The UK commercial property industry is in negative equity to the tune of £50bn, according to a Savills banking expert.
Aditi Shah, PropertyWeek – 3 June 2009
Speaking at Savills’ 21st annual financing property event this morning, William Newsom, head of UK valuations at Savills, said the amount of negative equity was around 22% of the £225bn of debt outstanding to commercial property.
Based simply on investment property loans he estimated the level of negative equity was £38bn. But adding development lending he said the total of negative equity could be nearer £50bn.
This will result in a steep decline in new property lending and Newsom forecast it would drop nearly 60% to £19.9bn in 2009 from £49bn last year.
He said there would be a huge shortage of liquidity in the market as banks redefine the term ‘prime property’ and personal relations with borrowers become equally or more important than the asset itself.
Property lending has dropped 41% from 2007 to £49.3bn in 2008 and of this £38.25bn is secured against development property that is not income producing.
He said the cost of funding loans was 200 basis points higher than it was three years ago as lenders become more risk-averse. ‘If this continues, and the gap between three-year swap rates and 10-year swap rates continues to rise it will have a major impact on property values,’ warned Newsom.
Newsom said there were only 22 lenders in the market willing to lend more than £10m of which 14 are from overseas, including 10 German lenders.
Only four lenders, including Abbey, Deutsche Post, Investec and Lloyds, are willing to lend on a speculative basis and Eurohypo has shown an inclination to lend more than £100m on investment deals. The new players in the market include Canadian and Chinese lenders.
