Antalya tourism sector concerned over foreign property use

Representatives from the tourism sector in Antalya have raised concerns about houses sold to foreigners in the region being used for purposes other than intended, causing significant damage to hotel operations.

Kaan Kavaloğlu, a board member of the Turkish Tourism Promotion and Development Agency (TGA), highlighted that the recent surge in real estate property sales, particularly in the Alanya and Konyaaltı districts, has seen a total of 108,000 properties sold.

“It is, of course, a good thing for foreigners to come to Antalya and buy a house. This is a form of tourism that has examples in the world. But the 108,000 apartments sold were not sold to 108,000 different people. This is where the problem starts,” he pointed out.

Kavaloğlu further argued that among those purchases, some individuals bought as many as 80 houses and subsequently rented them out to their own compatriots.

As the head of the Mediterranean Touristic Hoteliers and Operators Association (AKTOB), Kavaloğlu emphasized that they have submitted a special report addressing this issue to the Culture and Tourism Ministry.

The primary buyers of houses in Antalya are Russians, Germans and Ukrainians, who have established a rental system among themselves, he said. However, this system currently lacks any form of oversight or control, leading to informal practices.

Kavaloğlu expressed optimism about addressing the problem through legislative measures, stating, “A suitable law text will be prepared together with stakeholder ministries until October.”

Similar issues have affected hoteliers in the United States and Spain, resulting in restrictions on real estate sales in certain regions, he added, sharing his view that such measures are also necessary for Antalya to safeguard the interests of the local tourism industry.

Meanwhile, Kavaloğlu highlighted that Antalya has experienced a significant influx of tourists, with over 11 million visitors arriving in the region. He expressed confidence in surpassing Türkiye’s annual tourism target of $56 billion in revenue and 60 million tourists, stating, “In order to reach these figures, Antalya should not stay below 15 million tourists. According to the latest data, we can achieve this.”

Source: hurriyetdailynews

Buyers sought for Signature Bank’s $33 billion commercial real-estate portfolio

The U.S. Federal Deposit Insurance Corporation (FDIC) is seeking buyers for the $33 billion commercial real estate (CRE) loan portfolio of failed New York lender Signature Bank, it said on Tuesday.

The majority of the portfolio comprises multi-family properties primarily located in New York City, the regulator said, adding that it would be marketing the asset over the next three months.

The FDIC has been seeking to sell off portions of Signature, one of three larger banks that failed in the spring, since the bank was closed in March after an exodus of depositors seeking higher returns and safer institutions.

Later that month New York Community Bancorp (NYCB.N) agreed to a deal with the FDIC to buy most deposits and certain loan portfolios along with all 40 of Signature’s former branches.

Within the CRE portfolio is about $15 billion of loans secured by residences that are rent stabilized or controlled.

While the commercial real estate industry has been under pressure amid rising rents and lingering office vacancies, Signature Bank’s portfolio is relatively attractive, said Matt Pestronk, president and co-founder of Post Brothers, a real estate developer based in Philadelphia.

“The FDIC sale is somewhat unique as it has a large concentration of rent stabilized properties as collateral for the loans,” he said. “Even in this environment there are buyers of rent-stabilized buildings and lenders who make loans on them, because if the underlying properties are valued at cap rates near today’s interest rates, they would be very safe investments to own as a loan or as real estate in the case the loans are not performing.”

Since the FDIC has a legal obligation to preserve existing affordable housing for lower-income people, the agency said it planned to place all those loans within joint ventures in which FDIC would retain a majority equity interest.

Any winning bidders for those ventures would be responsible for managing and servicing the loans but would have to meet certain requirements to preserve the loans and underlying collateral, the FDIC said.

New York City and State housing authorities, as well as community groups, are providing input to the FDIC as it begins marketing. The FDIC said it expects to complete any portfolio sales by the end of 2023.

source: reuters

Are commercial conversions to residential homes still occurring?

During the pandemic, the trend of converting unused commercial properties into residential homes really took off.

