Banks relax lending terms for prime European commercial property

Divided opinion over Bulgaria’s residential property prices

Investor outlook is more positive in Prague’s commercial market

Johannesburg sees best returns in South Africa

Bahrain’s residential property market comes to a standstill

Slower repossession rate in the US

Banks relax lending terms for prime European commercial property

According to CB Richard Ellis (CBRE), lending terms for prime European real estate improved towards the end of 2009 due to a rebound in commercial property prices and a positive shift in sector sentiment.

CBRE believes that banks appeared more willing to lend more money on prime commercial property at a greater loan-to-value (LTV) level at the end of December 2009, as margins had compressed.

Natale Giostra, head of UK and EMEA debt advisory at CBRE Real Estate Finance, said: "Key lending terms for prime real estate stock and credible tenants have improved significantly over the last couple of months.

"What is particularly worth noting is that this trend is not confined to the UK. We see a theme of consistency running throughout Europe."

Banks in the UK were willing to lend up to £75m on a single prime asset, with a maximum LTV of 70% and a margin of 1.85% above Libor, whilst French banks would lend up to €75m with a maximum LTV of 60%, at a margin of 1.8% over Euribor, the data showed.

Banks in Germany, Italy, the Netherlands and Spain were prepared to lend between €40-50m, with maximum LTVs of 60-70%. Germany and the Netherlands also had the lowest margins, at 1.4% and 1.5%, respectively, above Euribor, followed by Italy and Spain at 2% and 2.5% respectively.

Divided opinion over Bulgaria’s residential property prices

The average prices of Bulgarian residential property has been predicted to hit rock-bottom in the first quarter of 2010 before levelling off and then picking up by the end of the year with prices likely to increase by +10%, according to Tihomir Tsakov of Aristo.

He has stated that if the economy doesn’t see any unexpected events the market will bottom out and then be spurred on by a slight drop in borrowing.

However, other major real estate agencies such as Colliers, Address and Foros disagreed, stating that prices will continue to fall during the first six months of 2010 by a predicted -10%, before levelling off in the second half of the year.

Tsvetelina Taseva, executive director of Address, believes that the market is reliant on which route the banks take e.g. if they choose to sell off foreclosed properties quickly as bad loans proliferate, property prices will come down. However, if they decide to hold on to them, the supply of good property will be reduced significantly.

According to the National Statistical Institute (NSI), average home prices slid to €548sqm for the first time since 2000.

Investor outlook is more positive in Prague’s commercial market

The commercial investment market in Prague saw increased activity during Q4 2009 as the total volume of investment was more than double that of Q1-3 2009 combined, at over €385m, according to Jones Lang LaSalle’s Prague City report.

The demand came from both domestic and international buyers with activity from the domestic market focusing on smaller scale investments whilst the larger deals were concluded by larger investment funds.

George Lewis, head of capital markets at Jones Lang LaSalle, said: “Already in 2010 investor outlook is more positive with a general enthusiasm for deals to happen during the course of the year. Investor groups remain highly selective and are focused on prime product. The biggest challenge facing investors is the availability of the right product at a pricing level, which makes sense for both the buyer and the seller. While bank finance remains limited, we do not anticipate any significant activity for secondary product.”

The first smaller scale distressed sales appeared on the market in the quarter with the majority being sold at auctions. The report predicted that throughout 2010 this type of investment will continue appearing on the market.

Johannesburg sees best returns in South Africa

Property owners in Greater Johannesburg have seen the highest returns in South Africa at +8.9% year-on-year to Q4 2009 and was up +2.9% on the previous quarter, whilst owners in the KwaZulu-Natal South Coast region saw property values fall by -20.8%, according to a report by Absa.

Johannesburg was also the best performer of the country’s metropolitan areas, with Durban/Pinetown in KwaZulu-Natal a close second at +7.7% whilst East London in Eastern Cape saw a decrease of -2.6%.

Jacques du Toit, senior property analyst at Absa Home Loans, said: ‘The steady recovery evident in the residential property market since late 2009 is expected to gather further momentum in 2010 as a result of better economic conditions, the lagged effect of lower interest rates and less tight credit conditions. Nominal house price growth of around +6% is currently forecast for 2010, but with a projected average consumer price inflation rate of also +6%, no real price growth is expected this year.’

Coastal property owners across the country appear to have been hit the hardest by the recession, as o verall house prices only increased by a nominal +0.8% year on year, whilst Western Cape's West Coast saw house prices decrease by -12.7%, however they did go up by +5.4% on Q3 2009 across all coastal regions.

Bahrain’s residential property market comes to a standstill

Sales of residential property in Bahrain have all but come to a standstill, with the real estate sector facing significant challenges in the next two years according to CB Richard Ellis (CBRE).

Property sales in 2009 were greatly affected by the prohibitive cost of mortgages, however it could get worse as low transaction activity and unsuitable products in the development pipeline could cause real issues in the Gulf state in 2010.

Although very few residential projects have actually been cancelled, many have been put on hold or delayed indefinitely until new construction contracts have been negotiated according to the report.

The report stated: ‘Many projects will be held back because economic circumstances have altered so significantly since the original land purchases were made that they simply do not stack up any more, especially at the often excessive prices paid for the land.’

However, despite rental rates for residential properties holding up reasonably well, lease rates for quality apartments in prime areas such as the Seef District and Juffair have fallen by -10% since Q4 2008 compared to over 50% in some parts of Dubai.

The report said: ‘During 2009, there has been a slight downward trend in achieved rents and we would expect this to continue in the short term as new supply enters the market.’

However, according to the report, investors who had been key to virtually all the residential development markets in the region have mostly withdrawn as they re-evaluate their positions or seek to establish what the true value of property is in current market conditions.

The report said: ‘Until we see a positive rebound in terms of transactions and prices, the investor/speculators are likely to hold their fire with the result that off-plan apartment sales in particular are likely to be subdued for at least the next year.’

Real estate foreclosures in the US decreased by -10% in January 2010, according to the latest data from RealtyTrac, although the rate at which properties are being repossessed have slowed having hit a record high in 2009.

However, despite the improvement in January, figures are still +15% higher than in January 2008.

James Saccacio, chief executive, RealtyTrac, said: ‘January foreclosure numbers are exhibiting a pattern very similar to a year ago - a double digit percentage jump in December foreclosure activity followed by a -10% drop in January.

‘If history repeats itself we will see a surge in the numbers over the next few months as lenders foreclose on delinquent loans where neither the existing loan modification programmes or the new short sale and deed-in-lieu of foreclosure alternatives works.’

Foreclosure rates in Nevada continued to be the worst as one in every 95 homes were filed in January 2010, which is more than four times the national average. Arizona moved up to second with a +4% increase in foreclosure activity, with one in every 129 homes affected.
 
Elsewhere, California saw foreclosures fall by over -10% as one in every 187 homes received a filing in January, however it is still the third highest rate in the country. Florida wasn’t far behind as one in every 187 homes received a filing, a -15% decrease from the December 2009.
 
Phoenix was the only one of the top ten metropolitan areas hardest hit by the foreclosure crisis to post a monthly increase, as one in every 102 homes received a filing in January, a +4% increase. Las Vegas had the highest metropolitan foreclosure rate with one in every 82 homes receiving a filing for the month, a -2% drop from December 2009 and a -21% fall compared to January 2009.

Overall default notices decreased -12% from December 2009 but were still +4% above January 2009. Scheduled foreclosure auctions also fell -11% from December and remained +15% higher than January 2009. Activity in real estate owned property sales fell -5% from December 2009 but grew +31% from January 2009.