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News : Irish Last Updated: Mar 14, 2012 - 7:16 AM

Wednesday Newspaper Review - Irish Business News and International Stories - - March 14, 2012
By Finfacts Team
Mar 14, 2012 - 7:11 AM

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The Irish Independent reports that  ptroperty prices have hit rock bottom -- but could stay there for years, according to a new report.

The average price of houses and apartments is now as low as €100,000, the report claims.

This is just a third of the average price properties sold for during the boom.

Prices have fallen so far in the last five years that it now takes less than three times the income of a single person to buy a property.

But now that they have reached a floor, prices may stay at their current level for ages, the report from Goodbody Stockbrokers says.

The report makes it clear that this is due to the current mortgage lending famine.

The study by economist Dermot O'Leary found prices have now fallen 68pc from the peak in 2007.

These are based on the prices reached on the Allsop Space distressed property auctions which have drawn a lot of interest.

Mr O'Leary said this fall was far greater than the 48pc recorded by the official Central Statistics Office (CSO) property price index.

His report contends that the prices achieved in the Allsop auctions more accurately reflected what was really happening in the market.

This is because the CSO figures do not take account of cash purchases, which account for up to a third of sales.

The lack of up-to-date data was contributing to the length of the house-price crash, he said.

"Allied to tight credit conditions, housing oversupply and a weak domestic demand environment, the lack of transparency on sales prices in the Irish residential property market has contributed to the prolonged nature of the Irish housing market crash," he said.

The report said that mortgage lending last year was back to levels last seen in 1971, adding that a key ingredient for any recovery in the Irish property market was credit availability .

Mr O'Leary calculated that the price of houses and apartments was €100,000, based on a 68pc price fall.

The average property price peaked at €314,000 in January 2007.

The new average price means that it now requires 2.8 times the salary of a single person to buy a home. That calculation is based on an average wage of €36,000.

This compares with a long-term average of three-and-a-half times to four times income in the UK and a peak of 8.6 times income in Ireland.

Mr O'Leary said prices had now hit the bottom.

"While it would be our contention that prices are undershooting due to lack of access to credit and a weak domestic economy, this analysis suggests that residential property, at 60pc-plus from peak, is now transacting for prices very close to, or at, fair value," he said.

However, he said that the mortgage market was set to "remain moribund for a significant further period of time".

Goodbody Stockbrokers is owned by Kerry-based financial services group Fexco, and not connected to any mortgage lender. Mr O'Leary's findings chime with a study of 325 cities in English-speaking countries that found that property here had now reached affordable levels for thousands on average salaries.

The prestigious Demographia International Housing Affordability Survey found house prices were 3.3 times average salaries in the winter of last year -- just a little above what international researchers deem affordable.

Mr O'Leary said a lack of mortgage lending was hurting the market.

Just AIB and Bank of Ireland are lending to first-time buyers.

AIB will lend to those who have a deposit of at least 8pc of the property's value, but Bank of Ireland requires a deposit of at least 10pc.

Last year 14,000 mortgages were advanced, but this falls to 11,000 once top-ups and re-mortgaging are excluded. A normal level of lending would mean 40,000 mortgages being advanced.

The Irish Independent also reports that Spain's budget-deficit target for 2013 is a tough challenge and the country's peers have not "softened" by allowing it to run a wider deficit this year, Finance Minister Michael Noonan said yesterday.

He played down the EU's decision to grant Spain leeway, adding that it would not inspire Ireland to seek concessions.

"Spain is not comparable with Ireland -- Spain is not in a programme," he told reporters after a finance ministers' meeting in Brussels yesterday

"I don't see any softening in Spain's target. Five point five per cent of gross domestic product as an adjustment is some high jump to have to undertake," he said, referring to the difference between Spain's 8.5pc deficit in 2011 and its 3pc target for 2013.

The EU has twice allowed Ireland to push out its deficit deadline, which is now set at 2015.

"I sympathise with the Spanish finance minister, trying to find that level of adjustment,"
said Mr Noonan.

Spain's government caused controversy earlier this month by raising its budget-deficit target for 2012 to 5.8pc of GDP from a previous goal of 4.4pc, arguing the existing target was unreachable because of a big deficit overshoot in 2011.

