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Disorderly Brexit may halve commercial property prices: BOE

London

A DISORDERLY Brexit could cause UK commercial-property prices to fall by even more than after the global financial crisis, the Bank of England (BOE) warned.

Prices of offices, warehouses, malls and hotels could drop as much as 48 per cent if the UK crashes out of Europe without a deal, more than the 42 per cent peak-to-trough decline following the 2008 global crisis, the central bank said in its Financial Stability Report.

In a "disruptive" Brexit, the slide would be limited to 27 per cent, the BOE added.

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Prices for the best UK commercial real estate have so far mostly shrugged off the 2016 vote to leave the European Union after the weaker pound made Britain cheaper than markets such as France and Germany.

The prospect of a drop in prices, coupled with the effects of a further slide in the currency if the UK does crash out of the bloc without a deal, could make the nation's £833 billion (S$1.5 trillion) commercial-property market an even better bargain.

Shares of UK homebuilders have tumbled since mid-September, when BOE governor Mark Carney warned that house prices could plunge by as much as 35 per cent in a worst-case scenario following a chaotic no-deal Brexit.

On Wednesday, the BOE scaled back that estimate to a maximum 30 per cent.

That's still nearly twice the 17 per cent decline after the financial crisis.

Soaring home prices led Mr Carney to call the housing market the No 1 risk to the UK economy back in 2014.

While Brexit, new mortgage regulations and stamp-duty hikes have all cooled the decade-long property boom, London home values are still up 84 per cent from their 2009 levels. BLOOMBERG

READ MORE: Pressure on MPs to accept May's Brexit deal