Poll: Will this Dáil see a full term? - Support for FF falls 15% (Joe Behan Resigns from the Party)

eoinmn wrote:

Zhou_Enlai wrote:

eoinmn wrote:

tonys wrote:

At the moment it doesn’t matter how far prices fall, for those FTB’ers who are able and want to buy no one will give them any money, that’s the issue this proposal is trying to address.

My feeling is that FTBs can get loans if they want them. But they don't want them right now. They are waiting.

I'm not sure about this. You can't just produce a 10% or 15% deposit out of mid air.

No, you have to save for it.
Which is the way it should be.
100% mortgages were a scandal. They should never have been allowed.

Zhou_Enlai wrote:

If you have a child or want to start a family and don't see yourself moving for a number of years then will probably take a chance that the market won't go much lower.

Or you might wait another year to see if house prices will come down another 10%, saving you a pot of money.

Well you might and you mightn't. The fact of the matter is that if you did want a 90% mortgage you would be very hard pushed to get it. This means that you will have to wait for at least another two years to save a 20% deposit while paying rent instead of putting that money (savings and rent) towards your mortgage while living in a house. You may make a loss on it in the short term but if you are going to stay in the house it may not worry you. At a certain age it is worth more than money to have your own roof over your head and to know where you are going with your life and where your children will go to school. Many will prefer to hold on and to see if prices drop further. However, if everyone is forced to hold on then the professional services which serve this market will grind to a complete halt and all sectors of the economy will suffer. Like everything in a recession, it's a vicious circle. You have to look at every measure to try and halt the descent.

Which is why, Zhou, I think builders should be forced to drop their prices sooner rather than later.

What do you think of my idea of taxing (you could say fining) developers €40k for every unsold house?

eoinmn wrote:

Which is why, Zhou, I think builders should be forced to drop their prices sooner rather than later.

What do you think of my idea of taxing (you could say fining) developers €40k for every unsold house?

I wouldn't agree with that idea. The builders are all under monumental pressure to shift stock from the banks anyway. The penalty in interest on unrepaid loans is punitive enough.

It would also hugely devalue the banks' assets. In fact it might very well collapse the banks and the economy.

It would be totally in violation of the constitutional property rights unless everybody with a second property was taxed the same. There would be riots in the street which is never good when you want international investors to have confidence in the economy.

It would send prices below their real value causing irrecoverable losses for the banks and builders who, whatever else you think, do re-invest their money and employ people.

It would push many solvent builders into insolvency. There would be Revenue winding ups all over the place. Other creditors would panic too.

In short, I think it could lead to a military coup .

Zhou_Enlai wrote:

The builders are all under monumental pressure to shift stock from the banks anyway. The penalty in interest on unrepaid loans is punitive enough.

I don't think they are under enough pressure.
On the Pin and P.ie the consensus seems to be that the banks, rather than penalising developers for not paying interest, are rolling or suspending the interest.

eoinmn wrote:

Zhou_Enlai wrote:

The builders are all under monumental pressure to shift stock from the banks anyway. The penalty in interest on unrepaid loans is punitive enough.

I don't think they are under enough pressure.
On the Pin and P.ie the consensus seems to be that the banks, rather than penalising developers for not paying interest, are rolling or suspending the interest.

If interest is rolled up then you pay for it eventually! It just gets worse and worse! They don't write it off. I like the pin but some people on there, and most of the people on p.ie, don't have a clue.

eoinmn wrote:

Which is why, Zhou, I think builders should be forced to drop their prices sooner rather than later.

What do you think of my idea of taxing (you could say fining) developers €40k for every unsold house?

a little blunt and too penal.

i'd recommend that any unsold house must have €10k deposited with the local authority to ensure there are sufficient funds to finish each property. this E10k would be netted against the VAT payable on sale of property.

this would place a lot of money on local authority books, correct the housing market, would not penalise the builder for slow sales and would protect the LA from having to finish a place at cost to the taxpayer.

zakalwe wrote:

eoinmn wrote:

Which is why, Zhou, I think builders should be forced to drop their prices sooner rather than later.

What do you think of my idea of taxing (you could say fining) developers €40k for every unsold house?

a little blunt and too penal.

i'd recommend that any unsold house must have €10k deposited with the local authority to ensure there are sufficient funds to finish each property. this E10k would be netted against the VAT payable on sale of property.

this would place a lot of money on local authority books, correct the housing market, would not penalise the builder for slow sales and would protect the LA from having to finish a place at cost to the taxpayer.

I have to agree with Zhou on this. Just wait a few more weeks and there is every probability that there will be one or another trigger for foreclosure on these rolled over loans. This will almost certainly mean collapse of the Irish banks and the end of the Pension Fund, which will be poured into them.
There may be a tiny number of developers who are not indebted and who are sitting on profits, but most will have rolled over profits into buying land in the vastly inflated prices of the last three years. They have been told by the banks to sack everyone and close their offices down. They could not pay the 10 k.

