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News : Irish Last Updated: Feb 22, 2013 - 9:15 AM


Friday Newspaper Review - - Irish Business News - - February 22, 2013
By Finfacts Team
Feb 22, 2013 - 9:12 AM

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The Irish Independent reports that a chronic shortage of family homes is being caused by a logjam of people unable to move house.

Young boom-time buyers and older empty-nesters are stalling recovery in the market because they are either unable or unwilling to move.

The younger ‘negative-equity’ generation can’t afford to sell or trade up to larger homes to accommodate a growing family.

Some 300,000 people are in negative equity, where the value of their home is now less than they borrowed to buy it.

Meanwhile, there is also a reluctance to sell among older people whose children have left home and who could manage in a smaller house.

Instead of trading down and freeing up a family-sized home, they are staying put because they don’t want to sell at a discount.

The double whammy is hitting property market recovery seriously as there are also few new homes being built, according to a new report by housing economist Ronan Lyons.

He said there was a real risk of a shortage of housing in the State’s largest cities – Dublin, Cork, Galway, Limerick and Waterford.

The report, sponsored by the Irish Banking Federation, points out that there is a massive excess supply nationally, but this is largely in rural areas with no great population.

The ‘Housing Market Monitor’ cites a number of reasons for the property-supply pinch, particularly in urban areas:

• There was no pressure on people whose children have left home to move to a smaller house. A higher property tax than the one coming in the summer might put pressure on these people to downsize.

• There is such a shortage of family homes for sale that the majority of the supply is now coming from executor sales.

The economist said that just 8,600 first-time-buyer mortgages were drawn down last year. But between 20,000 and 25,000 people get married every year, with most of these forming new households.

This implied a need for twice the level of house building, Mr Lyons added.

Department of Environment figures estimate that there are 50,000 housing units in Dublin ghost estates. Half of these are occupied, and another 17,500 are at the planning permission stage.

But the monitor found that most ghost estates are far from where people want to live.

This explains why there are even fewer available homes than many people believe.

But Ireland now has two clearly separate housing markets – an urban market and a rural market.

People are also reluctant to buy because they believe property prices will keep falling, Oxford-based Mr Lyons added.

Meanwhile, private residential rents have risen by between 5pc and 8pc in the past year in Cork and Dublin, estate agents Savills said. This is another result of a lack of quality homes for young families to buy.

Separate figures from the Central Statistics Office show an average rise in rents of 3.5pc in the past year across the country.

Regulator

Ministers are due to meet the Financial Regulator Matthew Elderfield in Government Buildings today about the mortgage arrears problem.

He will be briefing the cabinet sub-committee on banking, which is chaired by Taoiseach Enda Kenny and also includes Tanaiste Eamon Gilmore, Finance Minister Michael Noonan and Public Expenditure Minister Brendan Howlin.

The Irish Independent also reports that exemptions to the property tax because of financial hardship will be very restrictive and narrow, the Revenue has warned.

Revenue chairman Josephine Feehily reiterated that the controversial levy would be taken from salaries, bank accounts and social welfare if payments were not made.

And missed payments will be hit with 8pc interest, and deferred payments a with a 4pc charge.

Ms Feehily told the Dail Public Accounts Committee the categories of those given exemptions would be small.

“It's a very restrictive section. The idea of sending 1.6 million people an encouragement to tell us that they're in hardship is something that wouldn't make sense,” Ms Feehily said.

“All of the other exemptions are available on a self-assessment basis. This one is very narrow. (The terms are) very specific, serious, significant and unexpected.”

Ms Feehily said they were working on the details surrounding what constitutes a significant and unexpected financial hardship under the legislation.

She told the Dail's public spending watchdog that letters would be sent to 1.6 million people from about March 11 over a four-week period.

They will include a revenue estimate of the amount of tax due based on a broad valuation. Homeowners can either agree with the valuation or provide their own as it is a self-assessed tax.

Deducted

She said Revenue would begin a publicity campaign at the end of the first week in March, ahead of the letters being sent.

Key details of the process include:

● A paper return has to be filed by May 7 and an online return by May 28, although payment is not required until July 1. Payment options have to be chosen on the return.

