ANY SUBSTANTIAL “fire sale” of residential or commercial property could result in prices falling by 50 per cent or more, the head of the Construction Industry Federation (CIF) has claimed.
The organisation’s director general Tom Parlon said the prospect of major banks seeking recovery of their debts from developers would have a disastrous effect on property prices and the economy.
He said the whole rationale of establishing the National Asset Management Agency (Nama) was to prevent such a scenario.
Mr Parlon was commenting ahead of today’s Supreme Court appeal by developer Liam Carroll against a High Court decision to remove the protection from creditors that had been given to one of his businesses, the Zoe Group.
The protection had been originally given after ACCBank, a subsidiary of the Dutch bank Rabobank, applied to have a receiver appointed in relation to €136 million owed to the bank.
Speaking on Morning Ireland on RTÉ yesterday, Mr Parlon said today’s Supreme Court hearing was indicative of the “high wire act” that the Government was involved in at present.
“The reason that Nama was set up was to keep liquidity and to avoid fire sales. If it was the case that a very significant amount of residential and commercial property was to come on the market, certainly it would reduce the value,” he said.
Referring to ACCBank, he said it was his impression that it wanted Irish banks to buy out ACC’s interest in loans to Mr Carroll and others.
He said the bank’s only interest was in recovering its money. “Any fire sale now without liquidity or confidence in the market could mean that property prices could be halved. If Nama was delayed further other financial institutions would go down this route. It would have a devastating effect on property prices and on the whole economy,” he said.
Mr Parlon also said that if Nama was not set up quickly, the resulting “zombie bank” status of financial institutions might force the Government to nationalise all the banks.
Fine Gael’s spokesman on enterprise Leo Varadkar said yesterday that the Government would not succeed in restoring any sense of normality to the banking system, no matter how quickly it established Nama. “The whole thing is based on a market value that is artificially low. I have looked at the German, Swedish, Japanese and all the other bubbles. Prices fall 70 per cent and we in Ireland are nowhere near that. If Nama pays market value it is way too much. The premium will be borne by the taxpayer. And the banks will also have to turn to the Government to recapitalise.”
Mr Varadkar said that the Fine Gael suggestion of good banks and legacy banks would provide a workable alternative solution. Such an approach would restore liquidity and deal with bad debts without the burden falling on the taxpayer.