Oz commercial property bail out

Published 22nd Jan 2009

The Australian Government and the country's biggest banks are considering a bail out of the commercial property sector which is facing considerable problems...

It would mean taxpayers money being used to prop up the market which is expected to struggle to refinance loans of up to £23.4 billion.

The banks are worried that lenders, particularly foreign banks, may abandon the struggling commercial property sector and they have asked the Government to step in with a scheme similar to the £1.17 billion special purpose vehicle it created late last year for car dealers after two major US finance companies pulled out of the market.

The total amount lent by banks to the commercial property sector is around £77.5 million. Sales of office towers, shopping centres and industrial properties have plummeted by 65 per cent in the last few months.

At the same time the number of companies in Melbourne and Sydney vacating unused floor space and subleasing offices has been rising sharply.

Major businesses are cutting back and making job losses which mean they no longer require as much office space. They include collapsed stockbroker Opes Prime, Citigroup, Macquarie Group, which is set to slash 1000 jobs, and Insurance Australia Group.

They are few takers for the empty space. The latest figures from CB Richard Ellis show a 65 per cent drop in the value of commercial property sales and data from Colliers International shows a 70 per cent decline in the number of transactions.

'There's been a complete drying up of buyers, and that's all due to the seizing up of credit and debt markets. Another reason, in Australia in particular, is because there's been reluctance by sellers to reduce the price of properties,' said David Green-Morgan, Research Director for DTZ Research.

'I think you have to view the end of 2006 and 2007 as exceptional years. The market is not going to return to that level of activity or those sorts of prices in the short or medium term. We suggest we'll be back to the long term average during 2010 and 2011,' he added.

Source: ' TMC '

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