Nama, Lenihan, and Fianna Fail play "fast and loose" with the economy.

“The detailed information that has emerged from the banks in the course of the NAMA process is truly shocking. At every hand’s turn our worst fears have been surpassed.

Some institutions were worse than others. But the fact is that our banking system, to a greater or lesser extent, engaged in reckless property development lending. In too many cases there were also shoddy banking practices. The banks played fast and loose with the economic interests of this country.

Yes, our previous regulatory system failed abysmally and it is right that the role of the regulator, the Central Bank and the Government is now the subject of independent inquiry. But the fact remains that senior figures in Irish banking made appalling lending decisions that will cost the taxpayer dearly for years to come…”

Brian Lenihan, 30th March 2010. Statement to Dail on the first transfer of banks’ bad loans the National Asset Mangement Agency

Here is our finance minister, Brian Lenihan, sounding as though his party, Fianna Fail, had nothing to do with the country’s economic collapse. But then again, you’re always more likely to get a “cupla focal” from our political masters than a “mea culpa”. 

See below excerpts from a feature on Government property-based tax breaks that appeared in the Sunday Business Post of May 8th, 2005, one year before the peak of the “boom”.  They demonstrate how Fianna Fail played "fast and loose with the economic interests of the country".  It would be interesting to have accurate and complete figures showing the number of ministers and their friends who availed of the schemes.  Exclamation marks in brackets are mine, and need no clarification.

The most popular scheme - and generally the most successful - is Section 23.   With Section 23, you get tax relief on the capital used to construct, refurbish or convert rented residential accommodation in a tax-designated area. The price paid for the site does not qualify for tax relief. However, as the site usually represents between 5 and 20 per cent of the cost of the property, investors can write off between 80 and 95 per cent of the property purchase price against rental income earned from property within the state.


For example, if an apartment costs €200,000 and the site cost €20,000, the Section 23 allowance would apply to capital of €180,000.   One of the advantages of the allowances is that they are not restricted to property bought under the Section 23 scheme. It can be written off against an investor's rental income from all properties located within the state. (!!!!!!!!)


Section 23 relief is only available if the property is first let by an individual under a qualifying lease (!!!!!!!!). It must continue to be let for ten years from the date of the first letting…. Section 23 relief is currently available for rural renewal, town renewal, living over the shop, integrated urban renewal, student accommodation and park and ride schemes.

Section 50 operates in the same way as Section 23 but relates to qualifying student accommodation. “There's very strong demand for Section 23 schemes,” said Marie Hunt, director of research with CB Richard Ellis Gunne (!!!!!!!!). “Section 50 is not seeing the same demand because there's a bit of caution there as to whether it's a good or bad scheme.”


Finance
Typical investors in tax-designated properties will borrow 90 per cent of the property price and pay a 10 per cent deposit. In some cases, a smaller deposit may only be required. Interest-only mortgages are generally considered as the most efficient way of financing an investment under Section 23 or Section 50.

Investors use rent from the property to fund the interest on the loan and can then use their tax break to pay off the loan or make another investment elsewhere. (!!!!!!!!)

“Typically, investors in these schemes have a number of other properties and they're looking to grow their property portfolio,” said Aiden Murphy, a partner with Horwath Bastow Charleton. (!!!!!!!!)  “To allow the rents to materialise for the properties, they go interest only for the first few years and once the rents are flowing through, they pay off the balance of the interest on the loan.” (!!!!!!!!)

Interest-only mortgages are useful for covering the shortfall from the rent on investment properties, according to Michael Dowling, president of the Independent Mortgage Advisers Federation (IMAF). (!!!!!!!!)

According to Dowling, a two-bed apartment in Smithfield will normally yield maximum rent of €1,200 a month. “There's no way this would cover repayments on a €450,000 mortgage,” he said. (!!!!!!!!)  “However, typically, anyone buying under Section 23 has rental income from other investment properties - many of which have little or no outstanding mortgages. Investors can use rent from these properties to offset any shortfall on the new property.” (!!!!!!!!)

 Murphy [says that], a lot of today's investors are more sophisticated and use interest-only mortgages to manage their rental cashflow more efficiently. (!!!!!!!!)
The interest on variable rate interest-only mortgages can range from between 3 to 4.3 per cent APR for investors, depending on the lender and broker, your relationship with the bank (!!!!!!!!), and the amount being borrowed.

Capital appreciation
Although rental income might not cover the mortgage repayments on a Section 23 property, capital appreciation and tax allowances usually make such investments worthwhile. (!!!!!!!!)
“Investors really have to discipline themselves and put aside the tax break for a moment,” said Ned Gladney, director of OSK Tax. “All of the common sense rules apply regarding location which is one of the things that people often ignore because they get blinded by the tax relief.” (!!!!!!!!)

Holiday homes
If choosing a tax-designated holiday home for investment purposes, it's important to choose a property with good rental potential. “Before investing in a holiday home, you must look at its location and its value as a destination,” said Aiden Murphy from Horwath Bastow Charleton. “For example, examine the amenities and activities on the site and the actual size of the resort. You would normally need a certain minimum number of units in the resort to cover your loans.” (!!!!!!!!)

Footnote:  A lot of these schemes are now ghost estates, or holiday developments blighting the landscape.  GM.
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