Savills: UK real estate negative equity tops £50bn

Savills opened its annual financing property presentations in Manchester today by saying the real estate sector had reached £50bn negative equity levels.

The current lending capacity in the market stands at about £20bn, Savills said, one quarter of the amount of business transacted in each of 2005, 2006 and 2007 and only 50% of the value of loans due to mature in each of the next three years.

Savills urged lenders to work in partnership where possible with their clients to achieve stabilisation in a market in which commercial property values have fallen 41% over seven quarters, compared to 26% over twice that time period in the previous downturn, taken from October 1989 to April 1993.

William Newsom, head of Savills UK valuation, said: "Debt is locked into the sector and lenders need to work towards stabilisation to see a return on their money. Deleveraging at this stage will result in significant losses and so we are seeing lenders sticking with existing customers and extending loans by one, two, three, five and in one case even eight years."

The research found that 12 of the largest lenders accounted for 77% of existing UK lending. Of these, eight are UK organisations and their debt totals £137bn. These parties will have to work through existing commitments not yet drawn upon, development finance in cases where schemes are only part built, as well as further capital requirements to enhance or maintain values of existing investments.

Despite these issues for existing lenders, Savills listed 22 organisations that remain prepared to lend to new customers, of which 14 are overseas and 10 alone from Germany.

In terms of foreign investment, Savills reported that international parties have accounted for 40% of transactions so far in 2009, compared to 31% in 2008.