As commercial lending, including property development loans come to the end of their ’08 interest/repayment holidays, banks are likely to begin the process of revaluating loan provisions against revised valuations. It is likely to be the case the enormity of provisions on LTV’s that have swung to well over 100% will be exposed. Furthermore the Regulators PWC audit which ultimately triggered greater loan loss provisioning by BOI & AIB (later still Anglo) will not have considered the more recent dramatic decline in consumer and business confidence.
Here’s a story of our times: Within one mile of the small hamlet I live in, there are 4 separate housing developments totalling 50 detached homes of between 1800-2500sg ft – not one house has sold since last May despite and average reduction in price of 40%. In one case houses which initially sold for 800k are now selling at 550k. They are the type of house that people trade up to from their first home. Given that nearly every first time house buyer who borrowed over 80% (the vast majority) since 2004 is probably in negative equity land it is difficult to see where buyers for the 50 houses will come from. The country is blanketed with similar developments – I wonder at times of the scale of the property bubble and how much it will really cost when it’s all over. If close to the mark, estimates of between €20-30bn means a huge tax payer’s burden for years to come. Structuring the write down of banks assets will probably take a special loan recovery vehicle as banks will not be able to function with such black holes in their balance sheets.
Here’s a story of our times: Within one mile of the small hamlet I live in, there are 4 separate housing developments totalling 50 detached homes of between 1800-2500sg ft – not one house has sold since last May despite and average reduction in price of 40%. In one case houses which initially sold for 800k are now selling at 550k. They are the type of house that people trade up to from their first home. Given that nearly every first time house buyer who borrowed over 80% (the vast majority) since 2004 is probably in negative equity land it is difficult to see where buyers for the 50 houses will come from. The country is blanketed with similar developments – I wonder at times of the scale of the property bubble and how much it will really cost when it’s all over. If close to the mark, estimates of between €20-30bn means a huge tax payer’s burden for years to come. Structuring the write down of banks assets will probably take a special loan recovery vehicle as banks will not be able to function with such black holes in their balance sheets.