Thursday, Dec 04, 2008
Commercial property down 30-35%
Times: The mechanism’s broken, rate cuts won't fix it
Buried at the end of the article: "Some [banks] are facing a sharp rise in bad debts, particularly those, such as HBOS, that have a big exposure to commercial property. It is widely reported that commercial property values have fallen by 20 per cent over the past year, but NB Real Estate, the property agency, says that, based on recent deals, the figure is nearer 30 to 35 per cent. This makes banks concerned about new lending because they fear that they will find themselves falling below the level of capital required [by the government]. The banks are arguing that capital levels should be allowed to fall at this stage of the cycle." --- Commercial property prices are ahead of residential, so we can soon expect house price falls of *at least* 30-35%.
13 Comments
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1. bellwether said...
Tenant base is being decimated right now
2. planning4acrash said...
The free market is correcting itself, government is slowing the correct correction, and destroying the prudent savers from taking the economic baton into prosperity.
3. stillthinking said...
I have never understood how capital requirement works in our system. The only way it makes sense to me is if it mandates that a certain amount of savers spending goes towards the borrowers. There is no real capital, so how can there be a capital requirement?
Maybe this is what the banks mean when they say at this stage of the cycle the level should be reduced, as the savers are sitting tight and the borrowers are heading towards unemployment first, and default second.
4. Jj said...
Just think of all those savers moving money from these banks that are dropping saving rates into areas giving better returns. The banks are going to be hit hard with withdrawal of deposits.
5. malct said...
censorship rules OK? I don't think so.
6. paul said...
"Just think of all those savers moving money from these banks that are dropping saving rates into areas giving better returns. The banks are going to be hit hard with withdrawal of deposits."
Doing just that myself.
Bearing in mind any cuts in borrowers rates have to be offset with cuts in savings rates, Gordon Brown went on television to say that he was going to insist that banks pass on the rate cut to borrowers, NOT that the cut is shared between borrowers and savers.
In other words, he is victimizing savers quite deliberately. In fact, he is shafting younger generations in an attempt to save older generations' wealth. When that kind of wealth confiscation happens in hot countries, it usually leads to an overthrow of the government, with the leader ending up in a noose.
7. fjcruiser said...
"Just think of all those savers moving money from these banks that are dropping saving rates into areas giving better returns. The banks are going to be hit hard with withdrawal of deposits"
Which areas are giving better returns at the moment ? None in my view until we can see more clearly about the future.
I agree the banks will be hit hard with withdrawals not because there are better investments elsewhere but because unemployed people will spend their savings to live and companies will need to the cash to pay their employees and suppliers since the banks have cut off all lending.
8. shipbuilder said...
2. planning4acrash said...
"The free market is correcting itself, government is slowing the correct correction, and destroying the prudent savers from taking the economic baton into prosperity."
Good point. There's still a large amount of people out there that made a fair bit from the boom. The key is getting those people spending it. Those in huge debt are a write-off as far as fuelling a recovery goes. Destroying the savings of the rest will destroy any recovery.
Make the route to the bottom as swift as possible and people will buy when they are happy with the price.
If you made £200K in the crash on, say, a 3 bed semi, wouldn't you buy when 4 bed detached hit £200K? Is that a ridiculously low price for a 4 bed detached? So what's the problem?
9. titaniccaptain said...
@ Shipy
I think 200 grand is alot for a 4 bed......we have become duped into believing it isnt
10. bystander said...
Too right TC. When confronted by a five bedroom detached house in the middle of nowhere, in Devon at 1.5 million pounds adn thinking its quite reasonable. This has been 15 years in the making and it will take a long time for most to accept that their one bed on balham isn't worth the 350K it was apparently worth last year. It will be a long ride to the bottom and a lot of pain for the uk economy along the way and with hyper inflation on the way out. Whats the betting GB is doing all this just to win the election, and once he's in we will lose sterling for the euro and house prices will be forced up by massive inflation from the continent. I can tell you from experience it is no cheaper, if not more expensive living in the eurozone than it is living, even in london. the UK had better be prepared for huge problems if/ when GB takes us in. Question: if GB does take us into the eurozone will employers have to pay higher wages to match their European counterparts and if so will this make current house prices fit the 3-3.5x salary equation, and if so will this cause house prices to rise again on the, by then seriously cheap credit? Will this also mean that savers, pensioners get stuffed again, as whereas the workers could potentiually see their earnings rise above the initial exchange rate, savings are pegged. Hope this makes sense, any ideas??
11. titaniccaptain said...
@bystander and everyone else
If we do get hyperinflation.....then it looks like hard drugs are the way forward for savers.......plenty of heroin under the mattress seems to be the way forward
12. drewster said...
TC,
Location location location. £200k would be a lot for a four-bed house on a council estate in Liverpool; but it would be cheap for a four-bed Georgian house in Mayfair. Either way prices still have a long way to fall.
Shippy,
Just to prove the point here's a 4-bed detached house for £119k. It's in Skegness.
13. titaniccaptain said...
@Drewster
Id rather have the house in skegness than mayfair............by the way the skegness house may be worth more than the one in mayfair if the financial sector of london evaporates and the knock on effects of that on the supporting sectors in london leaving no industry to speak of in the city..............