According to the Newsec Nordic Report Spring 2009, the worldwide economic downturn has begun to make an impact on the Nordic property market.
Transaction volumes on the Nordic and Baltic property markets fell significantly in 2008, even though a number of large transactions led to some recovery during the second half of the year. Of the Nordic countries, Sweden held its position best, with a fall of -20% calculated in euros, while the transaction volume on the Norwegian market fell by -55%. The greatest problem affecting property transactions has been and is expected to go on being financing, which has caused many investors to leave the market as a direct consequence of the banks’ restrictive lending. However, constitutional investors still have capital, and the current situation opens up new lending for those and other low-leveraged players to do good deals.
Even though international investors are mostly expected to remain on the sidelines for as long as the concern on the financial market continues, there is still a lot of international capital set aside for investments on the Nordic property market, of which Sweden is the largest submarket.
Transaction volume on the Swedish market was expected to fall dramatically in 2008, but the reduction was cushioned by some exceptional large transactions. In the event, investments totalled €12.5bn in 2008, which is a decrease of -20% compared with the previous year.
Despite the economic downturn, this year’s increase in households’ disposable income is expected to be the largest yet during the 2000s. Although the savings ratio is expected to rise, this points to a continuing rise in private consumption, resulting in a relatively stable rent trend for retail properties. However, a large area of new retail space will come on to the market in the next few years, especially in Malmö. This will lead to fiercer competition between sites, so that property owners will need to put more effort into retaining and attracting tenants.
Newsec predicts that direct yield requirements for offices will continue to rise during 2009. The low interest rate depresses direct yield requirements while expectations of increased vacancies and reduced rents work in the opposite direction. Looking ahead, the weak economic trend in combination with restrictive lending is expected to lead to further rises in direct yield requirements.
Spanish property market shrinks by almost a third
The Spanish property market shrank by -29% in 2008 according to Spain’s Property Register.
There were a total of 561,500 home sales last year, compared to 788,500 the year before.
Sales of new properties fell -13% to 296,400, and re-sales fell -41% to 265,000.
On a quarterly basis, there were 113,300 home sales in the last three months of the year, down -8% on the previous quarter, with new-build sales down -3% to 64,500 and re-sales down -13% to 48,800.
Extremadura was the only autonomous region where home sales increased by +0.6%, thanks to an increase of +91% in new sales, and despite a decrease of -20% in re-sales.
Year-on-year, sales fell the most in Catalonia (-44%, new build – 37%, re-sale -49%), The Balearics (-39.5%, new -27%, re-sale -50.5%), and The Valencian Community (-32.5%, new -14, re-sale -44%).
The report points out that province on the coast are suffering the biggest declines in sales, thanks to the collapse of the second home market. Sales fell in Tarragona / Costa Dorada (-50.5%), Gerona / Costa Brava (-43%), Barcelona / Maresme (-43.5%), The Balearics (-39.5%), Alicante (-37%), and Tenerife (-36.5%).
The report also points out that new-build sales were higher than re-sale for the third consecutive period, whereas re-sales are normally higher. This is because many people who bought under construction or off-plan in previous periods now have to complete or lose their deposits. Were it not for this, the number of new properties bought would be much lower.
Czech commercial values drop -20% in 2008
The Czech commercial property sector witnessed significant changes in value during 2008 with prime property values dropping year-to-year by 15-20% (depending on the particular project), and secondary commercial property value dropped even more, according to research by consultancy King Sturge.
Factors that effected valuations in 2008 in a positive way were rental growth and shorter lease contracts and new supply and higher vacancy rate had a negative effect, according to King Sturge. Growing yields mean higher investment risk, based on a potential buyer usually requiring lower price. A sharp decline in commercial property transactions in the last year by approximately 62% year-on-year was also due to different price expectation of buyers and sellers of commercial property, which unfortunately haven’t succeeded to match each other so far.
In the first half of 2009, analysts from King Sturge expect distressed sales in cases when the value of the property drops below the bank credit and the developer is not able to fill in the critical difference by private equity. In cases when banks want to bear a risk related to drop of value, property will be withdrawn and very likely sold, or a bank will make a developer sell the property. Distressed sales will put further pressure on commercial property prices and enhance the buyers’ position.
