Mr. Brendan McDonagh:

Good morning, Chairman. All members of the committee should have a copy of the presentation. I will quickly run through it just to bring out some of the key points. As the Chairman said, what we acquired from the banks were loans. We do not own the properties. The debtors who took out the loans own the properties and that is something which has to be kept in mind.

In terms of the agency's mandate, section 10 of the NAMA Act is very clear. We must obtain the best achievable financial return for the Sate. We have to deal expeditiously with the assets acquired for it and we have to protect or otherwise enhance the value of those assets. What that boils down to is that the NAMA board is obliged to follow a clear commercial mandate.

In terms of our acquisition process, we acquired some land and development which was security for appropriated loans mainly in 2010 and 2011. We did not acquire residential mortgages, owner-occupied or buy-to-let. There were some incidental residential mortgages which were attached to large debtor loans, but they were not a big part.

There were about 14,000 completed residential units in Ireland, which is less than 1% of the 2 million housing stock and apartments. When we acquired them, they were built but they were not occupied. As regards 15% of these 14,000 units, we worked with the debtors to correct income flow very quickly by effectively getting them tenanted after NAMA acquired the loans because, in effect, there was not a market to be able to sell them into.

We also offered over 6,600 units to local authorities and housing agencies for social housing. Between the time that we offered them and the time they confirmed demand, obviously, in the context of a live portfolio of debtors, some of these were either sold or let in the market. About 2,500 of those were not deemed suitable by local authorities and housing agencies, for various reasons. As regards those 2,500, when we did the presentation, demand had been confirmed for about 2,042. It has now gone up to 2,100 which have effectively been contracted to be delivered. There are about another 500 which are currently under active negotiations.

In terms of that, we have put money into incomplete housing, approximately €100 million to date, to bring it up to current building standards. We have also made use, as the chairman outlined, of a vehicle whereby we buy the units at market value from debtors and receivers and enter into leases with the approved housing bodies. One of the initiatives we engaged in at the start when we got involved in this and there was a different form of lease for each approved housing body was to set up a standardised lease that goes to everybody rather than having different leases and that has worked out very well.

In terms of social housing, there are some key facts to dispel some of the myths out there. Anything that could be offered in a portfolio, we offered up. We have absolutely no control over the take-up of the properties we offered up. That is a decision of the local authorities and the Housing Agency. We will make whatever funding is needed to make the houses habitable available. Sometimes this requires money for remediation plans which have to be agreed with the local authorities. That is fine. We will not offer a product to any tenant which does not meet the requisite standards. There is no point in putting somebody in bad accommodation. Where the demand is not confirmed by the local authority for whatever reason, our experience has been that the private sector market primarily rents those properties from our debtors. That is the 6,000 units that remain in our portfolio. The occupancy rate is up at 99%. The other 1% is frictional as people move in and out. In terms of the figures around that, budgetary constraints have meant local authorities have not had the capital available from central Government to buy units but sometimes approved housing bodies have capital available. To date, approximately 39% has been by direct sale, 6% has been by direct lease and 55% has been us buying and leasing the units directly to the approved housing bodies. That is becoming a bigger feature of that, especially during 2015 where, in effect, 73% of all social housing that we leased was through us buying them from a subsidiary and doing the leases with the approved housing bodies.

The next two pages of the presentation set out by county how the 6,600 units were offered across each local authority, where the demand was confirmed and what has been delivered to date. I do not plan to go through them in detail but members can come back with their questions on them. I will go to page 10 which has pictures of some of the units that have been delivered. The reality is that this accommodation is done to a very high standard and is finished out. On page 11 of the presentation, a key point is that our debtors have sold 12,781 individual homes to people since 2010, which is when we acquired the loans, of which 11,219 have been bought by individual buyers and 1,562 bought by people who are what we call "professional buyers in the market" who do long-term leasing, including REITs and Kennedy Wilson.

In terms of the sale of loans, there are some key principles around this. We do not ask our debtors' receivers to seek vacant possession of residential property if a loan book is going up for sale. We go through the portfolio to see if there are more properties which can be taken out to be used for social housing. We also go through and look at the land bank with each of those portfolios to see if there is any land-banking there which would make commercial sense for us to fund. The reality is that in terms of our biggest loan book sale, which was Project Arrow last year, we took out 425 properties before that went to the market which were used for social housing purposes, based on demand as set by the Housing Agency approved housing body.

I refer to page 16. Within the NAMA portfolio, the land bank held by our debtors is approximately 2,800 ha which is broken down there by county. As members can see, the biggest elements are in Dublin, Kildare, Meath, Wicklow and Limerick. In effect, our portfolio is very urban-centric.

In terms of NAMA funding 20,000 units by the end of 2020, approximately 1,500 ha of the 2,800 ha will be required. There are some significant barriers to the delivery of new housing on residual lands in the portfolio, namely, achieving planning permission and commercial viability. The biggest issue, however, is the infrastructure deficit such as lack of roads, water and sewerage facilities.