However, now that many businesses have instructed employees to return to the office, has this trend passed or is it here to stay? Brokers have discussed their experiences within the current market.

Not a fleeting phenomenon
Kundan Bhaduri (pictured left), property developer and portfolio landlord at The Kushman Group, said the trend of converting commercial properties into residential units is not a fleeting phenomenon.

“It is a fundamental shift in property development that is firmly rooted in economic and societal changes,” he said.

The convergence of factors such as changing work patterns, increased demand for affordable housing, and the surplus of underused commercial spaces, Bhaduri said, had created a perfect storm for this trend to thrive.

As remote work becomes more normal and traditional office spaces face reduced demand, he added that the appeal of residential units in well-located commercial structures continues to grow.

“Former pubs, high-street shops, office spaces, and even former bank buildings, all offer the potential for conversion into modern apartments,” Bhaduri said.

He added that the need for innovative solutions to address the current housing shortage makes these conversions a logical and sustainable choice for the future.

Austyn Johnson, founder at Mortgages For Actors, agreed with Bhaduri and added that commercial conversions to residential homes are still proving extremely popular.

“Developers are finding well priced properties in towns and cities that offer decent potential as multi-units or HMOs,” he said.

With many of these properties close to public transport links, Johnson said they are a good prospect for young professionals and people who work locally. In fact, Johnson said, since COVID, this type of deal has popped up more often, due to businesses being forced to sell up.

Reduced frequency
Alastair Hoyne (pictured right), chief executive at Finanze, said enquiries for commercial to residential finance applications are still coming through, albeit at a less frequent pace than they were a couple of years ago during the pandemic era.

“When the rules surrounding General Permitted Development Order (GPDO) were amended in 2021, there was a surge in enquiries over the following 12 months, as this gave developers more choice due to the increased availability of properties they were able to convert with minimum red tape surrounding planning permissions,” he said.

Most of the enquiries during this time, Hoyne said, were office to residential apartment schemes, which came with uncertainty surrounding people returning to work in town or city centres.

“Things have definitely slowed over the course of this year as more offices and businesses have re-opened their doors, but the market is still there and provides developers with an alternative option,” Hoyne said.

Omer Mehmet, managing director at Trinity Finance, said there are still a number of permitted development rights that developers can enjoy to convert commercial to residential property.

“The most frequent we see used is the class MA to convert from commercial use class E to residential; this most often presents itself as the conversion of the upper or rear parts of a shop into flats,” he said.

With the UK being so far behind its house building targets, he can only see it as natural progression that more residential homes are created in and among the high-street, albeit at a slower pace than in 2020.

“The pandemic accelerated the number of vacant commercial shops, and so increased the attractiveness of taking low value commercial buildings and converting them into higher value residential ones,” Mehmet said.

His view is that busy high-streets will remain buoyant but over time the empty and derelict ones will get fully converted to residential properties.

source: mpamagdotcom

A cooling off in Dubai property prices depends on what investors are looking at

Luxury home prices see some cooling off, but offices and mid-market properties push higher

According to latest data from Refinitiv, office prices in the US have fallen 16 per cent since their peak in March 2022.

Whilst the stress in the office space has been widely advertised – with predictions of further falls, as the investment required to renovate these assets is considerable – more surprising was that prices of multi-family apartment buildings are down 20 per cent from their peak a year ago. The broad explanation for this fall has been the rise in mortgage rates, but equal consideration has to be given to the extraordinary rise in the values of these assets in 2021-22 following the US’ Covid stimulus package.

As interest rates are likely to be higher for longer, there is a greater probability of further falls in asset prices. The average REIT prices in the US are trading at between 10-15 per cent discount to net asset values, reflecting such expectations. At the higher end of the property market, price drops have been even more dramatic on thin volumes in markets like Manhattan and San Francisco, with certain units trading up to 35 per cent below their last recorded transaction levels.

