Grafton Street, Dublin
Government measures impact on the Irish property sector
Published: 27 August, 2009
The savage recession is hitting Ireland’s retailers hard but opinion is split on whether two government measures will have the desired effect of easing the sector’s woes.
In the face of intensive lobbying from retailers, Minister for Justice Dermot Ahern inserted an amendment in the Land and Conveyancing Law Reform Bill that effectively bans upward-only rent review clauses.
Retail Excellence Ireland, which represents independent retailers, had been campaigning hard since the beginning of the year for the measure to ease the burden on its hard-pressed members. However the legislation only goes some way towards meeting retailers’ concerns. On legal advice Ahern felt unable to intervene in existing agreements between landlords and tenants so the proposed change will only apply to new leases.
Even so, it has provoked an anguished response from the property community. In its latest bi-monthly research report CBRE says: “We are very concerned by the proposals, which will have huge implications for the Irish investment market. This proposed legislative change will essentially create a two-tier market, impact on values and funding and put Ireland at a distinct disadvantage relative to the UK market while doing nothing to assist the occupiers who are currently having difficulties meeting rental payments.”
The Society of Chartered Surveyors also weighed in to oppose the move. Vice President of the SCS, Peter Stapleton, says the legislation is unnecessary as the market is already responding to the changed economic circumstances without government interference.
“We don’t believe outside interference in the market is ever a good idea,” says Stapleton. “The reality is that commercial leases are getting shorter anyway which minimises the need for rent reviews. So the market is responding. It is our view that market forces will determine if new leases will have upward-only rent reviews going forward.”
A second measure, aimed at freeing Ireland’s banks to begin lending once again, is equally controversial. In the April mini-budget the government announced plans to set up a Scandinavian-style ‘bad bank’ to warehouse the Irish banks’ non-performing property loans. The move will allow banks to rebuild their balance sheets and then resume lending to businesses and consumers.
Critics are concerned that the government is effectively writing a blank cheque to bail out bankers and property developers, neither of whom enjoy mass popularity at the moment.
The new vehicle – the National Asset Management Agency or NAMA – will have wide-ranging powers including the right to take ownership of properties where it believes there is no prospect of the distressed loan being repaid. This could potentially lead to it becoming Ireland’s biggest owner of commercial property.
Marie Hunt, director of research at CB Richard Ellis, points out that the legislation gives NAMA the power to take over €60bn of developer’s loans and a further €20bn to €30bn of borrowings on completed projects. She describes the move as “the biggest financial commitment in the history of the State.”
The discount at which NAMA will buy the loans, and the process by which NAMA will eventually be wound up, are also controversial. Here, CBRE’s Hunt is relatively sanguine. “NAMA is likely to dispose of these assets on a phased basis over the next decade,” she says, “as opposed to rushing to market and enforcing ‘forced sales’ in the short-term when conditions are as weak as they are.”
