How long before we see a Major Developer go down?

[room305]

Were they Gardai, lawyers, accountants or civil servants? They can get loans handy enough at present as their income is guaranteed.

In all cases they were public sector workers or had very secure jobs.

It seems to me that banks are still willing to provide mortgages once they can be assured those applying have a reasonable deposit, the valuation on the house is realistic, the amount applied for is not more than 4.5x annual salary and the income stream is secure.

Sounds like the kind of prudent lending the banks should have been doing all along rather than a case for government intervention.

 

[ccbkd]

Why on the week that Irish Banks nearly folded are they still so reluctant to tell us who are the Bad Debts they are carrying, We know they are property developers but why are they being protected by the very institutions who almost crumbled...if the property crash is going to come to a head we should see at least one or two major developer fall from grace big style, they saw the huge benefits of capitalism now they should feel the pain also...
I beleive most of the big developers were planning launches just after the budget in a forthnight, I guess the events of this week put pay to those plans!

 

[WILLY NILLY]

This is a bit of a technical question that I was thinking about but here goes.......

Bank has lent 100m to a property developer in 2006.

The banks security is the developors landbank worth 150m in 2006.

Developer cant build as there are no buyers now in 2008.

Bank gets landbank valued at 70m and in a firesale the bank sells it for 70m.

The bank puts the 30m loss on the transaction in the profit and loss account for 2008 and its profit is reduced by 30m. Its Balance sheet now shows Assets of 70m (cash) from the transaction.

Question

Hoe does this impact on capital account or share holders fund account?

In other words, the value of the bank has decreased by 30m by the write off....... but how is the loss reflected in the value of the bank to the share holders.

Maybe its a silly question!

 

[tedcrilly]

can't answer that question but have another one

Do banks have recourse to the Developer's (or anyone else's) other assets over and above the assets used to secure the debt facility?

TC

 

[Towger]

Do banks have recourse to the Developer's (or anyone else's) other assets over and above the assets used to secure the debt facility?

On the rumour mill...

I have heard through a friend of a friend that a Developer was offered a reduced price on a house, the developer turned it down. This person then contacted the Developer's bank and made the same offer for the house and the bank sold the house from under the Developer.

I have also heard from a much better sourcesthat one well known Developer has left a few bills unpaid and is now employing two bodyguards...

 

[darag]

The 100m loan would have appeared as an asset on their balance sheet. By writing off the debt and replacing it by the land worth 70m, the value of their assets goes down by 30m. Thus the bank's equity (net asset value) goes down by 30m.

Selling it is balance sheet neutral as it involves replacing one asset with another (cash).

I don't know much about accounting to be honest so I don't know how loan collateral is represented in a bank's accounts but its value obviously can't be directly represented on the balance sheet as it's more like the payout value of a paid up insurance policy.

 

[mainasia]

I imagine this is why the government will introduce in the budget some desperate measures in an attempt to get First Time Buyers (aka Suckers) to buy some of these developers' overpriced stock. I imagine there's quite a few developers out there with some juicy stories related to their dealings with politicians, and some of them will be tempted to use the nuclear option...

P.

Too true....

 

[mainasia]

I would definitely say that difficulty in borrowing is a major factor in house sales slowing especially with ftbs.

This is ignoring the fundamentals of the purchase. If the banks don't give out loans to FTB's that don't earn enough to cover over-valued and rapidly depreciating property that is the prudent and correct thing to do.
Why do the banks need to give out loans to again TEMPORARILY keep something over-valued.
And once more, it's very obvious if the developers were forced to sell their stock at a market price the benefit to FTBs would be much bigger. They could get the loan for the reduced principal price and that loan would be less risky.

 

[ccbkd]

Taggart Holding Belly up !

 

[MrMan]

This is ignoring the fundamentals of the purchase. If the banks don't give out loans to FTB's that don't earn enough to cover over-valued and rapidly depreciating property that is the prudent and correct thing to do.
Why do the banks need to give out loans to again TEMPORARILY keep something over-valued.
And once more, it's very obvious if the developers were forced to sell their stock at a market price the benefit to FTBs would be much bigger. They could get the loan for the reduced principal price and that loan would be less risky.

The difficulty borrowing appears in most cases to be from the inability to save a reasonable deposit. Knocking a house from €250,000 to €200,000 is no use to a ftb who still hasn't got €20-25k in savings.

 

[Bronte]

The difficulty borrowing appears in most cases to be from the inability to save a reasonable deposit. Knocking a house from €250,000 to €200,000 is no use to a ftb who still hasn't got €20-25k in savings.

If they can't save how can they afford to pay a mortgage?

 

[mercman]

This is the first of the flood. Pretty amazing when the Banks not so long ago were literally throwing money at the developers with no foresight. There will be many more to follow and there is absolutely nothing can be done to save them. AFAIK there was just one developer that offloaded a large chunk of ther assets in early 2007 and shut up shop. People including their Bankers thought they were mad - it goes to show not everybody was greedy.

 

[MrMan]

If they can't save how can they afford to pay a mortgage?

People pay bills and spend their disposable income. So paying the rent may be close to the same amount as paying a mortgage and unfortunately alot of people have not put away money so producing say €30,000 before paying a mortgage is not feasible even though the actual mortgage repayment is well within their budget.

 

[joker538]

People pay bills and spend their disposable income. So paying the rent may be close to the same amount as paying a mortgage and unfortunately alot of people have not put away money so producing say €30,000 before paying a mortgage is not feasible even though the actual mortgage repayment is well within their budget.

Are you advocating the reintroduction of 100% mortgages?

 

[MrMan]

Are you advocating the reintroduction of 100% mortgages?

I'm explaining why there is difficulty in borrowing for property especially with ftbs. I'm meeting ftbs on a regular basis that want to buy property but don't have the sufficient savings to pay 10% plus the further expense required to fit out a house.

 

[MichaelDes]

People pay bills and spend their disposable income. So paying the rent may be close to the same amount as paying a mortgage

A mortgage is no way cheaper than renting, not in my area anyway.

This is the first of the flood. Pretty amazing when the Banks not so long ago were literally throwing money at the developers with no foresight.

Re Taggarts - it's got €200m of rotten assets and UBL/BOI are considering moving these assets off from the balance sheet to a "Special Investment Vehicles" and in the meantime playing with tax payers monies.

Now was it not these sort of mad decisions previously, that caused all the problems within the banking sector. When are they going to realise and wake up to reality because all that's happening is delayment of the inevitable...

[broken link removed]

 

[queenlex]

Not long - [broken link removed] (link is to Irish times article) Do they count as Major?

I would have said so from what I have heard on the news about them. Repeating some of the eariler posters I have been in parts of Dublin recently with whole blocks of apartments empty even in what would be called 'nicer' areas like stepaside.

Also where is this Belmayne place on the news on the northside? SOUnds like there is a developer gone down there too but dont know who they are?

 

[MrMan]

A mortgage is no way cheaper than renting, not in my area anyway.

Everywhere is different but even if there was a big difference the spending culture of the last decade has seen 20 somethings save little (generalisation I know).

 

[Brendan Burgess]

Sorry folks

We have had to delete multiple defamatory posts so I am closing this thread.

If it is reported in the paper that a receiver has been appointed to a company, you can report that and provide a link.

Saying "it won't be long before Developer X goes bust" puts my home on the line, so don't do it.

Brendan