Europe’s residential housing market sees a recovery

Brussels office market rebounds in Q4 2009 by +250%

New mortgage approvals in Spain fell -22% in 2009

Qatari house prices to fall in 2010

Distressed properties increase in Japan and the US

Egypt’s property developers change their focus

Europe’s residential housing market sees a recovery

There are signs of a recovery in some of the residential housing markets across Europe, particularly in sales and prices, according to the Royal Institute of Chartered Surveyors (RICS).

Five countries saw house prices rise in 2009 with Norway leading the way with average price increases of +12%. Finland followed with an +8% rise and then Sweden which saw a +7% increase, whilst Austria and Switzerland only saw modest rises although they have yet to experience a price downturn.

Professor Michael Ball of RICS, said: "The shallowness of the downturn in core European housing markets has surprised many commentators. But Europe is not the USA, and the problems and policy responses have been different. Mortgage defaults have only risen modestly. Low interest rates and central bank support for mortgage markets have played key roles in bringing recovery.

“However, huge problems unfortunately remain. Housing markets around the fringe of Europe are still dragging down economies in a vicious circle and all European housing markets continue to face credit constraints and great uncertainty.”

Germany , Italy, the Netherlands and France saw relatively moderate falls between -4-6% and though the markets are still fragile, they are starting to stabilise and to see some price growth as low interest rates and reviving economies across much of Europe has helped prevent housing market meltdown.

However, there are some countries which have vulnerable economies and as such will continue to experience depressed markets and falling prices. The worst performing markets of 2009 were Ireland, Spain, Greece and most of the CEE countries, with the Baltic States especially suffering, seeing prices decline between -27-53% in 2009. Geographically, together they form an unlucky horseshoe around the edges of Europe, according to RICS.

Simon Rubinsohn, RICS’ chief economist, said: “A combination of extraordinarily low interest rates and a raft of government measures have helped to put a floor under residential property markets in most European countries.

“A firmer tone to the macro news flow is also providing a layer of support with clear evidence that an economic recovery is now under way. Indeed, in a number of cases the boost to liquidity has pushed prices back in the direction of previous highs. However, other housing markets are continuing to labour. In particular, the overhang of supply remains a drag in Spain and Ireland. “

The majority of European house-building industries, with the exception of Germany and Switzerland, are still suffering from the impact of the global financial backlash and housing supply will not recover for some time.

Brussels office market rebounds in Q4 2009 by +250%

The office lettings market in Brussels increased by over +250% in Q4 2009 compared to Q3 2009 and by +150% on the same quarter in 2008, making it way above the European average and the highest increase since Q4 2005, according to Capital Economics.

The company believes that there are two main reasons for the increase in office take-up, employment has only fallen -1% since its peak in Q4 2008, one of the lowest in the Euro-zone where overall it has fallen -2.3% and in the service sector, sentiment noticeably improved in Q4 2009 and may have acted as a catalyst for occupier property decisions, with several large deals completed in the quarter.

James Purvis, property economist at Capital Economics, said: ‘The upshot is that while office occupier demand in Brussels may now be recovering, high volumes of speculative completions may well push the vacancy rate a little higher this year. Indeed, while we are cautiously optimistic that Q4’s take-up figures might be the start of an improving trend, any rise in take-up may not be strong enough to stabilise office rental values in Belgium this year.’

However despite the increases in occupier demand, there is still a significant excess of supply in the market, with vacancy rates increasing from 10.9% in Q3 to 11.1% in Q4 2009.

New mortgage approvals in Spain fell -22% in 2009

The number of new mortgages in Spain fell -22% in 2009 to 653,173 loans, according to the National Institute of Statistics (INE), after a fall of -32% in 2008.

The total value was also down by -34% in 2009 to €76.8bn having dropped by -37% in 2008 according to the institute. Last year was the third year in a row that new mortgage lending and their total value fell and are the lowest figures since 2003 when the INE started publishing data.

Peak to trough, new mortgage lending is down -51% by volume and -59% by value, compared to 2006 when the market was at its peak. That is a massive decline in the amount of money which is being used to potentially purchase property.

The average value of a new mortgage in 2009 was €117,688, down -16% on 2008 which indicates that borrowers are taking out smaller mortgages because Spanish property prices are falling, so borrowers don’t need such big mortgages as previously.

Qatari house prices to fall in 2010

House prices in Qatar are expected to fall a further -10-15% in the next 12 months, having already dropped -30% since the start of the economic crisis, according to analysts at The First Investor bank.

Prices are expected however to bounce back in 2011 as the Qatari Government exerts its control of new building projects. In addition, commercial property prices in Qatar were down -20-30% in 2009, according to DTZ, but should begin to stabilise between Q2 and Q3 of 2010.

UAE contractors are already heading to Qatar to take advantage of the lucrative construction market, for all types of property, which has risen by +7% to around $5.6bn in 2010, the investment bank said. Of the 500 development projects which were put on hold or cancelled all across the UAE during the downturn, only seven of them were in Qatar, research firm Proleads indicated.

Qatar's economy is expected to increase by +16.1% in 2010, mainly due to massive expansion at its natural gas facilities, this compares to a +2.5% projection across the UAE. A recent Reuters’ poll believes this should spur an increase in demand across the Gulf state, in sharp contrast to Dubai where a shaky jobs market has forced expats to flee, as well as preventing an immediate turnaround in property prices. Dubai property prices are now expected to increase in 2012, according to Reuters.

Distressed properties increase in Japan and the US

The US and Japan are predicted to see the largest rise during Q1 2010 of distressed properties coming on to the market, according to a survey by the Royal Institute of Chartered Surveyors (RICS).

Of the 25 countries in the survey, 18 saw increases in Q4 2009 in the number of distressed properties coming onto the market compared to the previous quarter, with the US, Japan, China, Germany and the UAE expected to see the fastest growth, whilst Brazil, India, Hong Kong and Australia will see less distressed property.

Oliver Gilmartin, RICS’ senior economist, said: "It is the major real estate markets of the world, namely the US and Japan, where agents expect the strongest growth in distressed sales in the first quarter of 2010. Significantly, whilst the US is seeing ongoing rises in interest from specialist funds, Japan is not the recipient of the same level of investor appetite for distressed property assets.

Egyptian real estate developers are focusing on mid-priced residential property developments due to a fall in demand for luxury properties, according to a report by Markaz.

The current shortfall in mid-priced residential properties will most likely continue until 2012 and subsequently prices could be pushed upwards. However, once the country’s economy improves it is expected that developers will resume high-end projects, most likely within the next two years, but not to the same extent as previously.

The report stated: ‘Major developers have recalibrated their focus to mid-end segments which remain undersupplied, backed by concerns of oversupply in high/luxury segments. We expect the shortfall in mid-income housing to remain undersupplied during 2010-12, however, we expect developers to focus back on the high-end luxury segments when the economy strengthens from 2012.’