Property News-Market Bombshells

Following on from yesterdays comment on press review I have been searching for the most up to date news stories from respected sources. Over at Bloomberg yesterday was an article about RBS. You can judge for yourself how bad this is:

“Royal Bank of Scotland Group Plc, the largest bank rescued by the U.K. government, plans to close its overseas commercial-property unit and dispose of the 33 billion pounds ($55 billion) of loans that it holds.

The Edinburgh-based bank already stopped lending to commercial real-estate investors and developers outside Britain, said the person, who declined to be named because the plan hasn’t been made public.

The company will seek to gradually redeem or sell all the unit’s existing loans. Some will need to be restructured first.U.K. banks are trying to pare their lending business to meet capital-adequacy ratios, a measure of financial strength, after the worst financial crisis since the Great Depression.

It has 91 billion pounds of outstanding loans against commercial buildings, according to its half-year results. Lloyds Banking Group Plc, another U.K. bank in which the government is the biggest shareholder, has loans of this kind amounting to about 84 billion pounds.

About 70 percent of RBS’s total commercial-property funds were lent to investors, according to the results, as the values of U.K. properties increased by 50 percent between 2002 and 2007. The bank lent about 28 percent of its book against development projects. About 13 percent of the loans had breached debt agreements as of June 30, the company said.

“The scale of exposure that RBS and Lloyds have to commercial property is likely to be a dampener on any recovery in that market,” said NCB’s Willis.

Many people don’t know yet that the agreement the government signed with RBS had a ‘get out of jail free’ card attached. This came in the form of a clause which stated that the money pumped in from the govt ( via the tax payers) did not have to be used to re-lend to the consumer for mortgages. Great. So, we were forced to recue something which is not even for our benefit.

Secondary to this, I read another article from The Ernst & Young in the city. They suggest that while prices will increase in the short term they are highly likely to return to a slump in the latter part of 2010. While the UK government has already ridiculed this particular report, the report is from a very influential group of city analysts and economists who have for some time “had their finger on the pulse”.

As a consequence of this particular report, we saw a fall in the pound against the dollar and against the euro with many investors starting to think again about the UK market.it is probably one of the more recognised and influential. Voters in the UK must now be wondering whether a potential short-term recovery in the UK economy is being encouraged to give the government the best chance of being re-elected, only to return to a bust scenario.

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