Watch the cashflow
In Dubai, the landscape could not be more different, with record transaction volumes continuing and moving in tandem with price rises, even as rents have started to normalize. Of course, it is natural to expect that for end-users with mortgages, there will be some softening of prices. At the developer level, for offplan launches, cashflow will continue to be the singular focus as collections will determine the delivery dates of such projects.

If past cycles market are any guide, then the actualization rates – the difference between expected and actual delivery of units launched – will be between 20-25 per cent. This may well be good news for those worried about an oversupply dynamic, but delays in a high interest rate scenario affect buyers who have taken mortgages on offplan purchases.

This indicates a change in sentiments, and certain recent developments in the real estate market do point to a further tightening of monetary conditions, as inflationary forces continue to linger for longer periods of time. Bid-ask spreads in the secondary residential markets have started to rise in certain segments, reflecting the need for higher yields demanded by investors against an inability to continue to raise rents.

Selective ‘mirroring’ of US market cycle
Does this mean that the fate of the markets will mirror to what is happening in the US?

The answer depends on the segment of the market being looked at. At the super-prime level, there is evidence of this being underway. In the mid-end residential as well as the office segment, the opposite is the case as supply shortages in the secondary markets continue to push prices higher.

In the final analysis, the issue will always be about liquidity conditions. Recent movements in the auction market indicate that there are parcels of land being made available as anticipated sales have not materialized. It is in the auction market that the bid-ask spreads can be accurately measured. And when transactions occur, an accurate picture starts to emerge.

This is as true for the land prices as well as it is for apartments and offices, and a recent increase in the volumes being transacted at the site indicates price moderation in an otherwise headline-dominated runaway market. Investors would be well advised to pay attention to these trends as they make their purchases, as these decisions affect their investment outlook.

What is evident is that while there is no decoupling from Western markets, there remains a correlation to price action activity in the West as well as higher interest rates. These factors suggest continued price moderation, especially in the primary market.

source: gulfnews

Slight cooling seen in property prices

Property investments from foreigners wishing to secure a Golden Visa have brought in at least €10 billion, professionals in the real estate sector say.

At the same time, they have skewed the market, as Greek property owners have inflated their asking prices in the hope of attracting this category of investor.

The recent doubling of the minimum investment required in the most popular investment destinations, such as the center of Athens, its northern and southern suburbs and some islands, from €250,000 to €500,000, is expected to curb some of the excesses, as many property owners find that pricing of €500,000 or above is not sustainable. Prices had spiked even in areas of Athens in which interest from foreign investors was close to zero. But even now, a perusal of the property listings shows that some owners have doubled their asking prices overnight. Authorities and experts believe this phenomenon will die down. Raising the minimum has been criticized by some prospective investors, mainly Chinese.

According to data from the Migration and Asylum Ministry, there were 4,150 applications for a Golden Visa in the first half of the year, representing property transactions in excess of €1 billion. In the whole of 2022, there were a total of 4,360 applications, in 2021 2,001, in 2020 1,590 and in 2019, before the pandemic, 4,071.

Real estate professionals believe that prospective investors will turn to areas where the minimum investment amount remains €250,000, as long as there is good added value through short-term, or, more likely, long-term leases. In the more expensive areas, professionals estimate that further purchases will be limited to new and high-quality construction.

source: ekathimerini

Mumbai Sees Property Registrations Cross 10,000 Mark For Third Straight Month

Mumbai city—which comprises an area under the BMC jurisdiction—crossed the 10,000 mark in housing sales registrations for the third month in a row in August. The Mumbai Metropolitan Region witnessed the registration of 10,550 properties, contributing to a revenue influx of Rs 790 crore for the state government, data assessed by Knight Frank India showed.

Stamp duty collections rose 23% year-on-year but witnessed a 5% decline as compared with July, the report issued on Aug. 31 said.

There was a 23% surge in registrations and revenue as compared with the previous year. Of the overall registered properties, residential units constituted 80%, while the remaining 20% included non-residential assets.

