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The fourth-richest man in the country said growth in the fastest-expanding economy in the euro region may have helped create "a little bubble" in real estate prices. Irish house prices have increased by 335pc between 1995 and 2005, faster than anywhere else across the 30-nation Organisation for Economic Development. "There's no doubt about it; it's a bit frothy, certainly in the property sector," Desmond said. "There's just so much wealth generated, it's created that little bubble. I think that will settle out in time." Prices in Dublin are now higher per square metre than those in London, Zurich and Paris, the OECD says, estimating that Irish housing may be overvalued by as much as 20pc. New York "Residential property is as expensive here as in London or New York," said Desmond, who is reported to be worth $1.8bn. "While I'm very proud of Dublin as a city, I still don't think on the global map it's as important as London or New York as far as buying residential property." As house prices surge, developers are gobbling up vacant land, hotels, pubs and sports stadia across the country. About 86,000 houses were built last year, equal to 21 dwellings for every 1,000 people, or four times the European average. In July, Desmond sold his 22pc shareholding in Greencore to property developer Liam Carroll. Greencore sale Greencore owns former sugar-processing sites with a market value of as much as €187m, according to a valuation carried out for the Irish Farmers Association in June. Property prices have risen as the Irish economy expanded at an annual average of 7.5pc since 1996, compared with 2pc growth in the euro area as a whole. Irish inflation accelerated to 4.5pc in August, a 3½-year high, from 4.2pc in July. "We have to be cautious that we don't inflate the economy too much," said Desmond. "Otherwise, there could be a severe recession, but we have a very good finance minister and a competent government, and I don't see that really happening." The Irish Independent says that all eyes are on the property market and the emerging signs of stress and strain - a surfeit of sellers, nervous buyers, rising interest rates, and weakening prices. The newspaper asks is the great Irish property party finally coming to an end? The question has been prompted by a number of recent indicators that appear to suggest early signs of a slowdown in the property market. Irish house prices have risen 270pc since 1996, rising at average of 14.9pc for each of the last ten years. But last week unexpected results in a new survey of mortgage lending published by the Irish Bankers Federation appeared to show a dramatic slowdown in homeloan lending in the second quarter of this year. The amounts borrowed for trading-up and topping-up were actually lower than the same period of 2005. Only 13 more first-time buyers took out loans than last year. The survey seemed to indicate that the rapid rate of growth in the mortgage market has begun to tail off as interest rate hikes begin to bite. The number of homeloans issued continues to increase, but the rate of increase has fallen back significantly. The indications of a slowdown in mortgage approvals tallies with recent house price figures. In July, house prices rose just 1.1pc - a reduction in the rate of growth for the third successive month, according to Permanent TSB/ESRI. And a recent report from internet property site Daft.ie showed that the annual rate of house price increase had more than halved in June to 6.2pc. The popular personal finance website Askaboutmoney.com has 190 pages of 200,000 posts under the title 'Current public sentiment towards the housing market'. Much of it is negative about property prices. Mortgage brokers have also detected early warning signs of a slowdown in the housing market. The Independent Mortgage Advisers' Federation, which represents the country's brokers, has predicted a major slowdown in the housing market. President of the IMAF Michael Dowling said his members were beginning to see signs that prices might have reached a plateau. Higher interest rates, along with sharp rises in energy costs, and the need for lenders to stress-test mortgage applicants to ensure they can cope with higher interest rates, were dampening the market, Mr Dowling said. By next spring he expects house price increases to fall back to around 3pc on an annual basis. Mortgage rates have increased four times in the past nine months, with another two rate rises expected before the new year. The rises have so far added 1pc to interest rates. The last rise was in August, but experts say the cumulative effects of the previous ones are beginning to have an effect on the mortgage market. Economist Pat McArdle has also detected tentative signs of a slowdown, but he stresses it is too early to be definitive. The Irish Bankers Federation statistics, the Permanent