Global slowdown instigates changes in Italy’s property market

Demand for modern office space reaches record levels

Another 2-4 yrs for pre-crunch credit levels

Property market conditions in the UAE remain challenging

Asia’s largest economies buckle under the strain

Average property in the USA has decreased by a quarter

Global slowdown instigates changes in Italy’s property market

The global economic slowdown is helping to push along some subtle changes in the Italian property market, according a recent report by Italy’s equivalent of the Land Registry, Agenzia del Territorio.

The report shows that the credit crunch has had a moderate impact on Italy. Residential sale volumes have declined by an average 14.1% between the third quarter of 2008 and the same period on the previous year. This is a greater drop than those recorded by any other property sector in Italy (commercial, offices, productive) but it is still smaller than what experienced in many other developed countries.

However, the crisis has sped up some gentle but significant changes. For the first time since 2001, the property market in Italy’s many small communities is slower than that of the provincial capitals.

The decline in sale volumes was steeper in the non-capital communities (down by -16%) than in the provincial capitals (down -9.3%). This is particularly true of Italy’s ten largest cities and their provinces— sales contracted by an average -8.9% across Rome, Milan, Turin, Genoa, Naples, Florence, Palermo, Bologna, Venice and Catania, but went down by a much larger -16.7% in their respective provinces.

This reverses the trend of provincial growth recorded across Italy between 2000 and 2006. However, the international financial crisis appears to have accelerated, rather than engendered this new dynamics as according to the report, the slowdown in the provinces had started in 2005.

But the Italian market is also seeing different speeds across wider geographical aggregations. The North of Italy—traditionally the country’s economic engine—is suffering more than the South, with average drops in sale volumes of -16.1%. The South, by contrast, only saw a -10.3% decline, and the Centre sat between the two, with an average reduction of -13.3%.

That said, the two best performing markets in the third quarter of 2008 were in the North and Centre of Italy—Florence and Venice (immediately followed by Naples). Both Venice and Florence recorded a year-on-year increase in transaction volumes (+4.2% in the former and a staggering +23.2% in the latter), although this positive figure could be linked to the administrative recording of earlier sales of some state-owned properties.

When considering a longer time period (sales for quarters one to three of 2008 against quarter one to three of 2007) both cities saw a decline (of -2% in Florence and -11% in Venice). Even so, they remained the best markets in Italy.

Demand for modern office space reaches record levels

Demand for modern office property in Budapest has reached record levels with the commercial real estate sector in Hungary defying the economic downturn in the rest of Europe, according to research by CB Richard Ellis (CBRE).

Well located prime office properties in the city remain popular with overall take up +3% higher than in 2007 with 35% of the activity in the last three months of 2008 showing a surge when the same market in other countries contracted.

This year is also looking positive. Pre-lease agreements in general had a very significant share in last year's demand therefore the 2009 pipeline of office space is already up to 28% occupied before completion, according to CBRE.

However, developers are expected to be more cautious in 2009. ‘We are entering a new era in the office occupier market. Developers will think twice before kicking off a new project. We will see much more planning ahead before completion starts than in the previous years. But this helps the market to avoid long-term imbalances,’ said Adrienne Konthur, managing director of CB Richard Ellis, Hungary.

Another 2-4 yrs for pre-crunch credit levels

Plamen Oresharski, Bulgaria’s finance minister believes the country will take between two and four years to establish pre-crunch levels of credit.

The access to bank loans in the country has become more difficult and they have become more expensive, the minister told a group of businessmen in an open discussion on the financial crisis in the town of Gabrovo.

He said: “Some of the measures we should take involve mobilisation of the financial resources, draw-in of partners with capital and expansion of the on-hand capital.”

The property market had already been hit by the global economic crisis and in a few months the EU member states will start discussing a crisis in the public finances, he forecasted.

He said: “It will take us between two and four years to come back to the credit comfort we had before. Over €10bn in foreign capital has been circulating in Bulgaria’s banking sector for ten years now. As a result, the total worth of the bank loans in Bulgaria exceeds the savings of the Bulgarians by over €10bn.”

Property market conditions in the UAE remain challenging

Property market conditions in the United Arab Emirates (UAE) will remain challenging this year and next with house prices in Dubai expected to fall further as foreign workers leave the emirate, according to UBS.

The bank said in a research note: ‘In our view expat-led population outflows in Dubai and flattish trends in Abu Dhabi will pressure house prices in the foreseeable future. A population decline of -8% this year and -2% next year may be conservative and accounting for potential payment defaults, would exacerbate Dubai's housing issues.’

The bank expected residential oversupply to reach 27% by the end of next year and remained cautious on the timing of property handovers. Dubai’s once-booming real estate sector has been hit hard in recent months as property prices fall, developers slow or halt projects and jobs are cut.

A correction in the UAE market over the next two or three years, especially in Dubai, may burden company earnings and cash flows to repay debt it said, adding that Aldar, Emaar and Union Properties should be able to address debt repayments, given strong results this year from property handovers.

Asia’s largest economies buckle under the strain

China’s economy slowed sharply in Q4 2009 and Japan’s central bank recently predicted two years of deflation as Asia’s largest economies buckle under the strain of the financial crisis.

The Bank of Japan (BoJ) has cut its growth forecasts, and predicted that its economy will contract for two full years until March 2010. Earlier data showed Japanese exports plunged a record -35% in December from a year before.

The figures showed a collapse in demand across the board with record falls in shipments to the United States, Europe and Asia. The BoJ said it was holding interest rates just above zero and it would buy corporate bonds to ease a severe funding squeeze which threatens to deepen the recession.

In addition, in China, data showed economic growth slowed to a seven-year low of 9% in 2008. China’s statistics bureau said the financial crisis was spreading and China will aim to stimulate domestic demand.

Average property in the USA has decreased by a quarter

The average price of a property in USA has depreciated by a quarter since the peak of the USA housing boom, and by 18.2% year-on-year in November 2008, according latest S&P Case-Shiller report. Wall Street had been expecting the numbers to be slightly worse, forecasting an 18.4 per cent drop.

Data compiled by S&P Case-Shiller are survey widely perceived as the most authoritative measure of US property values, and show that the average US homeowner is losing around $370 (£260) a week from the value of their US home.

David Blitzer, chairman of the S&P Index Committee, which compiles the house price index by monitoring 20 cities across the US every month, said: “Since August 2006, the 20-city composite has declined every month - a total of 28 consecutive months.”

The worst property price falls have been recorded in Phoenix, Arizona, and Las Vegas, Nevada.