Default Risk of the UK Real Estate Companies: Is There a Macro-economy Effect?

This paper empirically identifies the factors which are important in explaining default risk of the UK real estate companies over the past 20 years. We estimate a pooled probit model where the probability of failure is expressed as a function of both macroeconomic variables and company financial ratios. We find that the most important determinants of bankruptcy of the UK real estate companies are company liquidity, profitability and debt coverage as well as financial market volatility, interest rates, current account and the economic cycle. The latter provides evidence that the macro-economy crucially affects the probability of default of these companies.