Higher impairment charges on commercial property loans

Studio's and small apartments account for a third of Bulgarian sales

HK’s office rental market will remain bullish

Large supply/demand gap in Australia

Higher impairment charges on commercial property loans

According to Standard and Poor’s (S&P), UK, Irish and Spanish banks will likely continue reporting higher impairment charges on commercial property loans in 2011 even as signs of a property market recovery in the UK grow.

Commercial property loans in these countries could see impairment charges of €92bn in total for 2009-11 with most of the losses from domestic lenders, according to S&P. In addition, some German lenders also remain vulnerable due to their large commercial property loan exposure built before the market’s peak in mid-2007 although this will be less significant than the other three countries.

S&P believes that banks overall leaned towards forebearance – a temporary postponement of repayments – even in the development sector where losses are expected to be much steeper.

The report said: ‘Notably in Spain, we have observed a trend among the banks to proactively acquire troubled residential property portfolios, either to accelerate what may otherwise be a long foreclosure process or to improve security for troubled unsecured exposures.

‘However, we also note that such practices could simply delay loss recognition, as well as the risk that rising interest rates toward late 2010 or 2011 could make such a stance increasingly uneconomic.’

Studio's and small apartments account for a third of Bulgarian sales

According to Address real estate agency, studios and small apartments in Bulgaria are increasingly popular, accounting for some 34% of sales.

With limited supply and high demand, newly built small flats at low prices are showing strong sales. Address believes that the supply of these types of properties is decreasing and new construction is on hold, adding ‘this will likely create a tendency whereby in the next few months, the demand is likely to surpass initial forecasts’. 

Address also highlights the negotiating power of buyers, saying that in 87% of transactions, the buyer sought to reduce the sale price. Average discounts worked at around €3,000 or 5% of the property price. The agency believes that a rise in real estate values is unlikely until the third or fourth quarter this year, due to the global economic situation.

HK’s office rental market will remain bullish

The Hong Kong office rental market will remain bullish for the short-term, according to the Royal Institute of Chartered Surveyors’ (RICS) chairman David Faulkner.

Faulkner said: “The availability of commercial space for sale remains low, with wide differences in price expectations between buyers and sellers. Consequently, transaction volume is low, but when transactions take place, we are seeing an upward trend in prices.”

He predicted rentals for the second quarter will increase by almost +60% and capital value expectations are also expected to increase by approximately +80%.

Faulkner also warned of a growing rift between buyers and sellers as the latter are not under pressure to sell and can sit comfortably on their assets until they get the price they are looking for. He said: “The big problem is expectations between vendors and customers are limiting transaction activity.”

On the residential side, the value of home sales hit a nine-month high with Land Registry figures showing HK$53.3bn worth of residential units sold in April. That’s an increase of 69% from the year before.

According to the National Housing Supply Council (NHSC), Australia needs to grow its current rate of house-building by more than +30% over the next 20 years just to keep pace with demand.

The supply/demand gap has increased to 178,400 homes in the year to June 2009 which has increased from 2008’s shortfall of 99,500. The state of Victoria has a housing shortfall of 22,000 while the biggest shortages, of about 60,000, were in New South Wales and Queensland. By 2029, Australia’s shortfall is expected to be 640,000 homes.

According to the NHSC, low-income earners have been hardest hit by the housing shortfall with more than 160,000 households paying more than half their income on housing repayments and 170,000 paying more than half their income on rent.

In addition, the report said that long delays in building new homes in growth areas with greenfield developments taking up to 15 years to complete. The report also said that one in ten Australian homes are unoccupied and that a quarter of these are holiday homes.