The time is now

Poland’s economy could see growth

Commercial property deals have fallen by -59%

Rates left unchanged

Current property prices provide basis for long-term growth

Demand for residential projects picks up

The time is now

Henderson Global Investors believes that investment in the French property market is once again looking attractive and is exploring opportunities to recommence investment by focusing on prime Parisian offices and wide prime retail assets, both of which it believes are beginning to offer real value, having fallen 30-40% since the market peak in the summer of 2007.

For prime Paris offices, Henderson is forecasting that in the second half of 2009, net initial yields will stabilise between 6-6.5% unless there is significant and unexpected deterioration in the current economic conditions.

Henderson also views the French retail market positively. It has previously been very difficult to penetrate for foreign investors and is seen as very defensive, being characterised by low volatility, stable long term income and an excellent risk profile. Tenants have good rent to turnover affordability and vacancy rates are low to non-existent for the best centres. 

A major reason of Henderson’s positive assessment of the French market is the relative resilience of its economy during the financial crisis. Its medium term outlook should be characterised by resilient domestic demand as a result of lower levels of household debt. In addition, France has a lower dependency on exports compared with other core countries such as Germany and the Government has provided prompt support for the economy via various economic stimulus packages.

Poland’s economy could see growth

Poland ’s economy may expand by as much as 2% in 2010, according to the central bank’s Monetary Policy Council’s (MPC) Marian Noga.

Poland along with a handful of European economies has avoided recession in 2009 and has expanded by +0.9% this year. The 2010 budget bill envisages growth of +1.2%. However, Warsaw expects the 2010 budget deficit to hit the highest level in 20 years to stand at 52.2 billion zlotys, which further decreases chances that Poland would be able to achieve its plan of adopting the euro soon.

The Government expects the 2010 general government deficit to rise to about 7% of gross domestic product (GDP) compared with a 6.1% forecast by analysts for 2009.

Commercial property deals have fallen by -59%

According to CB Richard Ellis (CBRE), the average size of commercial property deals in Europe fell -59% in the first half of 2009 compared with the market peak in 2007.

In the first six months of this year, European property transactions were completed at an average size of €18.4m, down from €44.4m in the first half of 2007. Commercial property values in Europe have been hit hard by the financial crisis, led by the UK where prices fell -44% in two years, while banks remain unwilling to finance larger deals as they cannot securitise the loans, CBRE said.

At the height of the European property boom in the first half of 2007, there were 115 completed transactions each worth €200m and above, which fell to just nine deals in the first half of 2009, according to CBRE.

Retail properties have dominated the bigger deals so far this year, it said, with the UK sale of the mostly retail former Dawnay Day portfolio for over £600m the single largest deal in the first six months.

Rates left unchanged

This week, Britain, South Korea and New Zealand left interest rates at record lows, with Canada expected to follow suit, but in Asia there were signs that thoughts are turning to tighter policy.

The Bank of England (BoE) left interest rates at a record low of 0.5% and said it would keep its £175bn asset buying programme, designed to pump money into the economy, in place.

In contrast, the Bank of Korea kept interest rates at a 2% but sent a strong signal it would lift them if house prices climb much more, even if it means moving before other major central banks.

New Zealand ’s central bank left the interest rate at 2.5% citing indications that a patchy recovery has begun after an 18-month economic recession. Australia, which never entered recession, is expected to up rates before the year is out.

The European Central Bank (ECB) recently left rates at 1% and, echoing the G20 ministers, said it was too early to withdraw support from economies creeping out of recession.

Current property prices provide basis for long-term growth

According to Memon Investments, a leading Dubai-based property developer, current property prices are providing a strong basis for long-term growth as the on-going correction phase drives the market towards more a realistic and stable condition.

In addition, the real estate developer is also confident that its current portfolio of projects located in several master developments - including Dubai Sports City, Dubai Silicon Oasis and Jumeirah Village, is providing buyers a wide range of investment options that offers excellent return potential.

At present, the market is witnessing increasing transparency due to initiatives by regional governments to regulate the property development sector, which is being widely appreciated by investors. Furthermore, market forces are drastically reshaping the market landscape by rewarding developers who are recording actual progress in their projects during the crisis. As the shifting market dispel speculators and attract serious investors, Memon Investments is focusing on the delivery of all its real estate projects in Dubai that include luxury residential projects Champions Towers series, Gardenia I & II and Frankfurt Sports Tower I as well as its inaugural commercial tower - Cambridge Business Centre.

Demand for residential projects picks up

Demand for residential projects in major cities in India is picking up due to lower home loan rates, property price cuts by developers and job market recovery, according to a study by Religare Capital Markets Ltd.

Suman Memani, associate vice president at Religare Capital Markets said when releasing the report: ‘Now that property prices have climbed down and the risk of job layoffs has diminished, the service class is likely to participate actively in property absorption, leading to a strong recovery in residential demand.’ Correction of home loan rates from levels of 13% in early 2008 to around 8% now has also helped spur demand, he said.

Religare expects residential prices in the premium and luxury space to rise by +10-15% as valuations have bottomed out in a few locations with property registrations in cities like Mumbai and Pune rising about +20-22% in Q2 2009 over the first quarter.

Indian real estate developers like Ackruti City Ltd, Anant Raj Industries Ltd, Omaxe, Parsvnath Developers and Sobha Developers, saw a sales slump following the economic downturn. Their margins were also squeezed as many launched cheaper housing to boost unit sales.

The commercial sector is also suffering and vacancy rates will rise by as much as +25% in 2009/10 with an oversupply of about 30m sq ft of space in seven cities and information technology companies showing slower employee growth of 2.5%. Although rental values have started correcting from February 2008, capital values of the commercial properties have not eroded so far, according to the report.