Irish commercial property market now the most vulnerable in world
Loans 'under water' as State's debt funding gap hits €4.8bn after 60pc slump in values of shops, offices and warehouses over three years
Published 25/11/2010 | 05:00
IRELAND has the most vulnerable commercial property market in the world because it faces the biggest gap in funding relative to its size for refinancing debt, property company DTZ said in a report yesterday.
The country has a $6.5bn (€4.8bn) shortfall for debt between now and 2013 which is equivalent to 16pc of the value of Ireland's entire commercial real estate investment market, according to the London-based property broker, which also has operations in Ireland.
On a proportional basis, we are followed by Hungary, Spain, the UK and Japan.
The debt funding gap is defined as the difference between the existing debt balance secured by commercial property as it matures and the debt available to replace it.
The funding gap is leading investors to focus on property in good areas -- which means that property in secondary areas will be particularly vulnerable over the next few years.
Europe's property market is the most vulnerable while Asia's is the strongest with hardly any funding gap outside Japan, the report finds.
Europe overall accounts for half of the projected $245bn global debt-funding gap through 2013, DTZ said.
That reflects its dependence on short-term bank lending and the number of loans in breach of their terms or at risk of default because of the slide in real-estate values since 2007.
The credit shortfall is "the biggest challenge to many international property markets", DTZ added.
Many Irish property loans are under water after an estimated 60pc slump in the values of shops, offices and warehouses over the past three years. DTZ said it expects NAMA to conduct "an orderly disposals process" starting in 2011.
Governments, banks and borrowers in Europe so far have found ways to address the deficit, with most banks choosing to extend loans and change their terms rather than foreclose, said Hans Vrensen, the broker's global head of research.
"Although banks and borrowers have not been forced to seek more dramatic solutions to the debt-funding gap, a number of imminent changes look set to increase the pressure," including higher interest rates, reduced government debt and cutbacks in banks' property-loan books, Mr Vrensen said in the report.
"Banks have been moving on from extend and pretend to extend and amend," he added.
Hungary has a debt-funding shortfall of $2bn, equivalent to 1pc of its commercial property market, the DTZ report showed.
The UK's $54bn and Spain's $33bn gap are equivalent to 6pc of their investment markets.
Japan has the largest shortfall in value terms, at $70bn, DTZ estimates. The US's $49bn amounts to 1pc of its investment market. The remaining markets, including Germany and France, have absolute debt funding gaps below $10bn.