Ireland works out property debacle
TEXT OF STORY
Bill Radke: This week, Irish lawmakers are trying to figure out how to revive their financial system. Ireland blew one of Europe’s biggest property bubbles over the past decade. Yesterday, the Finance Minister described a banking plan that resembles a swine flu quarantine. From Dublin, Christopher Werth reports.
Christopher Werth: In recent years, Donegal in the North of Ireland saw a surge in luxury home building.
Dara Furey: Look through the double doors, there’s a kitchen area.
Local realtor Dara Furey says his work was easy during the boom years. But today, he complains properties like this unfinished four-bedroomed house are skeletal monuments to better times.
Furey: The house needs all its second fixing, finishing. You have to do all your doors, painting, flooring, tiling inside, all your bathrooms, fireplaces and kitchen. And just take it as you see it, you know.
The house was empty for two years before Furey sold it last month. With too many houses and too few buyers, he got less than than half what the house would have brought had it been completed just 18 months ago.
Ronan Lyons is an economist with Ireland’s biggest property Web site, Daft.ie:
Ronan Lyons: In some years, twice as many properties as we needed were being built. So instead of producing maybe 40 [thousand] to 50,000 new homes every year, we were producing maybe 70 [thousand] to 90,000 at the peak.
When prices only went up and the banks readily loaned money to developers, few thought they would end up with about $130 billion worth of bad loans. Now the government has to foot the bill. It wants to put the loans into what it calls the National Asset Management Agency, or NAMA.
Economists like Trinity College’s Brian Lucey just call it a bad bank. Lucey says it’s a bit like an isolation ward in a hospital.
Brian Lucey: Imagine that the bank loans have got swine flu. A bad bank basically is set up to take all of the loans that have gone bad so that they can no longer contaminate the existing good loans.
Lucey and other economists warn that the plan risks paying too much taxpayer money for assets that will, in all likelihood, keep losing value.
For now, Ireland’s government continues a delicate dance — with the banks, to make sure they take their share of losses; with the public to reassure them they’re not footing the bill for others’ foolishness; and with the international and rating agencies, who must be persuaded that the Celtic Tiger may one day roar again.
In Dublin, I’m Christopher Werth for Marketplace.
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