The UK property sector will see property prices plummet by up to £140 billion during the next four years and will have to meet up to £125 billion in debt refinancing, according to predictions by the London-based investment bank Close Brothers.
Close Brothers has calculated that banks going into 2009 are exposed to approximately £250 billion of UK commercial property debt, 50 percent of which will need to be refinanced in the next four years.
“Alternative solutions to restructure the indebted sector are required. For example debt conversions, new third party investment or partial asset sales,” Gareth Davies, managing director at Close Brothers’ European Restructuring and Debt Advisory Group, said in a statement.
Close Brothers said that the combined factors of a lack of available debt and a limited number of investors with equity for funding acquisitions means that any property needing to be sold will only realise distressed values. Based on assumptions of an average 70 percent loan to value ratio, a 50 percent price fall will amount to £140 billion in total unrealised losses on commercial property, split equally between debt and equity.
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