Just 50 property developers, many of whom owe money to nationalised Anglo Irish Bank, account for the majority of the €90bn of property loans scheduled to go into the new National Asset Management Agency (NAMA), according to people with knowledge of the full details of the scheme.
The government last week formally backed proposals from Dr Peter Bacon aimed at mending six Irish banks by cleansing them of all their property loans. The taxpayer will take on the risks of the soured loans and the management of the property sites for at least a generation.
"It is quite bizarre. I would not think it could have happened," a senior government official said of the small group of property developers who account for most of the soured loans. The small number also suggests the write-downs in the nominal value of the €90bn of property assets that NAMA will seize will need to be more substantial than believed.
But officials also fear that larger-than-expected write-downs could threaten the €3.5bn taxpayers' cash already injected into Bank of Ireland, and the €3.5bn that is proposed to go into AIB. The taxpayer is due to get an 8% interest payment on the preference shares which are part of this investment.
"It will be on a steep learning curve. We do not want to lose the 8%," an official said of the annual payments.
Experts, who have seen full details of the Bacon report, believe that it could be 2010, long after the passing of controversial legislation, before NAMA takes control of a single property site. "Each and every loan" will need to be unpicked to see if it complies with European Union state-aid law, a senior official said.
Work the government completed on assessing Bank of Ireland for the €3.5bn cash will need to be repeated to comply with EU law before NAMA takes control of the bank's property assets.
Meanwhile, property developers who are continuing to meet interest payments on their loans fear they will be starved of loans for viable projects when NAMA is set up.
The reaction to the proposals from the property development sector has been mixed. "It will be the end of the traditional property business in Ireland. It makes property development a monopoly for the state," said developer Simon Kelly.
One major developer expressed concern that even solvent developers will be driven out of business by the move because banks will be unwilling to finance site work costs before NAMA is set up.
However, solicitor and developer Noel Smyth believes developers will have a hard time taking legal action against the scheme because the banks are assigning the contracts to a third party and "there's nothing in law to stop that".