ANALYSIS:AS MINISTER for Finance Brian Lenihan battles opponents of the National Asset Management Agency (Nama) in advance of the Dáil debate to set up the "bad bank", a dire set of financial results from McInerney Holdings presents firm evidence of the collapse in residential property valuations.
On the face of it, there’s hardly any surprise that McInerney has written down the value of its Irish landbank by 52 per cent and the value of it British landbank by 41 per cent.
However, this up-to-date information has especially deep resonance because the firm is one of only two Irish home-builders with a stock market listing.
Every other business in this beleaguered area operates under the protection of company law rules whose effect is that there is virtually no transparency about the true state of their affairs. This has important implications for Nama, which will be charged with taking on the burden of their bank debt on behalf of the State in a scenario in which the public knows little about their fiscal position.
Although residential and commercial property markets are at a virtual standstill, Nama will be obliged by statute to determine the price of loan assets it buys with market prices at its starting point. The price will then be adjusted to take account of an assessment of the long-term economic value of the asset.
While current valuations and pricing in the world of private developers are at best a matter of conjecture, McInerney is itself under a legal duty to provide investors and the wider stock market with a frank account of the precipitous decline in the value of its own assets. Any over-estimation would leave it prone to legal action.
Thus its results provide a glimpse into a market under massive strain. McInerney, which sold 1,156 houses in Ireland in 2006, has sold only 84 properties since the start of this year. The average sale price was €228,000, down from €239,000 in the first half of 2008. At best, it may sell between 170 and 180 in the full year.
What is more, the devaluation of its Irish landbank demonstrates in stark terms that land values in major cities outside Dublin have collapsed. The company has 5,100 plots in Ireland, 2,700 with planning permission and 1,200 held as long-term strategic assets.
McInerney has no involvement in the apartment market and these plots are held mostly for the construction of three-bed and four-bed houses. In the main, they are in Galway, Limerick, Cork and Waterford.
The firm generally avoided buying lands in towns, big or small, and it avoided buying lands in peripheral villages. Neither has it assets in Dublin.
As such, the outcome of its writedown exercise is not distorted by the wide variations in value that inevitably arise in the diverse Dublin market. Neither is it distorted by exceptionally significant impairments of rural lands on which houses will never be built.
Therefore, it may prove to be a very useful guide when observing how Nama values loans secured by comparable properties.
In the boom times, arcane corporate structures and opaque accounting were used to prevent outsiders from determining how much money developers made. Equally obscure was the amount of debt each individual developer was accumulating.
Now that the bubble has burst, with appalling consequences for taxpayers, there is no way of determining the extent to which they are in difficulty. Although some of the biggest players continue to use unlimited liability status to shield their affairs, others use different mechanisms to hide from public glare.
What is clear is that their banks are in deep, deep trouble. Everyone knows McInerney is not unique, but its results say much about the true scale of crisis that Nama is designed to fix. It is a huge task.
