Banks set for losses as clock ticks on £300bn commercial property loans
Published ¤ 27/07/2009
Banks could be heading for a second wave of big losses as financial institutions begin to tackle the crippling legacy of £300 billion in lending to the UK commercial property sector.
British banks are expected to follow their American counterparts, which are already having to bite the bullet on commercial real estate losses.
A collapse in values of more than 40 per cent in less than two years means that almost every British commercial property loan granted since 2004 is under water, according to Savills, the estate agency.
This gloomy forecast was reinforced by another report that confidence in global commercial property markets has deteriorated in the past three months as rents - regarded as a key property market indicator - dropped by the steepest amount on record.
The Royal Institution of Chartered Surveyors said that - despite a slower pace of decline in prices and a surge of interest from investors hoping to mop up cheaper assets - the outlook on rents remained depressed
Almost three quarters of surveyors said that rents were falling. The percentage reporting a fall, rather than a rise, went up from 66 per cent in the previous quarter to 71 per cent in the past three months.
The rout in the commercial property sector has hit American banks. Last week, Ben Bernanke, Chairman of the Federal Reserve, acknowledged "the very real risk on the side of foreclosures and the problem of commercial real estate". As he spoke, US banks, including Morgan Stanley and Wells Fargo, announced poor results because of real estate problems.
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