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 Post subject: Re: NAMA €5.6 billion plan to build 20,000 new homes
PostPosted: Thu Dec 17, 2015 3:30 pm 
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Luan wrote:
Over that timeframe even a 20% margin (rather than the 7% margin quoted by Nama) does not look particularly attractive given the risks involved.


Which risks exactly do you perceive in the undertaking? The returns on each unit do not arrive at the end of the development, rather as each is sold, often that's before the ground is broken on its construction. Based on recent history, some of each development will be cash first, build later.

IMHO, the biggest risk any modern developer faces is getting carried away and paying too much for the land, followed by getting their project pricing wrong (all of which are standard business sense risk management issues that any manager would deal with).

There's no good reason I can see, based on the industry numbers I've seen to date, why a "savy" developer can't make a tidy sum on a development of well build, good sized, modern spec 3-bed semi's in a well designed and serviced project in most parts of the Dublin area and sell them for not far off €250,000 per unit. However, IMHO the allegation from NAMA in the IT piece (along with some of the agency's own actions) explains why we're not seeing that.

Blue Horseshoe

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"Housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style". "So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000's. And I don't expect it to come back. Not with the same force. So people might just decide, "I'll live in a rental." That is a very sensible thing for many people to do". Prof. Robert J.Shiller, Nobel Laureate in Economics, Feb 2013.


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 Post subject: Re: NAMA €5.6 billion plan to build 20,000 new homes
PostPosted: Thu Dec 17, 2015 9:37 pm 
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Blue Horseshoe wrote:
Luan wrote:
Over that timeframe even a 20% margin (rather than the 7% margin quoted by Nama) does not look particularly attractive given the risks involved.


Which risks exactly do you perceive in the undertaking?

For a start, prices can fall or costs can increase for any number of reasons outside the developers control :)


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 Post subject: Re: NAMA €5.6 billion plan to build 20,000 new homes
PostPosted: Thu Dec 17, 2015 9:42 pm 
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Luan wrote:
Blue Horseshoe wrote:
Luan wrote:
Over that timeframe even a 20% margin (rather than the 7% margin quoted by Nama) does not look particularly attractive given the risks involved.


Which risks exactly do you perceive in the undertaking?

For a start, prices can fall or costs can increase for any number of reasons outside the developers control :)


Still, with the currently constrained supply, buying off plans could well become sufficiently fashionable again to go a long way towards negating the risk of price falls.

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People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.


Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations
Book I, Chapter X, Part II,


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 Post subject: Re: NAMA €5.6 billion plan to build 20,000 new homes
PostPosted: Thu Dec 17, 2015 10:03 pm 
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Madness of Crowds wrote:
Luan wrote:
Blue Horseshoe wrote:
Luan wrote:
Over that timeframe even a 20% margin (rather than the 7% margin quoted by Nama) does not look particularly attractive given the risks involved.


Which risks exactly do you perceive in the undertaking?

For a start, prices can fall or costs can increase for any number of reasons outside the developers control :)


Still, with the currently constrained supply, buying off plans could well become sufficiently fashionable again to go a long way towards negating the risk of price falls.


Buying off the plans only requires a small deposit. They aren't paying full cost for the house up front. Financing is still required.


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 Post subject: Re: NAMA €5.6 billion plan to build 20,000 new homes
PostPosted: Thu Dec 17, 2015 10:15 pm 
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Andy wrote:
Madness of Crowds wrote:

Still, with the currently constrained supply, buying off plans could well become sufficiently fashionable again to go a long way towards negating the risk of price falls.


Buying off the plans only requires a small deposit. They aren't paying full cost for the house up front. Financing is still required.


Aha, I had assumed that it implied a firmer commitment than that, along with credit approval, but that the contract could still be sold on. My mistake.

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People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.


Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations
Book I, Chapter X, Part II,


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 Post subject: Re: NAMA €5.6 billion plan to build 20,000 new homes
PostPosted: Fri Dec 18, 2015 11:07 am 
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Luan wrote:
For a start, prices can fall or costs can increase for any number of reasons outside the developers control :)


Yes, that is true, but they are similar to the risks any business in any sector or market faces. Nothing special there and certainly not a reason to shirk a better than 7% and potentially double digit % EBIT return.

On the point of deposits, they are generally non-refundable. If a potential buyer places a deposit and fails to get funding or pulls out of the deal for some other reason, the developer and EA retain the deposit. Similarly, during the bubble madness, it was not uncommon for potential buyers to put down deposits on multiple units with the intention of only closing the deal on one (I never understood the logic behind that), again the cash from the uncompleted transactions went straight to the developer profit margin.

To return to the theme of the thread. 20,000 to 30,000 new units a year is well within the capacity of even a diminished Irish construction industry. 2015 is projected to show 12,500 or so new units.

Blue Horseshoe

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"Housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style". "So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000's. And I don't expect it to come back. Not with the same force. So people might just decide, "I'll live in a rental." That is a very sensible thing for many people to do". Prof. Robert J.Shiller, Nobel Laureate in Economics, Feb 2013.


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 Post subject: Re: NAMA €5.6 billion plan to build 20,000 new homes
PostPosted: Fri Dec 18, 2015 12:39 pm 
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Blue Horseshoe wrote:
Luan wrote:
For a start, prices can fall or costs can increase for any number of reasons outside the developers control :)


Yes, that is true, but they are similar to the risks any business in any sector or market faces. Nothing special there and certainly not a reason to shirk a better than 7% and potentially double digit % EBIT return.

On the point of deposits, they are generally non-refundable. If a potential buyer places a deposit and fails to get funding or pulls out of the deal for some other reason, the developer and EA retain the deposit. Similarly, during the bubble madness, it was not uncommon for potential buyers to put down deposits on multiple units with the intention of only closing the deal on one (I never understood the logic behind that), again the cash from the uncompleted transactions went straight to the developer profit margin

Blue Horseshoe


I am not sure your information source is correct. The deposits paid were non-refunderable as a contract was in force binding both parties. Many an investor (post Celtic tiger days) was sued by the developer (or more specifically the bank involved) for specific performance of contracts signed at the height of the market.


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 Post subject: Re: NAMA €5.6 billion plan to build 20,000 new homes
PostPosted: Fri Dec 18, 2015 11:06 pm 
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Luan wrote:
For a start, prices can fall or costs can increase for any number of reasons outside the developers control :)


House prices in Ireland historically display MASSIVE variation over a 3-year horizon. Sometimes in developers' favour, sometimes not. Add in to the that uncertainty of the planning process.

It is a risky undertaking hence the need for high return.

The real issue is the cost of land and planning, services, etc. Remember in Ireland local authorities do not make money from houses, they make money from commercial rates.

Of course it's much easier to blame developers.


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 Post subject: Re: NAMA €5.6 billion plan to build 20,000 new homes
PostPosted: Fri Dec 18, 2015 11:30 pm 
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@Blue Horseshoe

A 7% EBIT margin wouldn't butter many parsnips. Off that they've to service their senior debt, any mezz returns and taxes before they see any profits.
Much to Lorcan Sirr's (DIT lecturer) chagrin, a targeted return of 20%+ is not "greedy" or "excessive".
The great bastians of Irish utilities Ervia (Board Gais) = EBIT margin of 40%+, ESB's = EBIT margin is 17%+, Bord Na Mona's = 14%.
Most major UK housebuilders are generating EBIT margins of between 15% and 25% and they've significantly lower costs of funds.


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 Post subject: Re: NAMA €5.6 billion plan to build 20,000 new homes
PostPosted: Sat Dec 19, 2015 12:12 am 
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But I doubt Sirr meant EBIT when he talked about "returns" did he?

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