Basel III proposals won’t aid recovery

Jason Werth

Standing precariously at the edge of a precipice, the commercial property market needs liquidity to help its recovery.

Unfortunately, changes outlined by the Basel Committee on Banking Supervision will undoubtedly curtail the market’s revival.

The committee was formed to provide a platform to debate global banking governance and although it has no legal powers to enforce its recommendations it seeks to encourage members to adopt statements of best practice.

The proposals for Basel III, which will be presented to the G20 in November, look to strengthen the system and protect banks from another financial crisis without taxpayer aid.

They will focus on capital and liquidity requirements, especially the amount of cash banks have to hold relative to their loan and investment books. Estimates suggest that just under $400bn may have to be raised.

As banks stockpile cash and the supply of money falls the cost of capital will increase, meaning more expensive loans. As investors struggle to secure debt or can’t afford loans, prices will fall.

This will be a problem where property owners are unable to refinance loans nearing maturity and banks seek early repayment of problem loans to raise capital.

But all is not lost for property owners. Cash-rich buyers are less reliant on borrowing while viable solutions such as sale-and-leaseback are also available.