London property bubble is good news for NAMA

Published 31st Aug 2011

Ireland's bad bank has an opportunity to make a tidy profit on London's commercial property, but only if sells before it becomes a burst bubble


As shares across the globe tumble investors are fleeing to safe havens such as gold and the Swiss franc.

But they are also turning to trophy properties in London, which is why the National Asset Management Agency (NAMA) may have been right earlier this year when it let slip it was launching a £16.5bn firesale of all its London properties which include the Citigroup tower in Canary Wharf, part of Leicester Square and the Louis Vuitton building in Bond Street.

Critics believe the Irish bad bank would have been better holding on to London assets for the long term as yields on rent and prospects for capital growth are good, unlike Dublin, where offices lie empty throughout the city and chances of price increases are nil to slim over the next five years.

But it turns out this week that NAMA is looking very prescient.

LaSalle Investment Management, which manages £27bn of real estate assets across the world, has this week raised fears that the strong growth in commercial real estate in London may itself be a bubble.

"The relative lack of caution in the real estate capital markets is a concern. It is remarkable how quickly capital has returned to real estate. The re-emergence of a competitive credit market, so quickly after the bursting of the credit bubble, is also astonishing," said Jacques Gordon, Global Strategist at LaSalle Investment Management in the company's mid-year Investment Strategy Annual Report.

A separate report by Partners Group, a Swiss investment house, out this week, shows that prices for trophy properties have surged so much they are now approaching the peak seen just before the property crash levels in 2007.

This is partly because so many sovereign funds from places like Canada and cash rich economies like the middle-east, Russia and Asia are piling in because they see London as a safe haven.

Partners Group also raises concerns however. It says investor-friendly yields from rent of 5% and 6% are no longer achievable in elite markets including the UK - in some cases prices are so high the yield is as low as 3-4%, barely keeping ahead of inflation in some developed countries.

"If everyone piles in at the same time this will lead to a speculative bubble," David Blake a professor at London's Cass Business School told the Financial Times in a recent review of the fund management industry.

"There isn't enough of this stuff [trophy properties] globally in countries with stable political systems, where you can have confidence that you can invest and then later get your money out," he added.

If we roll back the clock a few years, this is exactly kind of market that the foolish Irish property developer loved – piling into London at its peak in 2006 and 2007.

So if a property bubble is about to pop, that's good news for NAMA - all in all, a very good time for the agency to get the hell out of London.


And now for NAMA's next sale - Warhol

Incidentally Irish Times is reporting that NAMA is also selling off the art amassed by greedy developers including a pop art painting of a US dollar sign by Andy Warhol. It is part of the prized collection put together by former tax inspector Derek Quinlan over the last 15 years. Quinlan had one of the most spectacular falls from moneydom in Ireland and is currently residing in Switzerland while efforts are made to sell off his property empire which includes the Citigroup tower mentioned above.

Source: ' Guardian '

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