"Financing projects from £50,000 to £100 million"

Property projects condemned by new capital requirement rules

Property projects condemned by new capital requirement rules

Commercial property projects outside of London may face the axe when stricter rules on capital requirements are imposed by the Financial Services Authority.

It is thought that property developers, already facing higher costs as banks exude a much tougher attitude towards risk, will struggle to secure the finance necessary to undertake projects in areas where the commercial property market is less vibrant.

The City regulator is determined to make banks safer in the aftermath of the financial crisis and to avoid the devising of models designed to reduce capital requirements.

Taxpayer-supported banks Royal Bank of Scotland and Lloyds Banking Group have both been told that they have until March to begin tackling large holes in their finances thought to be worth as much as £30 billion.

And the property industry is under particular scrutiny, having benefitted greatly from the weaker banking regulation prior to 2008.

Banks had previously been able to assign lower risk weightings upon commercial properly loans which allowed them to hold less capital.

But new rules set down by the regulator will force banks to hold substantially more capital against commercial loans secured on retail and business property.

Property companies and commercial finance experts have warned of a number of consequences to the new rules, however.

These include higher borrowing costs, a breakdown in lending relationships, and a widening gap in values between property in London and elsewhere that will damage the chances of recovery to the real estate sector.

Peter Cosmetatos, Finance Director at the British Property Federation, said that the measures would have "potentially dire consequences" for the regional property market.

And RBS’s Head of Real Estate, Paul Coates, has argued that only prime property locations would hold their value against the changes, with falling prices everywhere else.

Keith McDonald

Do you need expert advice regarding commercial property finance? Contact Commercial Finance Group today!

Thursday, 17 January 2013 13:46
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