As many as 35,000 brand new homes are lying vacant in Ireland, according to the country’s largest securities firm, Davy. That figure is up from 20,000 just 18 months ago.
The office vacancy rate in Dublin at the end of the second quarter was 21%, compared with 8% in London and 10% in Berlin, according to the CB Richard Ellis Group.
According to Bloomberg, in the village of Gowna, Co. Cavan, located 80 miles from Dublin, the price of several five-bedroom houses have been cut to €400,000 ($590,000) from the original asking price of €550,000 ($810,000), Liam Reilly, the Irish realtor selling them, told the press. To date seven of the 14 houses still remain unsold, as Irish banks continue hoard their cash after going crazy during the boom, he said.
The share of Irish banking assets in property-related lending grew to more than 60% in 2006 from less than 40% before 2002, according Patrick Honohan, the new governor of the Irish Central Bank. Much of that lending was used to finance huge property developments, which now lie idle or unfinished.
“The big people made the mistakes and the little people are paying the price,” said Reilly. “The National Asset Management Agency (NAMA) is the only game in town now,” he added, referring to the government agency designed to deal with the crisis in the banking sector while keeping the interests of the taxpayer in mind.
“But I’m nervous about it in the long term because some of the debt will never be recouped.”
Irish Finance Minister Brian Lenihan plans to detail how much Ireland will pay for the €90 billion ($131 billion) of real estate loans that are now crippling what until 2006 was one of Europe’s most dynamic economies. In a financial gamble unprecedented since the foundation of the state, the Irish government will now become the owner of loans for property developments that have plunged in value.
Ireland is enduring the worst economic slump of any developed nation since the Great Depression, according to the Economic and Social Research Institute in Dublin.
The Irish banking system first came close to collapse after the bankruptcy of New York-based Lehman Brothers froze the global credit markets and swelled bad debts one year ago in September 2008.
The Irish government is hoping that by purging toxic assets, the banks will revive lending and reignite the Irish economy. “If we don’t take that basic step, our banks are going to evolve into zombie banks that won’t support the economy,” Lenihan told the press on Monday.
In Gowna, the lingering effects of the downturn can be seen everywhere: there are few cars in the new driveways or signs of life in the already built homes. Land that had once been earmarked for new houses is now cordoned off with a green fence.
“It’s a reality check for everyone,” realtor Reilly told the press, leaning on an island in the kitchen of a show house. “It’s brought my generation back to the 1980s. For the younger generation, it’s been an eye opener.”