Brendan McDonagh

The mini-property bubble in London at the moment may end up being the biggest factor in whether AIB and Bank of Ireland are eventually nationalised. As a wall of money chases too little product in London, Nama sources have confirmed that while the value of loans on domestic commercial properties are coming in well below expectations, higher-than-expected appraisements on those in Britain have offset this and are the main reason the final bill for taking the property loans off the Irish banks' books will come in on target at €54bn.

This of course presents a dilemma for the toxic loans agency as the UK loans are being valued during a boom that is unlikely to be sustained, meaning it may be overpaying initially for them, even if you believe the "long-term economic value" argument. Sources on both sides of the Irish Sea believe that values in London are likely to decline in the second half of the year as a new government moves to slash public spending and public service numbers, with a knock-on effect on the economy and in turn on property values.

So what is Nama to do? Should it sell off the UK assets now or should it hold off and keep the prime assets there? It is going to be a tough choice for Nama head Brendan McDonagh (inset) and his board. The easy decision politically would be to sell the loan book; interest from the Far East including China and South Korea as well as from banks like HSBC and Credit Suisse, which are starting to syndicate properties to private clients, would probably mean they could be sold at a surplus to what Nama is paying the Irish financial institutions, creating positive headlines for the agency in the press. It would also provide capital that could be used to complete domestic construction projects that have a good economic rationale, creating jobs in the process and boosting the economy somewhat.

But a senior investment property source in London believes this would be the wrong move because the income from the tenants in the investment properties in London is too good to ignore.

Many of the Irish investors who did buy there bought well-located retail and office properties let to quality tenants and have seen values rebound strongly. There is also a chance that sterling will strengthen, pushing capital values higher via the currency but whether Nama should be engaged in currency speculation is a moot point.

The board will have a much tougher time deciding whether to take the money and run.