IT IS, as one property developer ruefully observed, “like a tsunami that just keeps coming”. The collapse of the property market in Dublin and throughout the State has been both sudden and devastating, leaving developers, banks and the general body of taxpayers in danger of being engulfed by a tidal wave of toxic debt.
Yet the few who saw this coming, warning us all that there would be no “soft landing”, were contemptuously dismissed as deranged harbingers of doom. For the truth is that we all lost the run of ourselves, believing in the “onward and upward” myth that sustained the property bubble for so long and thinking that there was nothing odd about the fact that, for a few years at least, the price of residential property in Dublin was higher than in Paris.
At the height of this wholly artificial boom, fuelled by the construction industry itself, property developers seemed invincible, no matter how grandiose their plans, and the banks – with one or two exceptions – were falling over themselves in their rush to dish out hundreds of millions of euro in loans to fund the acquisition of overpriced sites in Ballsbridge and elsewhere. Even a respectable State agency, Dublin Docklands Development Authority, got carried away by the Klondyke-style frenzy, agreeing to take a 25 per cent stake in the consortium that acquired the former Irish Glass Bottle Company site in Poolbeg for the staggering sum of €412 million in October 2006. It has now emerged that the agency and its private sector partners have stopped paying interest on their debt.
As The Builders Revisited series over the past week has shown, the developers are chastened men now – and so, indeed, are their bankers. Sites bought in the boom-time that supposedly provided the security for lavish loans have plummeted in value, rendering them unsaleable for several years, other than at sacrificial prices. The banks which indulged in reckless lending on a recidivist basis are now facing their own days of reckoning by making provision in their accounts for loans that will never be repaid. The figures published so far, running into several billion euro, are likely to be a mere foretaste of the unpalatable truths yet to come. Because nobody, not even the banks themselves, can really say how high the final bill for toxic debts is likely to be – or, indeed, how much of it will fall to be picked up by taxpayers.
The Government must recognise and accept its share of the blame. Not only did ministers ignore warnings that the property market was dangerously overheating, they added fuel to the fire by reducing capital gains tax on the sale of development land to just 20 per cent while continuing to dole out highly-lucrative tax incentives – such as those for buy-to-let apartments, hotels and multi-storey car parks – long after the construction industry had gone into overdrive. They must learn the lessons of these imprudent fiscal policies and ensure that there will be no repetition. The best way of doing so would be to dust down the 1974 Kenny Report on Building Land; if this was implemented, there would be a real chance not only to stabilise the property market, but also to avoid the egregious corruption of land rezoning.