Property investment managers and developers have warned that the threat of a double dip recession in the UK is real and would force banks to sell off their property portfolios.
Delegates at MIPIM, Europe’s largest property fair, said the UK has survived on government aid since the recession and that a cut in spending could expose the underlying weaknesses of the property market.
The Homes and Communities Agency has spent £1.65bn on keeping private sector building projects afloat over the past two years.
“Since the recession all new housing projects have been subsidised by the government,” said Robert Lee, partner at the real estate law firm Davies Arnold Cooper. “What happens when this is cut?”
Developers added that in a double dip banks would be forced to sell off their costly property portfolios, causing huge disruption in the commercial and residential markets. HBOS is most vulnerable as a result of the amount of “sick” property companies it currently holds on its books.
Delegates added that the City of London is unlikely to see any grand new developments for at least another five years. Funding remains the major issue and banks are still scared to take on the risk of projects worth over £50m. CBRE, the commercial property consultant, said companies needed to become more creative in the way they raise capital if they want funding for the larger developments.
“Property companies are equity poor and need to look elsewhere for funding,” said CBRE’s Jonathan Seal.