NAMA, developers may be caught in UK meltdown
UK market faces £160bn debt crisis in commercial property
Published 11/03/2010 | 05:00
Ireland's property developers and NAMA could get caught up in a major meltdown in the UK commercial property market as companies in the sector struggle to roll over their debts.
The Financial Services Authority (FSA) has circulated a report highlighting UK commercial property as posing a systemic risk to the British financial system, with £160bn (€175.3bn) of loans due to mature over the next five years.
Commercial property companies throughout the UK currently face both "balance sheet and cash flow pressures'', the FSA said, with prices falling sharply from peaks in mid-2007.
The plunging prices have severely reduced commercial property companies' assets and the collateral underpinning their loans, the FSA said.
"Negative equity could reduce future access to credit and the ability to roll-over existing debt,'' said the FSA report.
A large number of liquidations may yet occur, the FSA speculated, forcing foreclosed properties on to the market and dragging prices down further.
NAMA chief executive Brendan McDonagh has, on several occasions, talked about NAMA selling some of its overseas portfolios. However, the window to sell off properties may be closing based on the FSA report. The US market is likely to be stronger, according to many property professionals.
A large number of Irish property developers, investment funds and construction companies such as Sean Mulryan, Treasury Holdings and Quinlan Private hold assets in the UK. The squeeze on all market players was considerable, the FSA said.
"Vacancies, which increased from 9pc to 12.6pc in the year to October 2009, and falling rents have reduced gross income, which has affected companies' ability to service debts,'' said the FSA.
Meanwhile, an Irish developer who has been unable to sell properties for more than two years as he tried to meet loan repayments is in the same situation as many others coming before the Commercial Court, a judge remarked yesterday.
Ron Quinn, a commercial and residential property developer of Kinlough House, Gentian Hill, Salthill, Galway, owed €937,443 to ACC Bank. Mr Quinn told the court the bank had turned its back on him, while other institutions had reached accommodations.
Mr Justice Peter Kelly said his experience of managing the Commercial Court -- where people are sued daily over non-repayment of substantial mortgages -- is that trying to sell property now is a "very difficult exercise" with no indication of any improvement soon.