Commercial property valuation focuses on location, technical quality of the building, tenant mix, lease contract periods, rents and mainly yields. The reason for commercial property valuation usually is the impending investment transaction or a regular annual or semiannual accounting of book values required by property portfolio owners, such as property funds, financial institutions and banks. The consultancy is also counting on the stabilization of shares of developers traded on the Prague Stock Exchange (PSE) and a bigger yield difference between prime and secondary commercial properties.
Worldwide News
Canada’s lowest ever interest rate
Canada’s central bank recently reduced its benchmark overnight rate by 0.5% to 0.5%, meeting market expectations and bringing the cumulative monetary policy easing to 400 basis points since December 2007.
The central bank said in a statement: “The nature of the US recession, with very weak auto and housing sectors, is particularly challenging for Canada. Stabilisation of the global financial system remains a precondition for the global and Canadian economic recoveries.”
In addition, Canada’s latest data shows that the Canadian economy contracted at an annual rate of -3.4% in Q4 2008. Following the rate decision, the Canadian dollar gave up some of its gains and was last up +0.2% against its US counterpart.
The RBA contrasts with its peers by holding rates
In start contrast with its peers, the Australian central bank recently kept interest rates steady at 3.25%, confounding those who had hoped for a cut. The bank said stimulus moves already in the pipeline were helping Australia avoid the depths of recession seen elsewhere.
The RBA, as the central bank is commonly known, has already cut its main cash rate by 4% since September.
Glenn Stevens, RBA’s governor, said: “Together with the substantial fiscal initiatives, the cumulative decline in interest rates will provide significant support to domestic demand over the period ahead. On this basis, notwithstanding evident economic weakness at present, the board judged that the stance of monetary policy was appropriate for the moment.”
Stevens did leave the door open for more action if needed, saying the RBA would reconsider rates at its April meeting. But that statement failed to satisfy investors who had bet rates would be at 2.75% at this rate hearing and nearing 2.25% by April.
The RBA’s pause goes against the trend of the world’s major central banks, with the majority of central banks including Canada, England and the European Central Bank (ECB) all lowering rates.
But the RBA pointed to the relatively resilient performance of the Australian economy, helped by historically low mortgage rates and a sound banking system. Recently published Government data showed that exports held up well in the previous quarter, even as many of Australia’s major trade partners sank into recession and imports plummeted.
No country is immune from the global downturn
Collapsing oil prices have pulled oil rich countries into the global property malaise with capital values falling in emerging nations for the first time in the survey’s history, according to the Royal Institute of Chartered Surveyors’ (RICS) Global Property Survey.
The previously strong performing United Arab Emirates (UAE) saw capital values plummet from a positive balance of 65% to a negative balance of 83%. The outlook for future performance has in consequence turned very gloomy. In the UAE, 85% more chartered surveyors expect capital values to fall compared to a positive balance of 45% in the previous quarter. In Dubai, 96% more chartered surveyors expect capital values to fall even further over the next three months, a drop from a positive balance of 22% in the previous quarter.
In Russia, worries over macro-stability has seen investment sentiment fall, sending capital values lower. Eastern Europe has also seen an acceleration in price declines with Hungary, Poland, Ukraine and Turkey reporting price falls at almost double the pace of the preceding quarter. Commercial property in China has until recently remained relatively firm in the face of the global economic downturn. Most of the Chinese indicators have previously remained in positive territory, with both supply and demand holding up and expectations generally upbeat. However, the number of surveyors reporting a fall than a rise in capital values hit its worst level in the survey’s history. Some 72% more chartered surveyors reported a fall than a rise in capital values compared to a positive 18% in the previous quarter with surveyor sentiment for future rises also turning negative for the first time.
In addition, rents fell across more than 90% of the countries surveyed with the greatest downward pressure occurring across parts of Asia. Taiwan, Hong Kong, Singapore and India were ranked in the bottom five for rental performance as the collapse in world trade has smashed export earnings and business confidence.
