I am joined here today by colleagues who were listed by the Chair so I will not repeat who they are. The important thing is that, as members can see, the Comptroller and Auditor General's report has summarised its analysis of NAMA's progress under seven headings.
The first is the loan acquisition, which has been well rehearsed here and in other forums. The second is the recovery of our costs, and the fact that we expect we are going to contribute approximately €4.9 billion by the time we finish our work. The third, as the Comptroller and Auditor General mentioned, is that we are achieving a 6.7% per annum, compared to the original EU approved model where it was expected we would get a 5% return. The fourth is that we acquired the loans. There was reference to a particular transaction, which I will come to in more detail in a moment.
The fifth heading relates to the Dublin docklands. We have only one site remaining in the portfolio and we hope that will be a joint sale with Waterways Ireland, but it needs North-South approval and obviously that is an issue at present.
The sixth heading relates to the 20,000 units that were outlined in the report. We maintain that we have exceeded the 20,000 target, either through direct funding, or through the sale of sites where debtors got out of NAMA. The seventh heading relates to the delivery of social homes, which are very important. We had a target of 2,000 and we delivered more than 2,600 homes.
Housing is one of the issues I would like to highlight here today because it is a matter that affects everybody in the country. Since 2014, we have been involved in one way or the other in the delivery of some 32,000 new homes. We are working to ensure that as many of the sites as possible that we have in our remaining portfolio are shovel-ready for future development. However, as has been noted by several house-building companies in their public statements, there are a number of significant obstacles to delivering additional quantities of housing at the levels Ireland needs. One of the major issue is the achievement of the appropriate planning. Planning costs are significant. In any multi-unit development they average approximately €3,000 per residential unit. Achieving a grant of planning permission continues to be a significant challenge, with many applications awaiting a decision for almost two years, in particular from An Bord Pleanála. Our debtors and other house builders deem it as almost inevitable that a judicial review will follow any planning approval that is granted. Unfortunately, this adds to the timeline, uncertainty and costs and halts the building of necessary housing. These issues then result in the development becoming either commercially unviable or add considerably to the cost that the ultimate buyer or renter will have to pay.
While construction cost inflation is starting to abate, NAMA's own analysis shows that the costs of building a two-bedroom apartment, excluding land costs, increased by 18% between 2021 and 2022, with more modest, albeit significant, increases of almost 6% for an average three-bedroom house. When coupled with the difficulty of obtaining funding and higher borrowing costs, viable residential development is going to remain challenging for some time. With less supply of new housing and demand continuing to outstrip supply, the sales price of new housing developments are still rising at about 11% per annum. Meanwhile, second-hand housing sales price inflation has, thankfully, slowed to under 1% per annum and is slightly negative in Dublin.
In terms of the 2022 financial statements, I am pleased to report that these results show we continue to generate strong cashflow and profits despite having a significantly smaller portfolio. We made €81 million in profit in 2022. The fact is that NAMA took full advantage of the opportunities presented between 2012 and 2022 when interest rates were low and large numbers of buyers were in the market. By doing this, we delivered large volumes of asset sales at significantly higher prices than would be achievable today. Crucially, our strong position has enabled us to do surplus transfers to the Exchequer with €3.5 billion cash paid to date and another €350 million will follow before the end of the year. We believe that by the end of our life the overall surplus will be at least €4.9 billion.
I will now return to the €265,000 loan sale at market value that was referred to in the Comptroller and Auditor General's report.
In respect of the report’s references to the transaction I would like to make the following important points. There is no suggestion in the report that the sale was conducted improperly, without sufficient due diligence or was non-compliant with the NAMA Act. The Comptroller and Auditor General report refers to the loans being sold at a discount of 97.5%. It is important to stress that this is a discount to par value. The historical amount originally advanced by the bank prior to NAMA buying the loans was €8.6 million, plus accrued interest that was unpaid, but required, of €1.9 million. It should not be confused with a discount to the market value of the properties securing the loans at the time the sale was approved by the NAMA board.