This whole thing is a monumental cock-up of a scale that hasn't fully sunk in yet. The country is bankrupt, the banks, truth be told would be the same. The idea that the government might do something substantial to bail the developers up may have acted to slow down the decline in house prices. It may take a couple more weeks for it to sink in that there is nothing of any substance in the budget to encourage house purchase at present prices. Foreclosures on peoples homes are beginning to mount up.

Leaving empty houses is clearly undesirable on all kinds of grounds, so instead of the fiddling around in the budget I think government should have bought out the best located of the empty homes at cost to build price and got them occupied for social and affordable housing. That would have benefitted the people on the waiting lists and taken some pressure off the banks without giving inappropriate benefits to banks or developers. This in itself though would only be a drop in the bucket in terms of solving things.

zakalwe wrote:

a little blunt and too penal.

Probably, but I think a drastic action needs to taken to force prices to drop rapidly.
Right now it seems the government are hoping to engineer the fabled "soft landing". I don't see this working.

cactus flower wrote:

ust wait a few more weeks and there is every probability that there will be one or another trigger for foreclosure on these rolled over loans. This will almost certainly mean collapse of the Irish banks and the end of the Pension Fund, which will be poured into them.

Well if you're right prices will drop sharply after a few weeks.
The question then will be is the government prepared to let them fall or will they spend the pension fund trying to prop up the banks and by extension, the housing market.

Best action I see is for the banks to write down their debts and developers to sell off houses at whatever people will pay. And if necessary for the government, take an equity share in the banks.

Short and painful like taking off a plaster!

eoinmn wrote:

zakalwe wrote:

a little blunt and too penal.

Probably, but I think a drastic action needs to be to force prices to drop rapidly.
Right now it seems the government are hoping to engineer the fabled "soft landing". I don't see this working.

Soft landing? Nothing is being built. Nothing is selling. No planning applications are being made. Construction was 15-25% of the national economy depending who you listen to. Just wait for the next employment figures.

House prices started to decline in 2006, but at the same time banks were fuelling debt by lending vast amounts for site purchase. The collateral for the debts is the land and other property which is declining in value. The Regulator has never asked to look at the bank's books and has taken their word for it that everything is sound. I agree with you that the Government is trying to postpone the evil day, but it is a bank collapse we are talking about; the housing market has already crashed.

Ireland is virtually the only country in the EU that hasn't put money into its banks. Right across Europe tax payers are being mugged. In Ireland there may not be the wherewithal to bail deep enough. Look at Iceland. eoinmn, this is not anything like the 1980s; it is much more violent. The economy is much bigger, but so is the shockwave.

eoinmn wrote:

cactus flower wrote:

ust wait a few more weeks and there is every probability that there will be one or another trigger for foreclosure on these rolled over loans. This will almost certainly mean collapse of the Irish banks and the end of the Pension Fund, which will be poured into them.

Well if you're right prices will drop sharply after a few weeks.
The question then will be is the government prepared to let them fall or will they spend the pension fund trying to prop up the banks and by extension, the housing market.

Best action I see is for the banks to write down their debts and developers to sell off houses at whatever people will pay. And if necessary for the government, take an equity share in the banks.

Short and painful like taking off a plaster!

How would the banks right off the debts without going bankrupt ? If it was that easy, Freddie and Fannie would have done it.

I say let the market take its course in regard to the houses. These developers will have to put them on the market at cost (or lower) sooner or later when the bank eventually comes knocking. Nobody has a right to a profit - perhaps some people need to realise that.

johnfás wrote:

I say let the market take its course in regard to the houses. These developers will have to put them on the market at cost (or lower) sooner or later when the bank eventually comes knocking. Nobody has a right to a profit - perhaps some people need to realise that.

The market is taking its course. The houses are unsaleable.

cactus flower wrote:

Look at Iceland. eoinmn, this is not anything like the 1980s; it is much more violent. The economy is much bigger, but so is the shockwave.

I agree with all you said, CF. But what do you see as the solution?
Will the HomeChoice scheme help or will it just buy us a few months?

They are unsaleable at their current price. Every commodity has a price. I just sold a zig and zag annual for 1 euro on eBay - it probably cost me more than that even 15 years ago.

CF, they are unsaleable because of their price.
Drop the price and cash will get moving again.

Quote :

Drop the prices of the houses and cash will start moving again.

Precisely. Any move by the Government to prop up the property market is exactly that, it is a crutch which attempts to hide a problem. Any intervention only seeks to relieve the pressure on the people who built these schemes. When they come under pressure from the banks they will realise what the value of their asset is and perhaps a lesson in personal responsibility.

cactus flower wrote:

eoinmn wrote:

cactus flower wrote:

ust wait a few more weeks and there is every probability that there will be one or another trigger for foreclosure on these rolled over loans. This will almost certainly mean collapse of the Irish banks and the end of the Pension Fund, which will be poured into them.

Well if you're right prices will drop sharply after a few weeks.
The question then will be is the government prepared to let them fall or will they spend the pension fund trying to prop up the banks and by extension, the housing market.

Best action I see is for the banks to write down their debts and developers to sell off houses at whatever people will pay. And if necessary for the government, take an equity share in the banks.

