UK property sector losses loom

[Dreaded_Estate]

FT.com / Companies / Property - UK property sector losses loom

Nearly £80bn of UK commercial property debt could go sour in the next few years, threatening a new wave of losses for banks that lent on some worst quality properties in the country.

Loans on poor quality property make up the largest slice of outstanding real estate debt, representing about 27 per cent of debt to the UK property industry, according to CB Richard Ellis, the property consultancy.

CBRE yesterday warned that this was by far the most problematic segment of the debt market considering the substantial - and the continuing - falls in values for poorer quality property.

Robin Hubbard, executive director of real estate finance and the report's author, said: "Combined with high initial loan to values, it is likely that almost all of the loans in this category are impaired; will struggle to get refinanced; and are most likely to become delinquent.

"It is these properties that will be worst hit by a weak occupational market and that pose significant downside risk to the banks. That is because secondary poor quality properties, by definition, tend to have the weakest tenants, the shortest unexpired lease terms and will be the most difficult to re-let once vacant."

CBRE estimated that £280bn of UK commercial real estate debt was outstanding, with more than half to mature before the end of 2012.

[eyeswideopen]

Not good, but proportionately much much less than we are faced with.

[Outlander]

Not good, but proportionately much much less than we are faced with.

But what proportion of this will be in NAMA?

[eyeswideopen]

But what proportion of this will be in NAMA?

Good question. We should be looking at the Dubai option.

[Dreaded_Estate]

But what proportion of this will be in NAMA?

Appox €15bn I'd say

[odie1kanobe]

Bugger all as they talking of poor quality old property

[johnfás]

Good question. We should be looking at the Dubai option.

You aren't comparing like with like. Dubai World is an investor, it is not a lender and has no lending functions. Dubai World going bust is the equivalent of Liam Carroll or Seán Dunne going bust. We face that issue too but we also face the corollary of our lenders going bust. This is not the issue faced in Dubai as the majority of Dubai World's debt is owed to foreign banks. Their situation is the equivalent of that which occurred between Liam Caroll and ACC Bank which is a foreign owned institution. It is in fact at an even further remove owing to most of the creditors being foreign based as well, compared to Rabo which was in fact established here through a subsidiary.

You can create lots of models apart from NAMA in an attempt to deal with the issues we face here. However, direct comparisons to the situation in Dubai are simply not helpful because they are not the same situation. They are only moderately comparable.

[Rebel CNC]

But what proportion of this will be in NAMA?

NAMA may be stillborn.

Listening to Shane Ross on Last Word, it appears that bank nationalisation will be happening sooner rather than later. All the time, effort and resources ploughed into setting NAMA up may not be worth a bottle of smoke!