In the current market developments are designed to sell rather than serve as an instrument of long term cash flows, the conundrum for sellers and NAMA alike is that they want sales but not at current firesale prices.
At the same time bank funding has dried up, this year we are likely to see mortgages issued at a rate last seen 40 years ago in 1970! Let us not forget that even in 1972 there were more mortgages drawn down and that was a year that had a 6 month bank strike included in it!
Private investors have short term problems of annual leases and this means incentives to keep the general property in top condition become limited, anybody who rents knows the difference between ‘rental standard’ and ‘selling standard’.
Smart Taxes is a taxation think-tank in Dublin and one of their members, Architect James Pike is championing the cause of ‘Equity partnerships’. This is where a development is rented out entirely and if a person pays over the standard rent they can buy equity in the property.
The financing of the property would come from pension funds who like the idea of lots of cashflows within an investment (it tends to provide lower risk) and most importantly it provides flexibility – if you found you had less money you could stop buying equity and just be a renter without moving. Equally you could sell your equity if you want to move, or if you bought your equity outright you would only have to pay service charges.
If a person had a severe inability to pay in the short term they might repay with the equity they bought already, the options and ideas are endless, but the main ingredients of removing banks from the equation and forming more realistic working solutions for buyers is inherent.
An Equity Partnership has four key members:
- Equity Partnership – holds the freehold of the land, through a trustee, in perpetuity
- Occupier – the individuals who occupy the properties on the land.
- Investor – the consortium of individuals and enterprises who invest money and / or money’s worth (such as the value of the land) in the equity partnership.
- Developer / Operator – who provides development expertise and manages the equity partnership once the development is complete.