Short and painful like taking off a plaster!

How would the banks right off the debts without going bankrupt ? If it was that easy, Freddie and Fannie would have done it.

They are not debts on the banks books but collateral on loans.

only when the loan goes bad does the valuation of the collateral become important.

quite simply, a rise or fall in housing market cannot be reflected on a banks books because the legal owners of the property is the householder not the bank. the bank only holds a charge on the property.

in the past, under irish gaap, banks could "provide" (save for a rainy day) for the expected loss on a loan book. say the historical bad debt number for irish banks was c. 3% then the banks would provide 3% pa.

under ifrs (i'm their greatest critic as it rewards shortsightedness), a bank cannot book a general provision. all provisions must be specific i.e. every euro in the impairment charge must relate to an actual euro lost, not an expected loss. this is countercyclical as banks cannot save in good times to carry forward into bad times. this was resisted by the banks in front of the IASB about 5-6 years ago as it was foreseen that a bank going from a benign credit period to a credit crunch would be particularly exposed but the nerds in cannon street london (aka iasb) went ahead with this obviously flawed rule.

the effect of this was that banks could increase their profits by not having to salt away reserves and earn higher bonuses. that is why, i think, the banks (or more correctly, bank execs) did not argue too strongly for changing the rule. i call this era the champagne era for banks, becuase this along with another absurd rule (ias 39) and the basle capital adequacy requirement regulations, or specifically the measures to circumvent all of them, increased banks profits, share prices, bonuses, and critically the banks' vulnerability to a change in circumstances.

zakalwe wrote:

the bank only holds a charge on the property.

Not strictly true in relation to alot of houses in Dublin. Most of the land in Dublin isn't registered in the Land Registry and consequently with mortgages over such land, the bank usually holds a legal mortgage - that is legal title - over the land and by virtue of the mortgage are automatically entitled to possession. They just don't do it because if they do they have a whole host of responsibilities which they would rather not have.

zakalwe wrote:

cactus flower wrote:

eoinmn wrote:

cactus flower wrote:

ust wait a few more weeks and there is every probability that there will be one or another trigger for foreclosure on these rolled over loans. This will almost certainly mean collapse of the Irish banks and the end of the Pension Fund, which will be poured into them.

Well if you're right prices will drop sharply after a few weeks.
The question then will be is the government prepared to let them fall or will they spend the pension fund trying to prop up the banks and by extension, the housing market.

Best action I see is for the banks to write down their debts and developers to sell off houses at whatever people will pay. And if necessary for the government, take an equity share in the banks.

Short and painful like taking off a plaster!

How would the banks right off the debts without going bankrupt ? If it was that easy, Freddie and Fannie would have done it.

They are not debts on the banks books but collateral on loans.

only when the loan goes bad does the valuation of the collateral become important.

quite simply, a rise or fall in housing market cannot be reflected on a banks books because the legal owners of the property is the householder not the bank. the bank only holds a charge on the property.

in the past, under irish gaap, banks could "provide" (save for a rainy day) for the expected loss on a loan book. say the historical bad debt number for irish banks was c. 3% then the banks would provide 3% pa.

under ifrs (i'm their greatest critic as it rewards shortsightedness), a bank cannot book a general provision. all provisions must be specific i.e. every euro in the impairment charge must relate to an actual euro lost, not an expected loss. this is countercyclical as banks cannot save in good times to carry forward into bad times. this was resisted by the banks in front of the IASB about 5-6 years ago as it was foreseen that a bank going from a benign credit period to a credit crunch would be particularly exposed but the nerds in cannon street london (aka iasb) went ahead with this obviously flawed rule.

the effect of this was that banks could increase their profits by not having to salt away reserves and earn higher bonuses. that is why, i think, the banks (or more correctly, bank execs) did not argue too strongly for changing the rule. i call this era the champagne era for banks, becuase this along with another absurd rule (ias 39) and the basle capital adequacy requirement regulations, or specifically the measures to circumvent all of them, increased banks profits, share prices, bonuses, and critically the banks' vulnerability to a change in circumstances.

Aaaargh! Zakalwe - tell us more. What was the background to this. Who are the IASB?

Insightful stuff zakalwe, but beware.
MI5 deleted my earlier post because it was too close to the truth!

Did you get my PM eoinmn?

Many apologies!

I did, JohnFás.
Anyway it was no problem. Sorted now.

johnfás wrote:

zakalwe wrote:

the bank only holds a charge on the property.

Not strictly true in relation to alot of houses in Dublin. Most of the land in Dublin isn't registered in the Land Registry and consequently with mortgages over such land, the bank usually holds a legal mortgage - that is legal title - over the land and by virtue of the mortgage are automatically entitled to possession. They just don't do it because if they do they have a whole host of responsibilities which they would rather not have.

Even though a mortgage does give legal title it also gives a right of redemption to the borrower. Accordingly I expect a mortgage would be valued in the same way as a charge. The value would be the repayments not the land value. Also, the mortgage/charge is only the security for the loan and it is the loan which is the asset, n'est pas. This is hair splitting at its absolute best .