Sale & leasebacks still playing a major role in 2009

RICS reveals an increase in distressed properties

Cash buyers banned from purchasing property in Bulgaria

Dubai’s property prices to drop by a further -30%

South Africa’s property market to bounce back in 2010

US residential property sales up +10.1%

Sale & leasebacks still playing a major role in 2009

Despite the downturn, corporate sale-and-leaseback transactions have become an established and key part in the European property investment market, having grown from 6% of the marketshare in 2004 to 19% in 2008 according to CB Richard Ellis (CBRE).

John Wilson, head of corporate strategies within CBRE’s Global Corporate Services business, said: “The sale-and-leaseback market has continued to prosper despite investor caution because these transactions create long and well-secured income streams for the purchaser and often involve prime assets – precisely the kind of opportunities investors are looking for at the moment. What we have also noticed is that these transactions are expanding across more countries and business sectors. We were working on around €1.5bn of deals in this area in mid-2008, and this has climbed to around €3bn this year. Corporate sale-and-leasebacks represent a competitive alternative for securing capital in an age when cash flow is all-important and the stigma of ‘selling off the family silver’ is a fast-retreating myth.”

In the first half of 2009, which was a particularly quiet period for investment turnover, €4.1bn in occupier disposals accounted for 17% of the European real estate investment market.

Wilson continued: “One of the key drivers of this market today is the present economic climate. For corporates to expand their business, to create a ‘war chest’ for acquisitions, or even to fund the core business operations through a difficult period, sale-and-leasebacks have become a popular way to achieve this. The reality is that more and more organisations are looking at sale and leaseback as a means to raise capital in a world where finance has become hard to come by.”

RICS reveals an increase in distressed properties

The Global Distressed Property Monitor in November 2009 from the Royal Institute of Chartered Surveyors (RICS) has revealed that in Q3 2009 there has been an increase in distressed properties coming to the market in all but four of the 25 countries it covers, however there were some signs of improvement on Q2.

South Africa, the US and Portugal had the biggest volumes of distressed commercial listings, whilst China, Hong Kong and Brazil all saw a decline in the number of properties coming to market.

The report stated that real estate professionals continued to expect a rise in distressed properties coming on to the market into Q4 2009 across 19 of the 25 countries surveyed, with Russia, the US, Spain and Ireland expected to see the biggest rises. Agents in Brazil, Hong Kong and

India meanwhile are more optimistic and expect fewer distressed assets to be listed in Q4.

The situation in the United Arab Emirates (UAE) and South Africa appears to be improving somewhat with a stabilisation expected in properties hitting the market in Q4, after a sharp pick up in the previous quarter. Similarly, little change in distressed listings is expected in Japan, Australia and Czech Republic according to the report.

Cash buyers banned from purchasing property in Bulgaria

From January 2010, all property transaction payments in Bulgaria will have to be conducted through a bank.

This is due to an amendment to the country’s Notary Act put forward by the Justice Ministry, which is set to be approved by Parliament, with the aim of preventing money laundering and property fraud.

It will mean the creation of a State Depositary Bank which would serve as a guarantee for all payments, with the buyer and seller experiencing a waiting period, whilst the money is kept at the deposit bank until the deal is approved.

The Justice Minister Margarita Popova and Finance Minister Simeon Dyankov stated that they were confident that the bill will be approved by the end of the year.

Dubai’s property prices to drop by a further -30%

Dubai’s property market could take up to ten years to recover according to investment bank UBS, with property prices also likely to drop by up to -30% despite already falling by -50% since their peak in 2008.

Saud Masud, analyst, said: ‘We expect it will take at least a decade for property prices to return to previous peak levels, and see only modest growth in real estate asset prices subsequent to a market trough in 2011.’

According to the report, the Emirate’s population will have decreased by -8% by the end of 2009 and a further -2% in 2010. Almost 50% of the Emirates workforce is employed in real estate and construction, however 70% of the projects are either cancelled or delayed, but despite this there will still be an excess of 30,000 to 40,000 residential housing units coming available by May 2011 in the best case scenario and 90,000 in the worst case.

Masud said: ‘This will be a complex issue as the Emirate redefines itself over the coming years and finds new growth levers outside the property sector, through commerce, education, banking, tourism and healthcare,’

Assuming gross domestic product ( GDP) growth slows to 6% per year from 2011 to 2021, with house prices still growing at the same pace relative to GDP, the report stated that there would be an annual growth of +9% in real estate prices.

South Africa’s property market to bounce back in 2010

Since the start of the third quarter of 2009, there have been strong signs of increased sales activity in both the commercial and residential South African property markets, according to auction housethe Alliance Group, but the sales market is still far quieter than a year ago.

Banks have restricted the market by having much tighter lending criteria, making it harder to obtain finance, as well as increased concerns regarding tenants, the report stated.

It stated that the seasonally adjusted real gross domestic product (GDP) showed an annualised rate of 0.9% growth compared to decreases of -7.4% and -2.8% in the first and second quarters of 2009.

Rael Levitt, Alliance Group’s chief executive, said: "News that South Africa's economy has moved out of recession and has recorded positive growth for the third quarter of 2009, has been experienced firsthand by us and there has been a sharp downturn in distressed residential sales since June."

Levitt believes that the property market will slowly claw its way back to good health. He said: “As the host nation of the FIFA Soccer World Cup, we are already experiencing a bounce in optimism and thus property values.”

The report also showed that there has been a bottoming out of sales confirmation rates over the last eight months, with a marginal decrease in the reserve sale price variance. "Both these indicators suggest an improvement compared to early 2009," said Levitt. Overall, while there appears to be increased activity in the market, commercial property sales at auctions performed well below August 2008 figures just before the international credit crisis began.

Previously, Levitt was a self-confessed bear regarding commercial and residential property market at the end of 2008. He said: "I have changed my mind. I have moved from deeply bearish to optimistic. At the very least there will be a short-term squeeze on capital values, but South Africa will see a big bounce in 2010."

US residential property sales up +10.1%

Figures from the National Association of Realtors (NAR) revealed that homes sales in the US went up by +10.1% in October 2009 aided by the extension to the first time buyer tax credit, whilst total housing inventory fell by -3.7%.

Lawrence Yun, NAR chef economist, said: ‘The supply of homes on the market is now at the lowest level in over two and a half years. We’re getting closer to a general balance between buyers and sellers.

‘Many buyers have been rushing to beat the deadline for the first time buyer tax credit that was scheduled to expire at the end of this month,’

In comparison to October 2008, existing home sales were +23.5% higher and with the tax credit extended until 30 th April 2010, potential buyers have more time to take advantage and purchase a new home. Overall sales activity is at the highest pace since February 2000, according to NAR.

Yun said: ‘There is still a large pent-up demand that can be tapped before the tax credit expires. Our recent consumer survey shows that 13% of successful first time buyers had a previous contract that was cancelled or fell through. So there are likely to be many more buyers who were attempting to purchase but simply ran out of time.’

He has predicted similarly robust sales for November followed by a measurable decline in December and early next year before another surge in spring and early summer

In addition, distressed properties are continuing to distort the average property price down because they generally sell at a discount relative to traditional homes in the same area, they accounted for 30% of the sales in October.