“August 2023 marked a significant milestone for the city, achieving its most successful August month in the past decade in terms of both registration numbers and revenue generated,” the report said. In recent years, there has been a consistent rise in the percentage of property registrations in the Rs 1 crore and above segment. It has surged from 48% in 2020 to around 57% in 2023, as per the data.

“… the share of registration of properties valued at Rs 1 crore and above continues to rise, led by a surge in property prices and an increasing preference among home buyers for more spacious accommodation. Overall, the housing market in the city continues to show a positive outlook,” said Shishir Baijal, chairman and managing director at Knight Frank India.

Escalation in property prices coupled with an increase in the interest rate during this time frame has reduced property registrations below the Rs 1 crore threshold, the report said.

The central and western suburbs have experienced an overall surge in launches in response to demand.

During the initial eight months of 2023, the city achieved a registration count of 83,263 units, resulting in a revenue accumulation of Rs 7,242 crore for the state treasury.

source: bqprimedotcom

Greene County processing highest number of delinquent property tax cases ‘in decades’

Greene County is in the middle of clearing up one of the highest number of delinquent property tax cases in its history, officials say, shrinking a decades-long backlog that may help older cities put more parcels back into productive use.

As of Friday, the county courts and treasurer’s office have 167 Greene County properties that are in the collection process or have completed it, some of which include multiple parcels. All told, the cases are worth about $1.5 million in back taxes.

The treasurer’s office is on pace to do 200 cases by the end of the year, Hagler said. Prior to 2023, the treasurer’s office typically processed 20 cases annually.

“Greene County as a whole does not have delinquency problem. There’s been a backlog for decades because really, there wasn’t a sense of urgency. We’re still very rural,” Hagler said. As COVID hit and the markets have taken off, properties that wouldn’t otherwise be developed or rehabbed, there’s now a market for that.”

Greene County has a tax delinquency rate of about 1.6%, Hagler said. The average rate for the state of Ohio is about 3%. However, the recent spur of foreclosure cases is due in part to making up for delays caused by the pandemic, and clearing up the preceding backlog.

“During the pandemic, the courts were shut down. COVID gave us about a 2-year hiatus,” Hagler said.

Most of the properties are concentrated in Xenia and Fairborn, the two oldest cities in Greene County. The red-hot housing market is another reason city and county leaders wish to place those properties back in productive use.

Not all delinquent properties are subject to foreclosures. Being delinquent on property taxes means the property owner is a year and a half behind on their taxes. Missing one or two tax payments isn’t enough to be declared delinquent.

Many taxpayers are able to pay off their tax debt by opting to participate in a payment plan, Hagler said. Others pay it off upon initial notice from the treasurer’s office.

If a case does go fully to the foreclosure process, the owner is notified through Greene County courts. The property then goes to a treasurer sale, where the selling price of the property includes the back taxes, assessments and court costs that are on it. Usually, the property doesn’t sell for that reason, Hagler said.

“If you’ve got $14,000, $15,000-plus of delinquent taxes, and the city’s weed mowing fees, they’re never going to sell,” Hagler previously told the Dayton Daily News. “Nobody’s going to pay $17,000 $15,000 for a piece of property. It’s just not worth it.”

Additionally, it’s unlikely that entire $1.5 million will be collected. Many of the properties are vacant or abandoned, in some cases because the property owner has died.

If the parcel doesn’t sell a second time, it’s forfeited to the state of Ohio, or the local municipality can acquire the property and petition the taxing authorities (the county, schools, etc.) to forgive the taxes on it so it can be put into productive use. Both Xenia and Fairborn have been proactive in pursuing these options, Hagler said.

If you suspect you might be behind on your property taxes, the treasurer’s office has staff who are dedicated to processing back taxes and helping residents stay in their homes.