TSB/ESRI figures, the Daft.ie report, and anecdotal evidence seem to be pointing to a slowing in the property market, the Ulster Bank economist said. "Here we have four straws in the wind, and if you add them all together it does indicate a slowdown. But we are still waiting for confirmation." However, he said last month's lending figures from the Central Bank did not give any hint of a tailing-off in mortgage lending, so he would be closely watching the end of the month's lending figures from the Central Bank. Since the start of this year the mortgage market may have been sustained by the move to longer-term mortgages of 35 or even 40 years. But that effect may now have run its course, and even longer loans would make little difference to repayments, even if they were on offer from the banks, some commentators argue. Last week, the German Bundesbank, the biggest central bank in the euro system, signalled that ECB rates might continue rising next year, which could bring them to 4pc. "Recent developments have been positive but the inflation risks are such that . . . further action over and above that envisaged in our main scenario could be warranted," Axel Weber said. He was responding to a question about the prospect of rates hitting 4pc in 2007. Despite the rates rises, there is no evidence of a lowering of interest in buyers wanting to acquire property, according to Hooke & MacDonald managing director Ken MacDonald. "If it keeps up like this, the whole year is going to be dramatically up on last year." However, higher rates are operating to stabilise prices in the new house/apartment market. "Developers are not increasing prices. They are responding to interest rates. Developers want a flow of business; they don't want a slowdown." Mr MacDonald said he was hopeful prices would slow to single-digit increases. Property prices last fell in Ireland in 1994 soon after the currency crisis two years previously, according to Department of Environment figures. Property price rises peaked in 2000, when they rose by 22pc. At present, they are rising at an annual rate of 15.5pc. It remains to be seen if mortgage lending and housing prices start to ease back. But the early indications are that there is a slowdown. After 12 years of double-digit growth, even single-digit growth would be a welcome relief in a raging market.
The Irish Times reports that the US tax authorities have deepened their scrutiny of the Californian software multinational Synopsys, whose activities in Ireland led to a claim last year for $477 million (€375.9 million) in back taxes. The US internal revenue service (IRS) claim - which "relates primarily" to the Irish business, according to Synopsys - followed a tax assessment for the fiscal years 2000 and 2001. In accounts newly-filed with the Companies Office, Synopsys reveals it took dividends totalling $424 million its Irish units last year, up from $48.96 million. At the same time, the combined pretax profits at the company's three Irish subsidiaries declined to $133 million from $247 million. Based in Blanchardstown, west Dublin, Synopsys has been in Ireland since 1999. More than 10 per cent of company's global revenues come from Intel, the computer chip company that has a significant manufacturing operation in Leixlip, Co Kildare. Synopsys is strongly disputing the tax claim for 2000 and 2001, but it said in a filing last week to the securities and exchange commission (SEC) in the US that the IRS had started an examination of its federal tax returns for 2002, 2003 and 2004. The company's chief spokeswoman at its headquarters in Mountain View, California, described the latest IRS examination as a "standard audit". She said it would "not be appropriate to draw a parallel" between the latest audit and the examination that led to the 2000-2001 claim. Synopsys has said the tax dispute could take years to resolve. While the firm believes the IRS assessment is "inconsistent with applicable tax laws", its ultimate liability will be much greater than the disputed $476.8 million if the claim is upheld because that sum is subject to interest. The $477 million tax claim relates to transfer-pricing transactions between the parent company and its Irish business. The IRS did not claim the money until June 2005, so there is a strong possibility that Synopsys continued to use the same transfer pricing arrangements in 2002-2004, the period in question in the latest IRS examination of its tax returns. The possibility of another adverse IRS ruling would increase if the first claim was upheld and if the transfer pricing arrangements at issue were continued. The firm's spokeswoman said she was unable to provide information about its dividend payments last year from two of its Irish-registered units. In the year to October 2005, a holding company called Synopsys Ireland Ltd paid $360 million. In addition, a research and development company called