Commercial sector is braced for flood of distressed sales
Published 06/08/2010 | 05:00
THE commercial property market here faces a flood of distressed sales in the next few months, the UK-based Royal Institution of Chartered Surveyors (RICS) said yesterday, following a survey of members in 25 countries.
The increase in distressed sales of offices, shops and warehouses will follow changes to international regulations which are likely to raise the capital cost of holding commercial property on banks' balance sheets, the institute said.
The new Basel regulations will force banks to hold cash rather the assets. The institute defines distressed properties as those with foreclosure orders, or which are advertised for sale by their mortgagee, and which tend to fetch lower prices than their market value.
The predictions came just a day after Allied Irish admitted that pre-tax losses hit €2bn in the first six months of the year, as it was forced to takes loan provision and impairment charges of more than €3bn against its lending on Irish real estate. The UK-based Lloyds said, meanwhile, that 41pc of its loans in Ireland were impaired.
"Despite the 'supposedly successful' European bank stress tests, worries over the health of the European banking system will continue to linger, propelling banks to manage down their problem loan books," RICS economist Oliver Gilmartin said in the report.
The report noted that interest from specialist funds that invest in distressed property had also gone up significantly in Ireland, the United States, Russia and Hungary. Almost 60pc of those polled in Ireland said specialist funds were showing interest in Irish property.
The largest growth in distressed sales was reported in Portugal, followed by the US and Ireland. However, the pace of increase moderated across the majority of markets with only three countries reporting that distress in the market was increasing at a faster pace than last quarter -- Portugal, Spain and Germany.
Eight countries reported a decline in the number of distressed properties coming to market, compared to three months earlier. The pace of decline was greatest in Brazil, Russia, India and Hong Kong. Other countries showing marginal declines were Japan, Canada, Australia and China.