From 2009 to date, construction costs have been relatively stable. As the country went into recession, obviously, house prices dropped significantly. From 2011 to mid-2014, it was not commercially viable to put money into building new houses anywhere. We could not do this under the NAMA legislation. At present, it has effectively flat-lined. While prices rose to an extent, they have effectively plateaued, much of this linked to the Central Bank mortgage measures which are a welcome influence.

From 2014, it became profitable to build a house, based on the sales price which could be achieved. The typical profit we are seeing across our schemes in Dublin, the Dublin commuter belt, Cork and Galway is €20,000 per unit. The Construction Industry Federation, CIF, has a different view and it is correct that, outside of these areas, house units do not make a profit.

On the sensitivity of profit-to-sales price variances, if sales prices went up by 5%, the profit would increase to €30,000. If they went up 10%, the profit would increase to €40,000. That is the dynamic of the market.

We have seen many figures quoted for building a typical three-bed, semi-detached house. Some of the best figures, when compared to our benchmarks from our portfolio, were those published in January 2016 by Anthony Foley in a report for the Society of Chartered Surveyors Ireland. It set out the constituent parts of the building costs for a house. The total construction cost comes to €150,000. When one adds in other costs such as local authority levies, Part V, finance, etc., it comes to an extra €46,000. With a profit margin of 15%, which is what the market typically targets, it adds €30,000. VAT comes to €30,000. Before the land is added, to build a typical 1,200 sq. ft. house will cost close to €260,000. The average land site for this type of house, depending on location, is somewhere between €35,000 and €40,000. In Cork and Galway, it is somewhere between €25,000 and €30,000. Accordingly, one has to get a sales price of €300,000 before one can make any profit on a typical three-bedroom house.

The Dublin housing supply and co-ordination task force looked at the estimated costs for fixing the infrastructural deficits in each of the four local authorities in Dublin. In Fingal County Council, approximately 24,000 units are constrained by infrastructure deficits. The cost of rectifying this would come to €66 million. In Dublin City Council, up to 5,400 units are constrained while rectifying the infrastructure deficit to deal with this would come to €48 million. In South Dublin County Council, it is 2,000 constrained units, while rectifying the infrastructure deficit would come to €4.7 million, not a significant amount of money.

In Dún Laoghaire-Rathdown, it would deliver about 17,000 units and cost about €45 million. Therefore, this means that there is land across the four local authorities in Dublin with infrastructure deficits where effectively €165 million could make that land viable for achieving planning permission and building houses. This is a very important statistic. Page 22 contains publicly available information that breaks down where the number of units could be delivered across each local authority by each area, which is quite interesting. In respect of NAMA's funding of the 20,000 units on a commercial basis, we believe 78% of them will be in Dublin, 15% in the commuter belt and 7% outside the greater Dublin area, mainly Cork and Galway. All our focus is on the starter home market.

On page 24, it states that since 2014, about 2,800 units have been delivered throughout the country. About 3,100 units are under construction by our debtors. Planning permission has been granted for about 5,200 units and applications for planning permission have been lodged for more than 5,000 units. We are actively working with our debtors to get planning into local authorities for about another 6,600 units. There is a landbank that could deliver another 25,000 units but it has infrastructure deficits and much of that land is tied up in the four local authorities in Dublin where this is required.

Another message that is being put out is that we are hoarding land and that if we only released more land into the market, the private sector would avail of the opportunity and build. The reality is that since the start of 2014, in 24 months, we have sold land that could deliver 20,000 units into the private sector. We monitor that land to see what is happening with it. Only about 5% of that land is being built on at present. Members ask why the people who bought it did not build on it. Sometimes people might be looking for revised planning or waiting for a new county, area or development plan. Sometimes there might be an issue in respect of densities, a revised planning application and seeking more semi-detached houses rather than apartments, which requires a new planning application. Infrastructure constraints are certainly there. One of the largest issues - from looking at transcripts, we know the committee has discussed it - is people buying land and effectively looking for a higher rate of return. This has to be a big feature.

In respect of where NAMA is at present, 81% of our senior debt is repaid. We want to pay off 100% by 2018. That gets rid of the contingent liability of the State, which stands at €5.5 billion. We want to pay the rest of our debt by March 2020. This is sub-debt. We are projecting that at the end of NAMA's life, there will be a surplus that will be available to the Minister and which is already provided for in the NAMA legislation of 2009. If members look at section 60 of the National Asset Management Agency Act, they will see that the surplus goes back to the Minister. We estimate that this will be at least €2 billion.

In summary, we are involved in some high-profile activities in both the residential sector and the Dublin docklands. We believe we have an important role to play, but we recognise there is a huge issue around the need for housing. We are doing our very best and will continue to do what we can.