● Those seeking a deferral will state the reason in their return.

● There are six ways to pay including cheque, cash, credit and debit card and direct debit. You can also opt to have it deducted from salaries.

Ms Feehily said options for dealing with people who refused to pay included deducting at source from salaries and having attachment orders issued against salaries or a person's bank account.

This means that Revenue would be granted powers placing restrictions on wages or accounts.

“If necessary, we can go further than that,” she said.

She also said that those on social welfare who did not pay would be reminded of their right to a deferral but that the Department of Social Welfare would be contacted to have the payments collected.

Ms Feehily reiterated that the enforcement options were lawful.

A 4pc interest rate charge will be imposed on those who defer their payment, while 8pc will be charged against households that refuse to pay.

“I don't want to be in a position of enforcing any tax,” she said.

“Our tax system is a self-assessment system. If it's not backed up with enforcement across all the taxes then we have a non-compliance problem, which will get worse and worse.”

The Irish Times reports that the National Assets Management Agency (Nama) is to develop a string of new commercial, infrastructure and residential projects within the Dublin Central Business District, primarily focused on the city’s Docklands.

The agency’s nationwide plan to invest €2 billion in completing projects up to 2016 will primarily address a shortage of quality office accommodation in the capital’s Docklands area and elsewhere.

It is also designed to assist the on-going expansion of the financial services sector and the development of new business and technology hubs, the agency said.

Nama chairman Frank Daly said the agency was evaluating residential projects where demand existed in Dublin and in other major growth centres throughout the country.

Speaking to the Association of European Journalists in Dublin, Mr Daly said: “We hold security over a considerable number of properties and lands on both sides of the river Liffey and are currently assessing the commercial feasibility of a wide range of projects – not least those in the undeveloped part of North Wall Quay in the north Docklands.”

Although Mr Daly said that Nama’s over-riding objective was to obtain the best financial return for the State and that all other objectives, “no matter how worthy”, would be subservient to this objective. He added that “we are committed to supporting initiatives for the common good”.

“The Dublin Docklands has been a marked success from an investment perspective, already accommodating over 40,000 employees in the technology, banking, financial, commercial law and other service sectors.

“The area is expected to require significant new development over the medium term, particularly of commercial office space, to accommodate the continued expansion of the financial services sector and the creation of new business and technology hubs in the wake of the move by companies such as Google and Facebook to the area,” he said.

Investment plan 

Nama’s investment plan is linked to the resolution of planning and infrastructure issues in Dublin and elsewhere.

The bad loan agency has approved sales with a total value of €11 billion since its inception in December 2009.

Mr Daly said the Government’s recent decision to liquidate IBRC and direct Nama to acquire the unsold residual element of its loan portfolio would “significantly increase Nama’s workload”.

“Potentially, depending on the scale of loan transfers, the size of our balance sheet could increase by close to 50 per cent.”

The liquidator has until August to decide what to do with IBRC assets.

Should Nama take on IBRC’s mortgage portfolio, it would be a new departure for for the agency, said Mr Daly.

The overwhelming majority of assets on Nama’s balance sheet are of a commercial property nature.

Problems 

In a criticism of the pace with which the banks are dealing with their problem loans, Mr Daly said that “problems in bank balance sheets were not confined to property loans, and it has taken them some time to get to grips with other impaired segments of their loan books”.

Mr Daly noted there was an absence of a “central, co-ordinating, policy development role” in relation to the residential property market.

He said there was a need for such an entity to “take the lead” in the market.

The Irish Times also reports that Ireland will go ahead with “a serious sale” of 10-year government bonds before the end of June that will be a major test of the country’s ability to fund itself on the international markets, Minister for Finance Michael Noonan has said.

The International Monetary Fund, he said, is prepared “to hold our hand” as Ireland readies to exit the bailout programme, said Mr Noonan, during a briefing for investors at Bloomberg’s European headquarters in London.

“What would suit us best is a menu of back-stop measures which we wouldn’t have to use, which would be back-stops that would encourage the market to lend to Ireland at low interest rates,” he declared.

