UK's Grainger eyeing mortgage book buys

By Sinead Cruise

LONDON (Reuters) - Grainger (GRI.L), Britain's largest quoted residential property investor, has stockpiled up to 200 million pounds ($390 million) to buy debt from banks keen to offload exposure to the UK's embattled housing market, its CEO said on Wednesday.

Speaking at the Reuters Housing Summit in London, Grainger Chief Executive Rupert Dickinson said his company was talking to several unnamed financial institutions about possible loan book purchases, in a significant departure from its traditional landlording business.

"We are keeping in touch with lenders, we are letting them know that if they have a portfolio they would like dealt with, we can help them," Dickinson said.

Despite little sign of a global liquidity squeeze loosening its grip and growing fears for the long-term health of the UK economy, Dickinson said he expected UK house prices to remain flat through to 2009, with a 10 percent fall over the same period "a worst case scenario".

"House prices have started to come down ...you will see some areas where they are down 5 percent, and some headlines in areas where they are down 30 percent, but that kind of fall will only happen in places where prices have been artificially high in the first place," he said.

Dickinson said the implosion in the U.S subprime mortgage market had dealt global credit markets a bitter blow but it had provided a reality check for overzealous UK lenders and opportunistic buy-to-let investors hooked on a cocktail of cheap debt and soaring house prices in the last five years.

"We haven't got to the end of subprime yet, so we can't tell exactly what it has caused. It has become more difficult to get a mortgage but that's fantastic -- it needed to be more difficult to get a mortgage," said Dickinson.

He said his company, which owns more than 14,000 homes across Britain, had been preparing for the end of a 10-year bull run for some time and had insulated itself from the vagaries of the UK market by moving into Germany, where it has found the cost of borrowing to be around 1 percent lower than the average 5.5 percent rental yield.

"Germany is a great opportunity for us. You can buy housing there at about 1000 euros a square meter, which equates to around 70 pounds a square foot, and the market has not seen any growth since 1992," he said.

Like most UK quoted property companies, Grainger has been hit hard by a vicious downturn in sentiment towards listed real estate securities, with a 44 percent fall in its share price in the last 12 months.

But Dickinson said shareholders and bankers were comfortable with Grainger's conservatively-valued 2.5 billion pounds portfolio and secure cash-flows, which were largely underpinned by long-term regulated tenancies.

He said the slowdown in the market had squeezed transaction volumes but the firm was still selling assets at prices more than 4 percent in excess of book value.

"Obviously, this period is forcing us to be more cautious. We have told our shareholders we are preparing for the worst so we don't get caught out, but we are also preparing for opportunities ... and we could see a recovery in the market by end of the summer."

(See www.reutersrealestate.com for the global service for real estate professionals from Reuters)

(Editing by Richard Hubbard)