Federal Government to Bail Out Banks in Commercial Property

The Federal government has come to the party to the tune of $4 billion dollars of Federal money to prop up commercial property. The concern is that approximately 50% of Australia’s commercial property mortgages are financed by overseas banks – most of whom no longer want to be exposed to any type of property anywhere – so are said to be withdrawing from Australia. Though there seems to be speculation rather than fact at the moment.

Westfield, Sydney

The economic downturn has led to worries that a fire sale of commercial property, brought on by foreign lenders rather than fundamentals, would spread to the residential property market.  Although the residential and commercial markets generally operate quite separately  in Australia, if commercial land values got discounted too heavily it could led to an economic melt-down taking down residential property as well.

With $70 billion dollars worth of commercial loans due for renegotiation within the next two years, this does seem to be a reasonable concern. This will be a government-private sector partnership with the banks being led by National Australia Bank (NAB).

Kevin Rudd is on record for saying that the bail-out is to protect jobs- but most financial commentators appear to be discounting this as “what a Labor Prime Minister has to say” – line.

Meanwhile Westfield – the property group seemingly behind every second shopping centre in suburban Australia, has written down property assets by $3 billion -though, so far, this seems to have more to do with Westfield’s overseas exposure rather than its Australian assets. If Westfield, the strongest of the commercial devleopers is feeling the pinch though, a lot more will be going under in the next 12 months or so.