Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

Elephant in the room: NAMA’s yield problem hasn’t gone away

  • Joseph ,

    Great article Ronan. I fear the worst case scenario.

    • Cian ,

      Interested article.
      Here’s another elephant worth mentioning:

      Rental yields, are a function of the governments ability to pay rent allowance, since rent allowance set the ultimate floor on rental yields.

      How long can the government keep supporting rent allowance at the current levels?

      • Brian Flanagan ,

        • Ronan Lyons ,

          Hi Brian,
          Thanks for that – good post.

          Hi Cian,
          Very important point. Although only about one quarter of ads on Daft seem to accept rent allowance (let me check that – but that’s what I remember last time I looked), it may set a floor for all concerned. I hope to be looking at this in probably 2/3 posts time in the property market section.


          • Brian Flanagan ,

            • Jagdip Singh ,


              The 47% drop in prices last September 2009, I understood this to represent the drop for the expected basket of NAMA assets. Crucially they weren’t all acquired at the top of the market and the big % drops like the field in Athlone compare peak-to-trough, yet this may not be representative of NAMA assets.

              Could you summarily explain the relevance of the 10% in 10 years presumption with respect to property price increases in the NAMA business plan?

              Great post by the way, informative and entertaining.

              • Jagdip Singh ,

                Also could you explain the arithmetic of

                “A 51% fall in the value of its loan book means that NAMA needs a 25% rebound in property prices by 2020 to break even.”

                • Can NAMA deliver? « Ireland after NAMA ,

                  […] Posted by irelandafternama under Links | Tags: Nama, Ronan Lyons | Leave a Comment  Ronan Lyons has an interesting post over on his blog discussing whether NAMA can deliver on its promises.  His […]

                  • Ronan Lyons – #NAMA Elephant « No2NAMA ,

                    […] somewhat pessimistic) article regarding NAMA’s yield problem. You can read the full article here. “If NAMA could show that it’s aware of these very basic facts about Ireland’s property […]

                    • Foolish Penny ,

                      • Gavin ,

                        • UpsidedownA ,

                          RE: Yields on commercial property. Perhaps the Government is trying to ensure that the return to long term average will come through an adjustment in prices. This would explain the failure to sort out the upwards only rent reviews issue on existing commercial leases.

                          • The Irish Economy » Blog Archive » Ronan Lyons on NAMA and Yields ,

                            […] has updated his analysis on property yields and its implications for NAMA and long-term economic value. It […]

                            • david mc williams ,

                              great article ronan, best david

                              • Pat Donnelly ,


                                But the EU has to vet each transer does it not? One of the upsides of loss of sovreignty!

                                • Ronan Lyons ,

                                  I haven’t read through the EU’s role in full, but that would warm the cockles of the heart. In addition, Karl Whelan, over on, suggests that the EU may have increased the discount factor, which seems like it’s going to be used by NAMA in some sort of way to reduce prices (the whole thing is quite opaque!).

                                  If true, both are good things from the Irish taxpayer point of view (and also both make the nationalisation of the banks more likely).

                                  • Niall ,

                                    Ads in the commercial property section of the Irish Times on Thursday last suggest that industrial/commercial units are already priced at well below their replacement cost. The oversupply makes a mockery of any idea that rental yields are not continuing to fall. Because of the artificial structures put in place around the purchase of many industrial units, the actual rent paid is quite opaque. Many landlords are connected parties to the tenant.

                                    In relation to Cian’s point, the DSFA will shortly be publishing a review of rent supports. Already support limits are considerably above market rents in 90% of the country and a cut of 15% saving €75M is quite reasonable, See Dáil question Ref No: 5546/10.

                                    Retail rents will also have to come down quite considerably, if shops are to survive.

                                    Yes, Rónán your basic argument is correct, perhaps even understated!

                                    • Ronan Lyons ,

                                      Many thanks for the Dail reference. For those interested, you can find it from this link, The text of relevance is as follows:
                                      Deputy Joan Burton asked the Minister for Social and Family Affairs her views on further reductions to the rent allowance; the amount of money that is allocated for the rent allowance in 2010; if she will provide a breakdown of spending on the rental allowance by Dublin postal district for 2007, 2008 and 2009; and if she will make a statement on the matter.
                                      The reply:
                                      “The purpose of the rent supplement scheme is to provide short-term support to eligible people living in private rented accommodation whose means are insufficient to meet their accommodation costs and who do not have accommodation available to them from any other source.
                                      Rent supplements are subject to a limit on the amount of rent that an applicant for rent supplement may incur. Rent limits are set at levels that enable different types of eligible households to secure and retain basic suitable rented accommodation, having regard to different rental market conditions that prevail in various parts of the State. The objective is to ensure that rent supplement is not paid in respect of overly expensive accommodation having regard to the size of the household and market conditions.
                                      Setting or retaining maximum rent limits at a higher level than are justified by the open market can have a distorting effect on the rental market, leading to a more general rise in rent levels and in landlord income. This in turn may worsen the affordability of rental accommodation unnecessarily, with particular negative impact for those tenants on lower incomes.
                                      A review of maximum rent supplement levels is in process and will be completed by 31st of March 2010. Preliminary findings of this review confirm that rent levels have dropped significantly and continuously since their peak in 2007 giving further scope for reductions for rent limits.
                                      The provisional outturn for 2010 Rent Supplement is €509m, an overall year on year increase of 19m. This reflects the expected increase in rent supplement applicants in payment in 2010.
                                      In the time available it is not possible to provide statistical information requested.”

                                      In short, quarter 2 – April-June – could be a period of adjustment in the market, depending on the findings of the review.

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                                          […] then, a 47% haircut based on an estimated fall in property values of 55% looks broadly in line with back-of-the-envelope figures I worked out earlier in March – and, by hook or by crook (i.e. however they’ve rounded down LTEV, for which I think […]

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