Synopsys International Old Ltd paid dividends of $64 million. Another company called Synopsys International Ltd did not pay any dividends. Many US groups in Ireland increased their dividend payments last year to take advantage of a once-off tax concession introduced by US president Bush to encourage US firms to repatriate more profits to their home units. The Irish Times also reports that arrears and bad debts in some of the the Republic's 400 credit unions are rising, the sector's regulator told an Oireachtas committee yesterday. In a submission to the Joint Committee on Finance and the Public Service, the Registrar of Credit Unions, Brendan Logue, said that as these institutions' operations had grown they had begun moving into new areas, such as business lending. "This type of lending requires greater underwriting skill because of the inherently greater risks involved and specialist skills are thus required to manage such risks," he said. Mr Logue warned that where they move away from their main business of providing lending and saving services, they expose themselves to greater risk, which calls for stronger control. "It is very important for credit unions to have at their disposal modern and reliable technology to facilitate such a higher level of control," he said. He added that his office has been working with credit unions to tackle these problems. Mr Logue pointed out that credit unions have €11.8 billion in savings under their management, 12.5 per cent more than a year ago. He suggested that the increase in the cash held by credit unions was putting pressure on them to increase their dividend payouts to members, which could be putting pressure on them to take unacceptable risks. Mr Logue ran into controversy recently when he instructed Monaghan Credit Union not to pay €731,000 in dividends because it had to write off €11.9 million in bad debts, leaving it with a loss for 2005 of €3.8 million. Following talks with the union's board, he revoked the decision and allowed Monaghan Credit Union to pay its dividend. Liam O'Dwyer, chief executive of lobby group the Irish League of Credit Unions (ILCU), told the committee that while some loans from individual unions were "technically delinquent", in most cases there was no question of the money not being repaid. "Some of our members are from very poor backgrounds, we lend the money to them and sometimes they are not able to meet the terms as originally set out in the loan agreement. That's counted as a delinquent loan," he explained. However, Mr O'Dwyer said the debtors generally repaid the money. He said this flexible approach was central to the service credit unions provide. Credit unions can only loan up to 20 per cent of their total loan books for more than five years. The ILCU wants the Oireachtas to introduce legislation to ease these restrictions. The Irish Examiner reports that householders in Ireland will pay a staggering 87% more for their gas than consumers in Britain from next month, an Irish Examiner study has revealed. Electricity is currently 22% more expensive than in England, where average household annual bills are around €170 cheaper than the €756 in the Republic.
José Sequeira was marched from his office two years ago after the Commission’s medical service said he was mentally unfit to work. His lawyers claim he was singled out for raising allegations of corruption in the Jacques Santer-led Commission during the late 1990s. Neither he nor his doctors have seen the diagnosis and three eminent psychiatrists have given him a clean bill of health. “How can one contest a decision without access to the medical file?” asked Paul Mahoney, presiding judge at the European civil service tribunal in Luxembourg, where the hearing was held. His fellow judges on a three-person panel also questioned whether a decision on June 18 2004 to put Mr Sequeira on sick leave within 72 hours was taken by the correct person. It was “not a decision but a communication”, the Commission said in its defence. It was rubberstamped by higher authorities on June 28. “One could perhaps call it ‘inexistent’ then”, mused Stéfano Gervasoni, echoing Mr Sequeira’s application to have it annulled. Mr Sequeira also wants his job as an administrator in the development directorate back and up to €2m ($2.6m, £1.4m) in damages and costs from his two-year fight to clear his name. Commission staff have jobs for life but an average of 200 are placed on long-term sick leave every year, half with mental health problems. That is almost 1 per cent of its 22,000 workforce and most never return to work. A 2003 study found that the cost across all European institutions of the invalidity policy is €74m a year. The Commission is revamping its occupational health policy. Mr Sequeira, who joined the Commission in 1988, first encountered problems in February 2001 when Horst Reichenbach, head of the administration