But on Monday, finance ministers from other eurozone countries pressed Spain to adopt a new target of 5.3pc of GDP, a figure to which Spain subsequently agreed.


Mr Noonan also said Ireland was opposed to a financial-transactions tax that is wanted by some European governments. He said that because the UK would not adopt it, firms based in Ireland might move to the City of London in order to avoid the levy.

The move on Spain has placed that country at the centre of a row over budget targets. EU officials fear that being too lenient on countries would hit market confidence and lead to countries demanding an extension of deficit deadlines.

Brussels is also battling accusations of double standards in applying the rules to eurozone and non-eurozone countries, after it held to a threat to suspend regional aid to Hungary next year if the government failed to make extra cuts.

Hungary will face the loss of €495m in EU funding next year, although the government met its deficit deadline in 2011.

However, the commission said that Hungary had reached the target thanks only to one-off measures, particularly the transfer of private pension funds into state hands, and that it would miss its targets both this year and next.

The Irish Times reports that the Government will have to pay a €3.1 billion bank debt due within days after the European Commission ruled out delaying the payment in anticipation of a deal to ease Ireland’s banking debt.

The commission’s stance, which mirrors that of the European Central Bank, means the Government will have no option but to pay the bill when it falls due on March 31st.

The money must be repaid under an EU-backed arrangement under which Dublin is recapitalising the former Anglo Irish Bank and the former Irish Nationwide Building Society with expensive IOUs known as promissory notes.

The Government has campaigned for months to restructure this costly scheme, which will see the State pay €47.4 billion in capital and interest charges to support these institutions – now known as Irish Bank Resolution Corporation – for 20 years.

Talks are ongoing but no breakthrough is imminent, leading Irish officials to examine whether the looming payment could be delayed until the negotiation is completed.

In Brussels yesterday, however, EU economics commissioner Olli Rehn rejected that notion and said in unambiguous terms that the Government was obliged to meet all its debts. “I actually wonder why this has to be asked at all because the principle in the European Union and in the long European legal and historical tradition is, in Latin – pacta sunt servanda – respect your commitments and obligations,” the commissioner told reporters.

“The European Union is a community of law and that assumes by definition that each and every member state respects the commitments it has undertaken and this is valid in the case of Ireland as well. Any possible negotiation on the medium- to long-term solution is a separate issue.” Mr Rehn’s forthright rejection of any postponement came only one day after Minister for Finance Michael Noonan left open that possibility, saying it was a long way to the end of the month and that nothing was ruled in or out at this point.

In European circles, such remarks by the Minister were quickly dismissed as “wishful thinking”. The bank debt question is highly sensitive for the Government given the upcoming referendum on Europe’s new fiscal treaty. In recent days, Taoiseach Enda Kenny and Tánaiste Eamon Gilmore have rejected claims by Minister for Social Protection Joan Burton that Ireland should be given a concession on the debt to boost support for the referendum.

A Government spokesman refused to comment on Mr Rehn’s views last night, saying the issue of the promissory note was one for the troika. He said the Government would wait and see what the troika recommended and would not be commenting before that.

Separately, Government sources insisted that there had never been a strong expectation that the promissory note issue would be resolved by the end of March.

Sinn Féin president Gerry Adams called on the Taoiseach to declare the State’s inability to pay the promissory notes.

As he left Brussels yesterday after two days of talks on the financial crisis, Mr Noonan said the Irish bank debt question had not featured on the agenda when EU finance ministers gathered. He also said he did not expect the issue would be on the table when the ministers next meet in Copenhagen at the end of this month.

“I bring it up in bilaterals all the time. You know the meetings adjourn, meetings break, you sit down and talk to colleagues and everybody tells each other their difficulties and it comes up like that,” he said. Mr Noonan rubbished the suggestion that a concession granted to Spain to ease its deficit-cutting target this year meant that double-standards now apply in the euro zone.

“Spain is not comparable with Ireland. Spain is not in a [bailout] programme,” he said. Spain’s position is different but their targets haven’t been softened. They’re bringing in a budget at the end of April and the destination is to get to the end of 2013 and have a deficit of 3 per cent or so over a 20-month period,” he added.

The Irish Times also reports that banks may be granted greater powers to contact customers who are in mortgage difficulty, under proposals being considered by the Central Bank.

