A sustained economic recovery within the CEE is still some way off

The commercial investment market in Denmark has not recovered yet

New trust law becomes active in France

China overtakes US as the world’s largest property investment market

Dubai investors concerned over security

Australia raises interest rates for the fourth time in six months

A sustained economic recovery within the CEE is still some way off

A sustained economic recovery across central and eastern Europe (CEE) is unlikely to be anytime soon, but once it is initiated it will have positive implications on the investment market activity, according to Aberdeen Property Investors.

Although modest growth has returned to emerging Europe, gross domestic product (GDP) is unlikely to exceed 2% in 2010 and will see moderate growth in 2011 of 3.5%, significantly down on the 6% growth rate between 2003 and 2008.

Inflation is not expected to be an issue in the region with only modest interest rate rises expected in Poland and the Czech Republic near the end of 2010, whilst they are expected to fall a bit further in Russia and Hungary.

Dr Thomas Beyerle, head of global research at Aberdeen Property Investors, said: ‘ As stability returns, the continued lack of demand and new vacant space will see prime rental values fall by an average of approximately -6% in both the office and retail property sectors during 2010. In 2011, the turning point in the present rental cycle is anticipated to be reached, with 2012 likely to see a return to positive rental growth in all sectors.’

Office vacancy rates in the region are heading towards peak levels, with St.Petersburg in Russia particularly badly hit as a quarter of office space is lying empty. However Zagreb is bucking this trend with demand stable and achieving an increase of +2% in 2009.

Moscow has seen a -47% fall in prime rents with Budapest and Warsaw seeing an average decrease of -20% in prime locations. Bucharest, Prague and Zagreb meanwhile have only had rental falls of -6-8% as occupier demand remained constant throughout 2009. Secondary locations proved more stable than prime in both the key Russian markets.

The report stated: ‘The current high yields available in the property sector are now an attractive feature for investors. Relative to Government bond yields, property offers a higher income return, further increasing property’s attraction. Poland especially should profit from its unique position as one of the few crisis resistant countries within Europe, having not entered into a technical recession.

‘One of the stumbling blocks for the property market remains the banking sector, as the majority of active credit institutions and affiliates are western European banks which are currently reassessing their exposure to property.’

The commercial investment market in Denmark has not recovered yet

Investment turnover in the Danish commercial property market increased by a whopping +880% in Q4 2009, although this was from a low base it did push the level of investment back to early 2008 figures, which resulted in a rise across the whole Scandinavian region of +200%, according to Capital Economics.

Despite the rebound appearing impressive, distressed sales formed a large chunk of the investment volume and although the Central Bank’s figures has suggested that the credit conditions have eased slightly in Q4, the total bank lending was -15% lower than the peak levels of 2008 and furthermore the banks are expected to tighten up lending in Q1 2010.

The report stated: ‘What’s more, the occupier market outlook is far from rosy. Indeed, the -7% fall in Danish gross domestic product during the recession will impact occupier demand for some time. Employment has already fallen by more than -5% since Q3 2008 and, worryingly, the pace of job cuts increased sharply in Q4 2009.’

The Danish economy grew by +0.2% in Q4 after the +0.3% rise in Q3 2009 and whilst not impressive is inline with the Euro-zone average.

New trust law becomes active in France

A new trust law has been brought into effect in France which will enable trustees based in Anglo-Saxon jurisdictions to invest on behalf of beneficiaries, without having to resort to more complicated structures to get around the lack of a concept of trusts in France according to Sykes Anderson LLP.

David Anderson, solicitor and chartered tax adviser at Sykes Anderson LLP, said: ‘The change is likely to see more trust based purchases of French real estate including purchases by pension funds such as SIPPs and offshore trustees. This will be driven by increased client demand. There is likely to be an increase in prices of properties which are attractive investments for trustees. SIPP trustees will find it much easier to purchase commercial property in France including hotel accommodation sold as “leasebacks”.

‘Offshore trustees in Jersey, Guernsey, Man, BVI and Cayman will also be more active in France as the Tax Agreements these countries have signed with France are due to become effective shortly and it is most unlikely the 3% annual tax France has levied on them as tax havens will have to be paid on 1st January 2011.’

China overtakes US as the world’s largest property investment market

The US was overtaken in 2009 as the world’s largest property investment market by China and it is expected to maintain that status during 2010 due to economic growth and a lower reliance on debt, according to Cushman and Wakefield.

Real estate investment in China more than doubled to $156.2bn in 2009, while the total for the US slumped by -64% to $38.3bn. Excluding residential investments, the US came third after China and the UK.

The Chinese economy grew at an annual rate of +10.7% in Q4 2009 and was boosted by Premier Wen Jiabao’s $586bn stimulus package, whilst the US property market is being damaged by the high levels of unpaid debt and a reluctance among banks to lend as they clean up their balance sheets, the report points out.

The report also highlighted that in 2009, of the world’s 20 largest property markets, eight were located in the Asia Pacific region, with Hong Kong, Taiwan and New Zealand registering gains in investment.

China has taken steps to slow down the real estate market as price increases accelerate, with the Government re-imposing a sales tax in January 2010 on homes sold within five years of their purchase.

Dubai investors concerned over security

Real estate buyers in Dubai are seeking legal advice prior to investing in property in the country due to increased concerns over security, according to Harbor Real Estate.

A more cautious approach has been adopted in Dubai after the global crisis resulted in investors’ properties losing up to -50% of their value and an increase in the number of legal disputes.

Mohanad Alwadiya, managing director of Harbor Real Estate, said: ‘Clients have serious concerns over the security of their real estate investments. Further, increase in number of real estate disputes is a result of many prospective buyers seeking legal advice prior to making a transaction. This was not the case in previous years which also contributed greatly to the problems that clients were facing as proper due diligence was not conducted prior to the sale and purchase of property.’

The Real Estate Regulatory Agency (RERA) recently proposed a free legal advice service for buyers and sellers, which is expected to boost confidence levels in the real estate industry.

In other areas of the Gulf region new rules are being considered to make the real estate industry more transparent and secure as in Qatar a new law is currently being drawn up to regulate real estate agencies and property developers. Any individuals freelancing as property brokers and companies who are not licensed to engage in real estate transactions will be subject to the new legislation.
 
The aim is to set up an association of real estate agents which would additionally help to regulate the property market and rid it of illegal and dodgy operators, whilst also helping with valuations.
 
Officials said the new rules are needed and confirmed that there has been an increasing number of cases of fraud committed by firms doubling as property brokers.

The Reserve Bank of Australia (RBA) has again raised Australia’s interest rates to 4% which is the fourth time since October 2009, as the country continues to show strong signs of economic recovery.

Gross domestic product (GDP) has grown to 3.25% from 2% in 2009, whilst the country’s unemployment rate is at an 11-month low of 5.3%. Australia's unemployment rate did not go above 6% during the global recession.

In addition, house prices increased by +11.8% in the 12 months to January 2010, according to RP Data-Rismark.

Analysts predict that the RBA will increase rates again by at least another 0.5% before the end of 2010, and will most likely time the increases well as it continues to monitor the economy in both Australia and around the globe.