department, accused him of circulating a “defamatory dossier” about colleagues. He placed a junior official, Mercedes de Sola, in charge of disciplinary proceedings. She asked him to attend a medical appointment. “Where is the dossier?” asked Olivier Martins, Mr Sequeira’s barrister. “It was just an excuse.” Mr Sequeira, a Portuguese national, refused to co-operate with the inquiry and was given an ultimatum in May 2004 by the Commission medical service. Dr Serve Dolmans told him that unless he visited a psychiatrist chosen by the Commission he would be sent on sick leave. After a 45 minute consultation he was apparently judged unfit to work. Serge Bornstein, an eminent French psychiatrist, by contrast found no evidence of mental illness. Céline Falmagne, for the Commission, said it was an “exceptional case” but due procedure had been followed. “It was a medical case handled by medical professionals,” she told the court. The judges will deliver a verdict in the next few months. The FT reports that anti-terrorist security hand luggage restrictions on airlines flying from UK airports are expected to be relaxed within days, according to officials in London. The move by the UK to relax restrictions introduced following last month’s discovery of an alleged plot to blow up transatlantic aircraft comes as the European Union moved to agree on union-wide airline security measures covering the transport of liquids by passengers. “We will be presenting [next week] new proposals aimed at lessening the burden on both passengers and operators while allowing us to maintain a rigorous security regime,” the UK Department of Transport said. “We will never compromise on passenger security but we are always mindful that passengers should be able to travel as freely as possible,” it said. In Brussels, Jacques Barrot, European transport commissioner, said that he will propose at a meeting of EU aviation specialists on September 27 that restrictions on liquids should be implemented throughout the EU although he is not expected to call for an outright ban on all liquids in hand luggage. The UK will meanwhile maintain its own ban on liquids, pending the outcome of the EU meeting. European transport security officials hope over the coming days to reach agreement on the volume of liquids that can be taken on board without the risk of being used as an explosive. EU officials have suggested that a small bottle of shampoo or a toothpaste container would be acceptable volumes while baby food and liquid medicines – currently allowed on flights out of the UK as well as elsewhere in Britain – would also be permitted. In addition Mr Barrot is also likely to call for laptop computers to be scanned separately when passengers put hand luggage through security checks, a measure which has been adopted by the UK authorities, the US and some other EU states. The proposals for minimum standards on hand luggage could be swiftly put into law because they do not require the backing of the European parliament. But even before there is a EU-wide agreement, passengers flying out of the UK will see a relaxation in a matter of days. The New York Times reports that in the administration’s toughest warning yet to China on economic issues, Treasury Secretary Henry M. Paulson Jr. said on Wednesday that Chinese leaders were imperiling their nation’s future by engaging in policies that Americans and others see as unfair. Speaking as he prepared for his first trip to Beijing since taking office this summer, and one day after China’s monthly trade surplus set another record, Mr. Paulson said that the United States had “a huge stake in a prosperous, stable China” and that “we are not afraid of Chinese competition.” But he used forceful language in saying that China had kept the value of its currency artificially low in relation to the dollar, which a growing number of economic analysts say is making China’s exports cheaper and its imports more expensive. Mr. Paulson also repeated longstanding administration demands for China to loosen regulations and controls on foreign investment and the activities of its banks. “Maintaining and relying on an overly rigid exchange rate and outdated administrative controls increases the risk of boom and bust cycles,” Mr. Paulson said. Also, he added, China’s “currency exchange rate is increasingly being viewed by their critics as a symbol of unfair competition.” Mr. Paulson did not say so, but aides said he was referring to legislation that would place tariffs on imports from China if its government did not act to let the yuan rise in relation to the dollar. The sponsors of the measure, Senators Charles E. Schumer, a New York Democrat, and Lindsey Graham, a South Carolina Republican, have held back pending Mr. Paulson’s trip. But they vow to press for its passage this fall if Mr. Paulson fails to get action from the Chinese. Treasury officials say that in his few