Are international investors taking advantage of toxic bank assets?

News that the Irish authorities have sold off a property portfolio of 850 houses valued at £4.5 billion for around £1.3 billion has certainly caught the attention of many investors. While the authorities have not been able to confirm or deny the price received for the £4.5 billion portfolio it is believed there was a minimum value of £1.3 billion and the final figure was in this region. This has prompted many critics of the banking collapse, the way governments handled the issue and the aftermath to suggest that toxic bank property assets are being sold off on the cheap.

There are a number of ways to look at this particular issue because nothing is ever as straightforward as it seems. On the surface it looks as though large investment institutions, many of them from the US, are negotiating from a relatively strong position with the authorities such as those in Ireland not necessarily able to call the shots.

Why these properties need to be sold

The property portfolio sold by the National Asset Management Agency (NAMA) in Ireland has been hanging over the market for some time. There are many who believe that an array of toxic bank property assets held by various governments around the world are having a short to medium term depressive influence on property markets. The simple fact is that if you know there are literally hundreds, if not thousands, of properties in the hands of troubled authorities and governments, why would you rush in to buy?

Quote from PropertyForum.com : “Toxic bank properties in Northern Ireland sold”

The toxic property portfolios left behind after the banking collapse need to be cleared from the system to bring back orderly markets and allow investors to look beyond the next government property firesale. It is debatable whether the rumoured £1.3 billion price received for a portfolio with a face value of £4.5 billion offers good value although the real value could be in releasing the Irish property market from its recent depressive state.

Are these properties now in safe hands?

At the moment there are but a few investment institutions around the world with the kind of money required to acquire these large toxic property portfolios. As a consequence, it is only the relatively large international institutions that are able to find readily available funds and act quickly to close a deal. These are not necessarily institutions which will put the tenant before a return on their investment and this could bring about issues in the medium to longer term.

Unfortunately, after the mismanagement of the worldwide financial sector, the collapse of property markets around the world and the financial liabilities inherited by taxpayers, perhaps a short sharp sale of these toxic assets is best all round? Historically, governments around the world have not been good at managing property portfolios, they have tended not to squeeze the best returns on investment and the bottom line is that we all knew these properties would at some point be sold.

Conclusion

There is no doubt that investment institutions around the world are rubbing their hands with glee at the prospect of acquiring toxic property assets at a fraction of their face value. They may be getting the price of a lifetime, may well make a significant return in the medium to long term but at this moment in time governments around the world need to get their domestic property markets moving again. If taking a short-term hit on emergency taxpayer investments which occurred during times of trouble is the price to pay then perhaps there is no option?