Earlier, he voiced confidence that other EU states will agree that Ireland should get back some of the money that had to be invested by the Irish taxpayer to save Ireland’s banks: “I think Ireland has a very strong case. While some of it was our own fault, a lot of the action was taken at the direction of the European Central Bank to prevent contagion spreading to the European banking system. As Ronald Reagan used to say, ‘We took one for the team’,” he told Bloomberg TV.

Pleasantly surprised 

Mr Noonan said he was pleasantly surprised by the markets’ reaction to this month’s promissory note deal: “I thought the expectation in the market was that we would get a deal. But, obviously, there was a market surprise when the full deal was announced.”

“[At] some point probably in the first part of the year we will need to have a serious sale of Irish long-term paper. Nine-year was our traditional paper on the long-term side. Everyone else seems to be issuing 10-year [bonds].

“The issuance will be 10-year in line with everybody else. That will be one of the serious tests of market conditions,” said Mr Noonan, who met with a series of bond investors during the course of the day.

‘Hand-holding’ 

“We are told by the IMF that there is always a bit of hand-holding to get countries out of programmes, and they are prepared to hold our hand but I would like that we would be back into the markets fully by 2014,” he said.

Mr Noonan deliberately made no attempt to avoid the challenges, noting that Ireland’s description as “the best boy in the class” would not impress Irish voters: “My constituents wouldn’t be too impressed with anything I have said. There is austerity-fatigue all across Europe. While the Irish aren’t on the streets to any great extent we are not immune from austerity fatigue either. People want to see tangible results for the sacrifice that they are making,” he said.

Asked what is keeping him “awake at night”, Mr Noonan replied: “I would be concerned until the Cyprus situation is resolved in the next couple of months. I would be interested in what the solution is there.”

For the first time, bank creditors are facing wipe-out – an outcome that is small in financial terms – €10 billion approximately, but which euro zone leaders refused to countenance in Ireland’s case, or, indeed, for Greece, Spain, or Portugal.

The Irish Examiner reports that the digital economy has the potential to create 18,000 jobs over the next three years and the internet sector has the potential to double its contribution from 3% to 6% of GDP over the same period, according to a report.

The UPC report on Ireland’s digital future, which was conducted by Amárach Research, found that revenues from the internet economy could double to €11.3bn by 2016 if current trends continue.

“This will be underpinned by 2.6m Irish online shoppers spending €5.7bn (7% of all consumer spending) in 2016, compared to €3.7bn in 2012.”

Speaking at a breakfast briefing in Dublin yesterday to launch the report, Taoiseach Enda Kenny said creating an Europe-wide single market for the digital economy was one of the top priorities for Ireland’s EU presidency.

“In the near future, 90% of global trade will be done outside the EU. We must be ready for these digital markets and online trading will be crucial.”

Mr Kenny said Ireland’s national digital strategy had made a lot of progress in a short time. The focus of this strategy was digital adoption to ensure that every citizen and small-to-medium sized business in the country embraced the online space.

The Taoiseach called on the banks to deal with the 100,000 mortgages in distress in order for these people to be freed up to start spending in the economy again and contribute towards the recovery.

“I see no reason why that by 2016 we cannot be recognised as the best small country in the world to do business.”

The Taoiseach urged that science and technology be embraced at every level of the education system.

“I can’t tell you exactly where the job opportunities will be in five years, but there are trends and they are pointing towards the digital economy.”

The more investment Ireland could attract, the more it would stoke domestic economic activity. He said this Government was open to all ideas that would spur growth in the future and urged all business leaders to write to his administration with any appropriate suggestions.

Credibility had been restored to Ireland’s international perception because the Government had staked its reputation on setting goals and sticking to these targets, the Taoiseach said.

“The digital economy has a major role to play in our country’s economic recovery, with Ireland on its way to becoming the digital capital of Europe. We welcome the arrival of global digital brands into Ireland and the contribution they make to our economy and society. The ongoing challenge for Government is to prevent a two-tier digital economy from developing and to ensure that Irish small and medium sized businesses are encouraged to embrace the opportunities new digital technologies can offer.

“I want to see all Irish businesses live up to their potential and have the ability to compete globally. For the Government’s part, we will work to create a supportive and flexible enterprise environment so that Ireland’s digital economy can continue to go from strength to strength.”

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