LONDON (Reuters) - More distressed property sales are expected in the next 12 months as changes to international regulations will likely raise the capital cost of holding commercial property on banks' balance sheets, an industry body said.
Growth in distressed property listings eased slightly in the second quarter of this year, but are expected to worsen in the third quarter, the UK Royal Institution of Chartered Surveyors (RICS) said on Thursday, based on the results of a survey of its members.
RICS defines distressed properties as those with foreclosure orders or which are advertised for sale by their mortgagee, and which tend to fetch lower prices than their market value.
Three European countries -- Portugal, Spain and Germany -- were worse off in the second quarter, reporting distress in their market had risen at a faster pace than in Q1.
"Despite the 'supposedly successful' European bank stress tests, worries over the health of the European banking system will continue to linger, propelling banks to manage down their problem loan books," RICS senior economist Oliver Gilmartin said in the report.
"Indeed, changing international regulations are likely to start raising the cost of capital of holding commercial property on bank's balance sheets, which could be the trigger for increased listings in the coming year."
Central banks last week agreed on a raft of changes to the planned Basel III banking regulations that will make banks hold more capital and liquidity to withstand shocks without taxpayer aid.
RICS' survey of 385 of its members in 25 countries in June showed they expect to see growth of distressed property listings in the third quarter to increase in 14 of the countries surveyed, up from 13 countries in Q2.
Portugal and Ireland -- struggling with fears about their sovereign debt -- are forecast to face the biggest rise in distressed sales, RICS said, followed by the United States, where Moody's data shows property prices are still down 41 percent from the 2007 peak.
Eight countries said there was a decline in the number of distressed properties coming to market during the second quarter compared to three months earlier, with the decline greatest in Brazil, Russia and India.
The report also said interest from specialist funds that invest in distressed property has also gone up significantly in Ireland, the United States, Russia and Hungary, with the biggest upturn in buyer interest focussed on Russia.
Reporting by Daryl Loo; Editing by Karen Foster