aimed at stimulating activity in the commercial property market through what is known as “vendor/staple financing”.
Such a scheme would see finance being provided to buyers of commercial property that is under the control of Nama or receivers appointed by it.
Vendor/staple financing would involve the purchaser injecting “equity capital of 25-30 per cent” of the purchase price upfront and then entering a loan agreement with Nama to repay the outstanding balance of the purchase price over five or seven years, he said. He added that such financing arrangements are widely used internationally and Nama would expect that it would typically engage with sovereign wealth funds, pension funds, insurance companies and private equity firms in reaching such arrangements.
The advantage of such a mechanism is that it would encourage purchasers to buy in a distressed market and thereby set a floor for the market with both parties sharing the risk on the purchase over the lifetime of the loan.
Mr Daly said the mechanism was typically used to finance commercial investment-type assets which were income producing such as offices and shopping centres rather than land or unfinished building. Tentative evidence suggests Ireland may be close to the bottom of the cycle in terms of commercial prices which are expected to undergo a slight fall this year before recording slight increases in both 2012 and 2013, he said.
Mr Daly said a number of debtors didn’t seem to accept that the agency was setting the terms for business. “It is akin to falling overboard and then complaining to your rescuer about the colour of the lifebuoy that he is about to throw you.”