With the recent furore surrounding the restructuring of Greek debt and fears that it will have a profound effect on economic recovery, how is the real estate market going to cope?
Historically, during times when the spread between European property yields and the "risk-free rate", or the yield on government bonds, is well above its long-term average, there has been real estate opportunity for investors
. However, a number of factors are currently present which could have a significant effect on the recovery.
Industry analysts are warning that concerns surrounding the Greek debt crisis and the euro are likely to have a negative impact on European property yields. The latest report from ING Real Estate Investment Management (REIM) Europe suggests this could limit the relatively positive outlook for prime real estate markets.
Specific concerns relate to the terms of the European Union bailout and whether or not the measures will be able to survive if the worst happens. Any default on the €750 billion procedure could have a severe and lasting effect on the financial positions of a number of EU countries and would seriously undermine the currently-fragile euro.
The prospect of a large volume of maturing debt in the next three years triggering distressed sales of properties
by banks will mainly be a challenge for secondary markets.
Eugene Philips, managing director of research and investment strategies at ING REIM Europe, said: "The coming quarters will show whether the rescue package is sufficient to have a lasting effect on confidence and if the countries under scrutiny will initiate the required fiscal discipline and reforms. If not, real estate markets in Europe might face renewed headwinds."
However, the investment expert did predict that real estate investment in major European markets still looked like a safe bet. The positive spread of yield over government bonds is leading to forecasts of economic growth in most countries by the ING economists.
"Modest economic recovery will support property occupier demand from 2011 onwards, which should underpin the momentum of the upturn that has been led, so far, by the real estate investment markets
," Mr Philips explained.
It is clear from the research that real estate investment opportunities in Europe
will be heavily reliant on the way in which the EU's bailout procedures work. Provided the measures stay firm, the markets should prosper.
- Tuesday 08 June 2010