IRELAND – Subsidies by the Irish government are skewing competition in real estate, while bank bailouts discourage potential lenders from entering the market, according to Vincent O'Sullivan, an economist at the University of Limerick.
With little appetite for domestic or overseas banks to begin lending on property again, he sees little appetite yet in Ireland for alternative lenders such as insurers or pension funds to challenge NAMA's dominance.
In a paper published in the current Journal of Banking Regulation, co-authored with fellow Limerick economist Stephen Kinsella, O'Sullivan argued that continued public sector support for Allied Irish Bank and the Bank of Ireland had severely damaged competition.
The paper said: "Preferential treatment of the two pillar banks in terms of economic policy in government support makes it difficult to envisage new foreign entrants in the short to medium term."
O'Sullivan told IPE sister publication IP Real Estate: "We will have to wait at least another five years before government support is lifted.
"The Bank of Ireland last year raised some external debt – which is good – but the situation is still very tenuous. Banks are still very fragile and hamstrung."
With European banks leveraging their balance sheets and retrenching to their home markets – and the Irish market still a drag on their profits – he said non-banks, insurers and capital markets would stimulate the property sector in future.
But he said there had been "very few moves so far".
In the meantime, he said private sector hotel operators were struggling to compete with "unsustainable" pricing offered by hotels owned by NAMA, the agency set up by the government in 2009 to manage property loans offloaded by Irish banks.
Now the country's largest real estate owner, NAMA took on hotels worth €3.4bn.
O'Sullivan also cast doubt on the European Central Bank's assumption that micro – as well as macro – prudential supervision will avert a repeat of the subprime crisis.
"Bringing prudential regulation back within the central bank superstructure is fine and has positive and negatives consequences – but it doesn't solve the root causes of the failure in regulation we experienced," he said.