months as secretary, Mr. Paulson, a former chief executive of Goldman Sachs who made scores of trips to China as a business executive, has been surprised by the growing protectionist sentiment in Congress toward China, abetted by anti-Chinese sentiment on several issues. Leaders of both political parties accuse China of not cooperating on American efforts to prevent North Korea and Iran from amassing nuclear weapons and to stop the civil war in Darfur. The administration has also deplored China’s military buildup. Mr. Paulson’s speech was unusual for a Treasury secretary in that it embodied an extensive analysis of China’s economic policies and structure. He repeatedly praised China for liberalizing its economy even as he implored its leadership to do more. Mr. Paulson said he learned in 32 years at Goldman Sachs that “those nations that reform their economies and open themselves to competition benefit their citizens greatly” and “have better jobs, improved living standards and greater opportunity.” But he said that protectionist sentiment was preventing China from doing more to open itself up to competition, and was in turn breeding protectionist sentiment in America. “Ironically,” he said, “this protectionist sentiment comes from many quarters in those nations — including in the United States and China — which have benefited the most from the economic growth generated by global competition.” Mr. Paulson said the United States would not “heed the siren songs of protectionism and isolationism,” but that China had to do its part by changing its heavily subsidized industries and farms, allowing capital to flow freely and guiding Chinese to spend more and save less — a step that economists say would increase imports. Before going to China, Mr. Paulson plans a stop in Singapore to meet with the world’s finance ministers and to press for giving China more of a voice in the international agency that oversees the global economy and rescues countries whose economies collapse. The administration’s proposal to expand the role of China and other developing countries at the agency, the International Monetary Fund, has run into some difficulties. Brazil, India, Indonesia and some other countries oppose the change out of fear of being left out. The administration needs 85 percent of the votes, which are assigned in a complex quota system to 184 countries, to have the change enacted at the fund. Treasury officials say there are some “rumbles” of protest but they predict success. Although Mr. Paulson was in Vietnam last weekend for a meeting of Asia-Pacific nations, the trip to Singapore and China represents what some officials call his debut on the international scene. Accordingly, it was notable that he began the trip with a warning. “I believe that if China doesn’t move quickly to continue reforming its economy,” he said, “it will face a backlash from other economic stakeholders. This backlash would not benefit any of us.” In an interview after his 35-minute speech, Mr. Paulson cautioned against expectations that his trip to China would produce immediate results. The best policy in advance of this trip, he said, was to “diminish expectations” for any quick move by China to allow the value of its currency to appreciate. “I believe that most things that are worthwhile take a period of time,” Mr. Paulson said. The NYT also reports that foreclosures on prime adjustable-rate mortgages rose to a four-year high in the second quarter, a sign that more homeowners with good credit ratings are having trouble paying their bills. The share of the loans entering foreclosure, which occurs when a lender tries to seize property, climbed to 0.27 percent at the end of June, from 0.21 percent three months earlier, according to a report yesterday by the Mortgage Bankers Association in Washington. A spike in home prices last year spurred borrowers to choose riskier adjustable loans, which feature initially lower “teaser” rates, said Diane C. Swonk, chief economist at Mesirow Financial in Chicago. The average rate for a 30-year mortgage that adjusts annually has risen more than one percentage point since 2005. “Homeowners with adjustable-rate mortgages are getting squeezed on all sides,” Ms. Swonk said. Real estate taxes and energy and insurance costs have also increased, she noted. The rate of subprime ARM’s — representing lending to people with poor credit histories — that were entering foreclosure rose to 2.01 percent, the highest since the fourth quarter of 2003, the report showed. For all loans, the rate of those entering foreclosure increased to 0.43 percent, the highest since the fourth quarter of 2004. Delinquencies, or payments more than 30 days late on fixed and adjustable loans, fell to 4.39 percent, from 4.41 percent in the first quarter. The total share of loans being foreclosed on rose to 0.99 percent, from 0.98 percent. © Copyright 2007 by Finfacts.com |