The loans were sold for the full market value of the secured properties, as determined by independent professional valuers at the time of sale. There was no means available to us to recover any additional money to reduce the losses on the loans. Our rationale for the transaction was to maximise the amount recoverable for the taxpayer in line with its statutory mandate set by the Oireachtas. Our legislation takes precedence over any internal NAMA policy and the transaction was approved by the NAMA board on the basis that it was consistent with this legislation. Ultimately, this was an exceptional situation involving a highly contentious lender-borrower relationship that was inherited by us from the bank.
There was no possibility of NAMA achieving a full repayment of the €10 million par debt owed to it and no alternative legal options to achieve any repayment from all the debtor companies or their bankrupted guarantors. There was no amount that could be recovered, as per the independent valuation, other than what was only worth €265,000, irrespective of the size of the loan of €10 million. We paid the financial institution, or the bank involved, €4.38 million for these loans at acquisition, meaning the originating bank incurred a loss of €4.21 million on this loan at the time we bought it.
The courses of action available to NAMA were severely limited by a number of factors, including: the resignation of the receiver; the debtor companies regaining full control of the property assets as a specific legal consequence of the receiver resigning; no estate agent was willing to try to sell the properties and we could not legally appoint a sales agent; and the debtor companies were insolvent, the owner SPV was in liquidation and their promoters-guarantors were bankrupt, which is outlined in figure No. 1. Legally, once an individual is made bankrupt, all their debts are extinguished and they no longer legally owe any money on those debts. The insolvent and liquidated companies had no other assets to meet the €10 million par debt.
The other factors are as follows. External professional independent valuers assigned a valuation of €265,000 to the bundle of property assets in October 2020 based on the assessment that the assets could not be sold in the circumstances. The board relied on this information when making its decision. To pursue or defend litigation would have been an expensive and drawn-out process, the legal costs of which would almost certainly have exceeded the value of the properties that were independently valued at €265,000. There was a history of protracted litigation with this debtor and their companies, including prolonged litigation in relation to assets owned by the debtors in the UK, which was exacerbated by multiple appeals in multiple jurisdictions. While the courts consistently found in favour of NAMA and the insolvency practitioners, we were unable to recover the significant litigation and other costs of £2.5 million from the debtors or the companies involved.
A graph illustrates quite clearly that effectively there was no further recourse. Our only option was to recover cash from the sale of the assets and to minimise costs by conducting an off-market sale to a third party with both the appetite and the resources to acquire the property assets. It was approved by the NAMA board after careful consideration of all material facts and an acceptance of the lack of possible commercial alternatives. We are fully confident that it was the best viable option available to achieve a return in accordance with our legal obligation under section 10 of the NAMA Act.
We are not in a position to identify the debtors or parties connected to them, as this would be in breach of our legislative obligations and confidentiality and could expose NAMA and the State to the risk of litigation.
Regarding the loan purchaser, I can confirm that a newly established corporate entity, an SPV, purchased the loans and that written confirmation was received from the company’s directors, who are not related to the original debtors, via their solicitors, stating that they were not connected persons as prescribed under section 172(3) of the NAMA Act, although we understand that a relative of the debtor, who was never a NAMA debtor, provided funding to finance the purchase to the SPV.
I will conclude by saying there is still much work to be done by NAMA to deliver additional surplus moneys to the Exchequer. Our focus now is twofold: first, to extract as much value as possible from our residual portfolio with a view to maximising the surplus that we ultimately hand over to the Exchequer and, second, to progress the orderly resolution to wind-down the agency.
We welcome the publication by the Comptroller and Auditor General of the NAMA progress reports. It is important that we can independently demonstrate to the public that NAMA is adhering to ambitious commercial targets and mandates assigned to it on establishment. Not every transaction is straightforward or easy to complete, but we fulfil our legal obligations. The agency has and will continue to effectively utilise its unique position to continue to provide a valuable social and economic contribution from its operations.
