Ireland’s economy exits the recession

Spanish property still over-valued by 27%

European banks exposure to commercial property will be a concern

U.S. construction starts decrease by -9% in November

Dubai’s economy to increase in 2010

Reserve Bank of Australia announce that interest rates back to normal

Ireland’s economy exits the recession

According to a report by Capital Economics, the Irish commercial property sector will not see positive rental value growth until 2012, at the earliest, despite Ireland’s economy exiting the recession with economic growth of +0.3% in Q3 2009.

Capital Economics believes that rental values will remain under pressure in the near-time. They have already fallen by -17.5% in the retail and industrial sectors and almost -40% in the office sector. These falls are significantly higher than the rest of the Euro-zone and Capital Economics believe that approximately 70% of the overall correction has now happened.

Occupier demand for office space has fallen dramatically, and according to CBRE in the Q1-Q3 period of 2009 office take up in Dublin was almost 60% down on the same period in 2008, with the vacancy rate effectively doubling from 11.7% to 22%.

Although gross domestic product (GDP) returned to positive growth in Q3, Capital Economics does not think the foundations are in place for a sustained economic recovery. Moreover, the depth of the slump already means it will take several years to work off the excess capacity of the economy and property markets. Although the pace of further rental falls may now slow, Capital Economics believes it could be two to three years before Irish commercial property rental value growth turns positive.

Spanish property still over-valued by 27%

Despite the property market crash in Spain, residential property is still over-valued by 27% according to a report by Aguirre Newman.

The report said that the major problem is the huge number of unsold homes, with an estimated 1.5 million homes on the market, with resale properties, new-builds and those close to completion making up the stock. According to BBVA, Spain’s second largest bank, Spanish property prices were 30% over-valued, but have only fallen -10% so far, therefore they have to fall another -20% before the correction is over. The bank believes this will take another two to three years as prices have fallen by -7% this year, will decrease by -8% in 2010 and -5% the year after that, therefore prices won’t stabilise until 2012.

Aguirre Newman predicted that the biggest price falls will be in the locations that were most developed due to the high amount of supply, so areas around Madrid and Mediterranean provinces like Malaga (Costa del Sol), Castellon (Costa Azahar), and Tarragona (Costa Dorada) will suffer. In contrast, prices will fall the least in Orense ( Galicia), Navarra, and The Balearics.

Also a new report from BNP Paribas Real Estate has stated that banks in Spain are now Spain’s biggest property companies, having repossessed property as loans went bad. It states that they will have to offer discounts of 50% in 2010 in order to shift some of their property stock.

European banks exposure to commercial property will be a concern

European banks' exposure to commercial property will become an issue in 2010 and develop into an acute concern in 2011-12 when a large number of loans mature, according to Fitch.

In the report it stated that the risk is particularly intense in countries such as Britain, Ireland and Spain where banks have high exposure relative to tier-one capital and whose domestic property markets have seen a big fall in values.

Gordon Scott, managing director of Fitch's Financial Institutions team, said: "Many banks have not yet reported substantial losses on their CRE portfolios, despite significant declines in asset values in certain markets and segments.

"With a large proportion of loans in negative equity, Fitch expects pressure on borrower cash-flows and increasing loan covenant breaches to result in further losses."

With banks unlikely to report loans as non-performing whilst they are still being serviced, loan losses are unlikely to peak until into 2010 because corporate defaults typically peak two quarters after economic contraction ends the report said.

U.S. construction starts decrease by -9% in November

A report by McGraw-Hill Construction has revealed that new U.S. construction starts in November decreased -9% from October 2009, with total construction down -28% on 2008.

Residential building was essentially unchanged in November from October as single-family housing edged up +1%, but remained below the monthly average for 2008 by -11%, with multi-family housing however dropping -6%.

However, residential building is down -34% overall from the same period in 2008, with single-family housing down -26% and multi-family housing down -58%.

Robert Murray, vice president of economic affairs for McGraw-Hill Construction, said: ‘Single-family housing is no longer exerting a downward pull and the federal stimulus has to this point supported greater construction of highways, bridges and other public projects.

'At the same time, the negatives of weak employment, tight bank lending, and diminished state fiscal health continue to depress most of the non-residential building structure types as well as multifamily housing.'

Non-residential building fell -18% in November from October, with construction of stores falling -17%, warehouses were down -22% and hotel construction decreased by -34%.

Dubai’s economy to increase in 2010

A senior Government official, Sami al-Qamzi, the head of the economic development department, has revealed that Dubai’s economy is expected to grow by +2-3% in 2010 having contracted by -2% in 2009 as the real estate and construction sectors slowed.

Al-Qamzi reportedly told state television that the economy shrank -1.47% in the first half of 2009. However, the slowdown will be partly offset by a +9.1% growth in the financial sector and a +5.9% expansion in the consumer goods industry.

Dubai 's property boom was brought to a grinding halt after the global financial crisis hit the market of the emirate's major developments that include man-made islands. Developers in the emirate delayed or cancelled developments worth tens of billions of dollars, a move that weighed on the construction and mortgage sectors.

Qamzi also stated that Dubai’s economy could even grow by as much as +5% in 2011.

Reserve Bank of Australia announce that interest rates back to normal

The Reserve Bank of Australia (RBA) has announced that interest rates were back to normal stunning financial markets and prompting investors to radically scale back expectations for rate increases in 2010.

The RBA lifted its cash rate by 0.75% in three months and investors had assumed it would keep going to reach 5% by the end of 2010. Ric Battellino, RBA’s deputy governor, said its current cash rate of 3.75% was equivalent to at least 4.75% because local lenders had been raising their rates on loans more aggressively than the central bank.

In addition, Government data showed Australia's economy grew by only a disappointing +0.2% in Q3 2009 and gross domestic product (GDP) totalled A$220.9bn in the quarter, up +0.5% on the same quarter of 2008.