Bank of England Says Property-Loan Default Risk Is Increasing

By Simon Packard

Dec. 18 (Bloomberg) -- U.K. banks face an increased risk of default on some of the country’s 250 billion pounds ($403 billion) of commercial real-estate loans, the Bank of England said today.

In the past year, the longest recession on record meant the “probability of default by U.K. real estate companies has increased significantly,” the central bank said in its Financial Stability Report, which is published every six months.

Property owners may struggle to service loans as the recession and mounting unemployment boost building vacancies and depress rents. Falling property values and larger down payments for new loans mean investors, particularly smaller companies, face “significant” challenges in refinancing 160 billion pounds of loans coming due through 2013, the bank said.

Direct investment in UK commercial real estate to stand at c. £23bn in 2009

UK - Jones Lang LaSalle expects total direct investment in commercial real estate in the UK to total around £22bn - £23bn by the end of 2009, which is comparable with turnover in 2001. Compared with 2008’s total of £21bn, this represents a 10% rise.

Julian Stocks, Head of Capital Markets England, Jones Lang LaSalle said: “2009 has been a year of two halves. The first six months of the year were characterised by low investment volumes, falling prices and worsening occupational markets. However, over the second half of the year investor sentiment dramatically changed and a confidence formed over the summer resulting in demand for stock outstripping supply. This wave of optimism has resulted in higher prices and rising activity.”

Tax future house price bubbles, Bank of England tells Treasury

A leading Bank of England policymaker has called on the Government to raise taxes to prevent housing booms in the future.

Adam Posen, an independent member of the Bank's Monetary Policy Committee, said in a speech yesterday that the authorities should seek to limit house price bubbles because of the damage they inflict on the rest of the economy when they burst. He also suggested that property speculators and second home owners be subject to additional restraints.

Adam Posen, an American economist who joined the MPC this year, said: "Real estate bubbles tend to have much higher real economic costs than equity bubbles, perhaps because they involve illiquid collateral and local spillover effects."

Mr Posen suggested that real estate taxes, which include stamp duty and capital gains on properties apart from a main residential home, could be used as "automatic stabilisers" – rising during a boom but falling in a slump.

Qatari firm buys U.S. Embassy building in London

LONDON, England (CNN) -- The U.S. State Department has sold its London embassy building to a Qatari real estate company, the embassy announced Tuesday.

The signing of the deal is another major step in the embassy's plans to relocate from its longtime headquarters in central London to a new site in Wandsworth, on the south bank of the River Thames.

It wasn't immediately clear how much Qatari Diar Real Estate paid for the embassy building in Grosvenor Square, whose 1960s facade was recently given listed status, meaning its design can't be changed.