Investment volumes are down but sentiment has improved

Government concerned that collapse of lender could prompt financial chaos

Spanish property prices falls by an annualised -9.7%

Property prices in China may halve

Dubai property prices could fall by -70%|

“Dynamic” Asian markets could help Australia weather the downturn

Investment volumes are down but sentiment has improved

Direct investment in European commercial real estate reached €12bn in Europe in Q1 2009, down -30% on volumes in the previous quarter and -70% lower than Q1 2008, according to new research from Jones Lang LaSalle.

Core Western European markets accounted for 95% of total investment volumes, whilst Central and Eastern European markets saw very little activity.

Tony Horrell, head of European capital markets at Jones Lang LaSalle, said: “In the first quarter of 2009 we have noted improving sentiment and increased bidding and in the last three months we have seen investors seeking high quality and long term good income.

However there is a lack of good prime product and at the same time the accepted definition of the prime asset class has narrowed considerably. 

“Whilst yields in some markets moved out marginally in the last quarter, yields in many markets remained stable, for example in the City of London, Amsterdam, Frankfurt, Hamburg, Munich and Paris. This genuine interest from some investors is a positive sign but only time will tell if key deals will sign in the coming months.”

Government concerned that collapse of lender could prompt financial chaos

The German Government recently launched its bid to nationalise troubled mortgage lender Hypo Real Estate (HRE), offering to buy 100% of the firm’s shares at what it called an “attractive price”.

The German Financial Markets Stabilisation Fund (SoFFin) said it would offer €1.39 ($1.82 dollars) per share, around 10% more than the minimum the Government could offer ( €1.26). Shareholders have until 4 th May to accept the offer, according to SoFFin, adding the Government intended to take “full control” of the bank which is likely to cost Germany €290m.

The Government is concerned that a collapse of HRE would prompt the sort of financial market chaos that followed the failure of US investment bank Lehman Brothers in September 2008. The Government passed an emergency bank nationalisation law giving it the power to seize investors’ share by force if necessary.

Spanish property prices falls by an annualised -9.7%

Spanish property prices fell by -9.7% over 12 months to the end of March, according to the latest monthly Spanish property price index published by Tinsa, one of Spain’s appraisal companies.

Coastal areas were, once again, the hardest hit, thanks to weakness in the second home market. Average prices in coastal municipalities fell by -11.5%. Next came big cities and provincial capitals, including Barcelona and Madrid, where prices dropped by -10.2% on average. House prices in the suburbs fell by -9.6%, and by -8.3% in The Balearics and The Canaries.

Property prices in China may halve

Property prices in China are likely to halve over the next two years, according to Cao Jianhai, professor at the Chinese Academy of Social Sciences, a government think-tank, in a strong sign that the country’s economic downturn faces further challenges in spite of recent positive data.

Slumps in both the property market and exports have taken its toll as they were both leading drivers of the booming Chinese economy in the past decade. Jianhai said an apparent rebound in the property market was unsustainable and driven by a flood of liquidity and fraudulent activity rather than real demand. He told the Financial Times he expected average urban residential property prices to fall 40-50% in the next two years from levels at the end of 2008.

Average urban housing prices across 70 cities fell -1.3% in March from a year earlier but were up +0.2% from February, according to figures released yesterday by the National Bureau of Statistics (NBS). That broke seven months of declines and was accompanied by a rebound in transaction volumes.

Residential property sales rose +8.7% from a year earlier in Q1 2009 in terms of floor space sold, compared with a fall of -20.3% for all of 2008.

Dubai property prices could fall by -70%

Dubai house prices could fall as much as -70% from a fourth-quarter peak as investors are unlikely to consider re-entering the market, which faces significant oversupply by next year, according to UBS.

Billions of dollars worth of construction projects in the United Arab Emirates (UAE) have been delayed or cancelled, with Dubai particularly hard hit as the global financial crisis brought to an end a regional economic boom.

UBS said Dubai’s population was likely to fall -10% in the coming two years as a result of job cuts, with residential vacancy rates reaching as much as 30% by the end of 2010 due to an oversupply.

Average house purchase prices could fall to as much as 500 dirhams sq ft ($136.1) from a peak of 1,850 dirhams in Q4 2008, UBS said. It added that average prices had already fallen at least -25% to roughly 1,400 dirhams sq ft.

Abu Dhabi, the UAE capital and home to most of the country’s oil, has fared better, with real estate companies launching multi-billion dollar projects at a property conference this week. Mortgage default rates may pick up into the mid- to high-single-digit range in the coming quarters, UBS said. It added that Dubai had total liabilities of roughly $112bn.

“Dynamic” Asian markets could help Australia weather the downturn

Glenn Stevens, Australia’s central bank chief, recently said that Australia was probably already in a recession but predicted that “dynamic” Asian markets would help it weather the economic downturn.

His comments came as Prime Minister Kevin Rudd said the Government would build economic stimulus packages worth more than AUS$50bn in next month’s Budget in a bid to lessen the recession’s impact. The Government has so far announced two major stimulus packages to kick-start spending, including one-off cash payments of up to AUS$900 to more than seven million taxpayers.

According to Stevens, one factor weighing strongly in Australia’s favour is its proximity to Asia. He said: “There is an exposure to, and an engagement with, an Asian region that still has the most dynamic growth potential in the world, where hundreds of millions of people will for decades to come be seeking rising living standards.”

Australia’s last recession was in the early 1990s but the economy posted its first negative growth figures for eight years in the final quarter of 2008, with a similar result expected in the first three months of 2009. That would officially put Australia into a recession.

In February, the Government predicted that Australia’s economy would grow +0.75% in 2009-10 but this figure is expected to be revised down into negative territory in the annual Budget.