Euro-zone will see more pronounced falls in values
According to Aberdeen Property Investors’ European Property Snapshot, Europe is projected to see the severest economic recession in the post-war period.
Amid significant economic weakness, Aberdeen Property Investors is expecting a further deceleration in property market returns for 2009, driven by falls in capital values and a weakening occupier market. The economist believes that the Euro-zone is likely to see more pronounced falls in values than the UK this year, as the UK has already re-priced significantly with capital values falling by -36% from summer 2007.
The company expects UK property returns to outperform, followed by the Nordic region and the Euro-zone over the coming five years. Prospects for Central Europe are poor due to a withdrawal of risk capital by foreign investors.
Prime rents set to fall across Europe
Cushman & Wakefield’s (C&W) latest Economic Pulse report anticipates prime rents will fall by 5-7% across all sectors in Europe this year and by a further 2-4% in 2010 as occupiers remain cautious amid the economic downturn.
European prime rental growth turned negative in the final quarter of 2008 for the first time since 2003 and that trend is likely to remain weak, according to the report.
Yields will continue to move out in 2009, notably in those markets that were slower to react in early 2008, according to C&W. The report said: ‘Secondary stock, which is more dependant on the availability of finance, will suffer considerably more than prime, where yields look set to stabilise by the second to third quarter.’
The office sector faces a short-term threat in the form of banking sector consolidation. However, with businesses reacting quickly to the need to de-leverage, they rather than consumers may be the first to recover in some areas, C&W said. Corporate restructuring may also spark demand for cost-effective space such as well-located decentralised offices.
Retail markets will remain under pressure in those countries where consumers are most strapped for cash. In most European countries, however, the build-up of consumer debt has been limited, meaning that for prime stock at least, market values are more secure, C&W said. Similar trends may be seen in the logistics market while light industrial property will be hit more than logistics by the slowing economy, the adviser concluded.
Deutsche Bank warns of tough economic conditions ahead
Germany’s biggest bank Deutsche Bank AG, recently reported a record fourth-quarter loss of €4.8bn and warned it faced tough economic and financial conditions in the months ahead.
This also helped to pave the way for the full year record net loss in 2008 of €3.9bn, Deutsche said confirming figures released last month. Josef Ackermann, Deutsche Bank’s chief, said: “We are very disappointed at our fourth quarter result, and at the consequent full year net loss in 2008. Looking forward, we see continuing very difficult conditions for the global economy, posing significant challenges for our clients and for our industry.”
The bank is proposing to pay a 50 cents dividend for 2008 down from €4.50 in 2007.
However, unlike its peers in other nations, Deutsche Bank has not turned to the Government for assistance to help it through the current economic and financial upheaval. It also managed to sidestep the fallout from the crisis in global banking triggered by the US’s risky subprime mortgage market.
Worldwide News
Government of Abu Dhabi invests in banks
The Government of Abu Dhabi is planning to put in Dh16bn into banks based in the capital such as Abu Dhabi Commercial Bank, Abu Dhabi Islamic Bank, First Gulf Bank, National Bank of Abu Dhabi and Union National Bank.
The Department of Finance of the Government of Abu Dhabi said: “Given current global economic conditions, the Government believes that this strategic initiative is an appropriate and proactive response to ensure that the strong confidence in Abu Dhabi's financial institutions is further enhanced.”
Under the initiative, the Government will subscribe for Tier I capital notes issued by each of the above financial institutions. The notes will be non-voting, non-cumulative perpetual securities, and will be callable subject to certain conditions. The infusion is not in the form of direct equity acquisition. Although it is structured like a debt instrument, banking sector analysts said the instrument is similar to a preferred stock issue.
Further 2% cut in interest rates
Banks may further cut India’s interest rate by up to 2% if the situation allows, according to the chairman of India’s large public sector banks after a meeting with Pranab Mukherjee, finance minister.
State Bank of India (SBI), Punjab National Bank (PNB), Uco Bank and the Oriental Bank of Commerce (OBC) are among the banks which see the possibility of a further rate cut, provided the cost of funds and inflation comes down.
Arum Ramanathan, finance secretary, also said that lending rates might come down further as there has been moderation in deposit rates.
Mukherjee met the bankers in the backdrop of the third quarter review of the annual monetary policy of the country’s central bank - the Reserve Bank of India (RBI). The RBI, in its third quarter review, had said that there was further scope of rate cuts by the commercial banks as the central bank had taken enough steps to bring down the rates and banks were not passing on the entire benefit to the customers.
Following RBI’s suggestion, the country’s second largest bank PNB reduced the prime lending rates by 0.5% bringing it down to 11.5% -the lowest among all banks. SBI, on the other hand, announced that it would provide housing loans to 8% and freeze it for one year.
Many properties and no buyers
The boom in Turkey’s construction industry has gone bust, affected by the global economic crisis, as companies find themselves with many properties and no buyers.
Thinking that the housing demand they experienced in 2004 and 2005 would continue, many companies operating in the construction industry accelerated their home-building speed. Now the crisis has caught them unprepared, as construction companies have housing in their hands to sell than they can find buyers.
The construction industry has been hit hard by the global economic crisis, according to Erhan Boysanoğlu, chairman of Mesa Mesken Inşaat. He said: “We expect the market to be revived by the last quarter of this year, which will hopefully enable us to get rid of our housing stock by the spring of 2010.
“Following the 2001 economic crisis that hit Turkey, plenty of new players surfaced in the construction industry. We foresaw that it would eventually be a problem. We have taken the necessary measures. Currently we are not experiencing any troubles.”
The oversupply of unsold residences is not just a problem for the private sector. The state-owned Housing Development Administration of Turkey (TOKİ), which sold 274,000 residences during the past six years, is currently stuck with 19,307 residences in its hands that are ready to be sold. Some 66,000 residences are also under construction.
It has been said that the value of the ready-to-sell residences held in stock has reached 20 billion liras, while the debt of contractors, who often work by obtaining credit, has neared $6.5bn.
Although the industry’s current situation looks troublesome, the representatives of the construction industry remain hopeful for the future. They believe this crisis will be overcome just like the 2001 economic crisis. From their experience in the 2001 crisis, the sector players believe they will be able to sell the residences in stock rapidly after the global economic crisis draws to an end.
