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Pearse Doherty TD warns the Central Bank and Minister for Finance of serious danger of the debts of Property Investment Funds

25 January, 2018 - by Pearse Doherty TD

Sinn Féin's spokesperson for Finance, Pearse Doherty TD, has written to the Central Bank Governor and the Minister for Finance outlining serious concerns regarding the threat Property Investment Funds pose to the wider economy.

Deputy Doherty said:

“The State’s property market is dangerously exposed to Property Investment Funds, who since 2012 have built up massive residential and commercial property portfolios, now valued at over €18 billion.

"These funds can be dangerously geared which is of great concern given the level of exposure which the State has to them. 

"For example, Kennedy Wilson, one of the largest landlords in the State is highly geared with a Debt to Equity ratio of 5.5545 : 1.

"Also of concern, is the financing mix of these funds, with Kennedy Wilson using Commercial Mortgage Backed Securities as a source of funding which are risky and volatile by their nature. 

"Commercial Mortgage Back Securities were a major factor behind the 2008 Financial Crisis. I am also concerned by the fact that Kennedy Wilson’s mix of financing includes interest only loans. 

"When purchasing property in the US in November 2017, Kennedy Wilson reported financing for investment of 'a 10-year interest only loan for $84 million at a fixed-rate of 3.86%'.

"The market is currently sending warning signals which are very alarming. 

"There was a 532% increase of the normal put options (430) placed on Kennedy Wilson’s stock at the end of December, which is a worrying signal that the market is expecting a deterioration in this stock.

"I wrote to the Governor of the Central Bank and the Minister for Finance yesterday, asking them to examine Kennedy Wilson’s debt exposure and that of other large property funds operating in the State to determine the risk to the property market and the wider economy.  

"We need to explore safeguards that could put in place to limit the ability of these funds to threaten the stability of the State’s property market and the wider economy.”

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