The first Irish housebuilder to float in two years sees little chance of Government intervention
It appears that the first Irish housebuilder to float in two years sees little chance of Government intervention
Either John Mulcahy and his colleagues are living in some sort of bubble, or they have been around long enough to know how politics in Ireland works
Astockmarket prospectus is a very usual document. It is essentially the sales brochure for a company looking to sell its shares to the public and list on the stockmarket. It contains a lot of information about the company’s performance and the industry it operates in. It is also subjected to regulatory scrutiny and it is pored over by lawyers.
One of the things that companies are required to do by law in their prospectus is to set out the potential risks – in so far as they can reasonably foresee them – facing the company and, by extension, any investors thinking of buying shares.
Management have to put a great deal of thought into this, as they could be sued if they don’t disclose all the potential risks they are aware of, and a belt and braces approach is generally best.
Years ago, when Ryanair floated on the market, the risks factors set out by Michael O’Leary and his colleagues included the prospect of the airline’s workforce getting organised. It has taken a long time for that particular chicken to come home to roost, but it looks like it may finally have done so.
This week a company called Glenveagh Properties joined the stock market with a valuation of ¤700 million. It is the first Irish housebuilder to float in two years, and has been created through the combination of Irish assets of a US private equity firm, Oaktree Capital, and Maynooth-based builder Bridgedale. It is run by Justin Bickle, an executive at Oaktree who was in charge of the company’s Irish real-estate purchases following the crash. He is set to step down from the US firm at the end of the month. The executive chairman is John Mulcahy, a former senior executive with Nama and Jones Lang LaSalle in Ireland, while its chief operating officer is Stephen Garvey, owner of Bridgedale.
As part of the flotation process the three men – along with their advisers – would have had to set out the risks facing Glenveagh and, by extension, the Irish property market. It’s as close to looking inside the belly of the beast as the average punter is ever going to get.
There are 34 separate risks identified and they run to some 20 pages, which is not itself that unusual. Many of them are common to any listed company and include factors such as data breaches, man-made disasters and being sued if its products are not up to scratch.
Glenveagh does, however, have some interesting things to say about the Irish housing market, the main one being that it is and will continue to be highly cyclical. To a certain extent this is just stating the obvious and it would be overstating things to claim they are predicting that another crash is inevitable.
But it does run through a long list of things that could push down house prices, from “negative changes in consumer confidence and income” to “geopolitical and economic uncertainty, including Brexit”. It also lists things like the availability of mortgages, unemployment and low population growth.
One risk that sticks out with regard to prices is “changes in government regulation or policy”. But before you get your hopes up that Glenveagh thinks there is a real chance the Government might actually intervene in the market in a significant way you have to read on and see that what it is really talking about is “planning and environmental regulations and increases in tax rates (including VAT and stamp duty)”.
Similarly, a bit later on in the document, it warns that “the Irish government may terminate or change the extent of its support of the housebuilding sector and first-time buyers.” But again what they seem to be concerned about is the help-to-buy scheme for first-time buyers, who are a big target market for Glenveagh.
In fact, what is striking about the risk factors listed in the Glenveagh prospectus is that it makes no reference at all to what you might call political risk. It doesn’t seem to see any risk that the growing public discontent about the shortage of affordable housing will actually result in any sort of significant Government action. Certainly not action on a scale big enough to affect prices to the extent that they should be specifically warning potential investors.
Put another way, Glenveagh doesn’t seem too concerned that the State will start building houses on a scale that materially affects the market and pushes down prices overall. This is despite it being an avowed policy of every political party. Likewise, the other policies being touted – such as a truly punitive vacant sites tax – is not shot through with loopholes. Neither is there any mention of a change in the law to allow the Government to compulsorily purchase building land at a fair price.
Glenveagh doesn’t seem overly concerned either that the failure of the system to provide for this most basic of human needs is going to manifest itself in support for more political alternatives who might just upset the apple cart.
There are two possible explanations. One is that John Mulcahy and his colleagues are complacent and living in some sort of bubble. The other is that they have been around long enough to know how politics in Ireland works and and where the nexus of power really lies.
They know that, absent a very unlikely revolution, housing policy will amount to little more than tinkering around the edges of the market and a small number of individuals and businesses – of which Glenveagh is one – will prosper. And if this week’s budget is anything to go by, they will be proved right.