It is understood the Central Bank is considering a review of parts of the code of conduct on mortgage arrears which would give lenders greater leeway in contacting customers who are in arrears on their repayments.

Under the existing code of conduct set out by the Central Bank, lenders are forbidden from contacting customers who are in arrears more than three times in one calendar month.

It is understood the Central Bank is seeking to review this stipulation, amid concern that some customers are not addressing their arrears problem. The development comes as the Government highlighted the role played by the code of conduct on mortgage arrears in tackling the mortgage arrears issue.

Speaking in the Dáil yesterday evening in response to a private member’s motion tabled by Fianna Fáil, Minister of State Brian Hayes said the code of conduct was “an important framework that governs the relationship between a borrower and mortgage lender who is experiencing difficulty and provides a number of protections to the borrower.”

According to the latest figures from the Central Bank, almost 71,000 mortgages – around 9 per cent of total home loans – were in arrears of 90 days or more at the end of December. The revised code of conduct on mortgage arrears came into force on January 1st, 2011.

The code sets out the framework that lenders must use when dealing with borrowers in mortgage arrears.

Banks are required by law to adhere to the code which offers a number of protections to consumers, including restrictions on the level of unsolicited contact banks are permitted to make with customers.

This includes all forms of communication, such as phone, email, letter or personal contact. It is understood the banking community has informed the Central Bank the current restrictions on contacting customers is preventing them from dealing with arrears effectively.

Rachel Doyle, chief operating officer of PIBA, the professional insurance brokers’ association, said any change to the rules governing contact between banks and mortgage customers would be a cause for concern.

“While we would advise people who find themselves in mortgage difficulty to engage with their banks and not to put their heads in the sand, you can not put people in a situation where they can constantly being hounded by banks.”

She said that most people in mortgage arrears are likely to be struggling with other kind of debt such as credit card debt or personal loans.

Last month the Central Bank said that mortgage arrears would be one of a number of issues the bank would examine this year as part of a “series of themed reviews and inspections” planned for 2012.

The Irish Examiner reports that Spain has to save an additional €5bn on its budget this year, while Hungary has been told it stands to lose €500m in EU funds if it does not get its budget back on track over the next three to six months.

The tough decisions by EU finance ministers were hailed as a victory for strict new national budget rules just agreed by the member states, despite a battle to ease the pressure on both countries.

Spain, whose deficit overshot its target last year, is forecast to do the same this year from the original target of 4.4%. They had hoped to be allowed to extend the deficit to 5.8%, but were told to take another €5bn off its spending to ensure the deficit is no more than 5.3%.

This will be in addition to €15bn in cuts as part of the budget to be announced later this month.

The new government blame overspending by regional governments for much of the overrun.

Spain must still cut deficit next year to 3% of GDP — a feat described as "some high jump" by Michael Noonan, the finance minister, when he said he sympathised with his Spanish counterpart trying to make that level of adjustment in just one year.

The additional cuts risk putting the Spanish economy into an even greater recession and increasing the unemployment numbers — the highest in the EU.

The ministers took a vote when it came to deciding the action on Hungary when a spirited fight was put up by Austria, Poland, the Czech Republic, Britain and Sweden on behalf of the country that failed to take action demanded by the European Commission some months ago.

Claims that double standards were being operated and that the member states were willing to break their own rules, even before the Fiscal Treaty has been enforced were denied.

Mr Noonan said there was no softening on attitudes towards the countries, as did economics commissioner Olli Rehn, who denied they had been more lenient with Hungary.

He said that in June the Commission will give its view if the measures adopted by Hungary are sufficient.

His spokesperson Amadeu Altafaj Tardio said that the Commission recommended action against five countries earlier this year, but Hungary was the only one that had failed to comply and adjust its budget.

The ministers decide that they would conclude agreement on reinforcing the European financial firewall by the end of this month. Germany is suggesting that the EFSF with €250bn left after funding Ireland and Portugal’s bailout should continue to run to its final date of 2013 and that the new permanent ESM fund of €500bn should come into force as decided in July.

Foreign news reviews and more comprehensive coverage of Irish news is available in our Daily News Digest in the Global category on Finfacts Premium.

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