“If you’re behind on your taxes, and you want to keep to your property, reach out to us. We have plans, we can work with you, and we want to keep you in your property,” Hagler said.

source: daytondailynewsdotcom

Hungarian real estate prices have skyrocketed over the past year

Hungarian real estate prices got significantly higher over the past year. On average, buyers spent 3%, HUF 1 million (EUR 2,600), more on home purchases. Meanwhile, in Budapest, the average cost of buying a home has increased by more than HUF 2 million (EUR 5,200). writes that according to Duna House’s data, the price per square metre of properties in the Hungarian real estate market ranges from HUF 30,000 (EUR 79) to HUF 3 million (EUR 7,800). The price per square metre was above HUF 1 million (EUR 2,600) for almost half of the properties in the capital sold in the first half of the year. We also know from Duna House’s transaction data that nearly half of the properties sold in Hungary this year, 49 percent, were detached houses. 37 percent of the buyers opted for a brick-built dwelling. Panel houses were chosen by only 15 percent of buyers.

The real estate prices
Károly Benedikt, Head of Marketing and PR at Duna House, said that looking at Hungary as a whole, properties sold for HUF 1 million (EUR 2,600) more compared to last year. The average price was HUF 39.7 million (EUR 104,000), while the average price per square metre was above HUF 550,000 (EUR 1,440). Based only on sales in the Hungarian capital, the average price of apartments has risen. It went from HUF 55 million (EUR 144,080) in 2022 to HUF 57.2 million (EUR 149,319) in 2023. The average price per square metre in Budapest is just over HUF 900,000 (EUR 2,560).

The price is significantly influenced by the condition of the property and whether it needs to be renovated. The size of the useful floor area is also a key factor for potential buyers. Surprisingly, there is a high demand for both large properties of up to 450 square metres and much smaller flatlets of less than 20 square metres.

The most expensive properties
According to Duna House’s data, the highest-priced property sold this year in Budapest is located on Andrássy Avenue. The panoramic house is 274 square metres, built in the 1800s. The house is in very good condition and represents luxury and high quality. The new owner paid HUF 420 million (EUR 1,1 million).

Among the homes sold in the countryside, the fourth most expensive is an apartment in Balatonfüred. The apartment is in an outstanding condition and was renovated during the COVID-19 pandemic, so it is almost new. The 172-square-metre penthouse has a large terrace and a panoramic view. The buyer paid HUF 319 million (EUR 835,500), over HUF 1.8 million (EUR 4,715) per square metre. The most expensive home in the agglomeration of Budapest is a house located in Nagykovácsi. The 230-square-metre family house with a panoramic view and outstanding condition was advertised for HUF 310 million (EUR 812,090).

source: dailynewshungarydotcom

How the ‘urban doom loop’ could pose the next economic threat

A commercial real estate apocalypse — especially in midsize cities — could spiral into the broader economy

In Indianapolis, the technology giant Salesforce is paring back a quarter of its office space in the tallest building in Indiana, where it has been a key tenant for the past six years. In Atlanta, the private investment giant Starwood Capital defaulted on a $212 million mortgage on a 29-story office tower. And in Baltimore, a landmark building sold for $24 million last month, roughly $42 million less than it fetched in 2015.

All across the country, downtowns, office spaces and shopping centers are at risk of becoming ground zero for a new economic hazard: the urban doom loop. The fear is that a commercial real estate apocalypse could spiral out and slow commerce, wrecking local tax revenue in the process. Ever since the pandemic drove a boom in remote work, hubs such as New York and San Francisco have drawn attention for their empty offices in previously bustling skyscrapers. But many economists are even more worried about midsize cities that have fewer ways to offset the blow when a major company slashes office space, the sale price of a building craters, or a downtown turns into a ghost town.

The worst-case scenario would go like this: With more people working from home, companies from Milwaukee to Memphis are rethinking their leases or pulling out of them altogether. That drives vacancy rates up and makes it harder for landlords to attract new tenants or sell buildings for a healthy price.

Then property owners might struggle to pay off their mortgages or clear other debt. Business districts would dry up, stifling tax revenue from commercial properties or employee wages. Shoppers and tourists would have fewer reasons to venture downtown to eat or shop, choking off spending and forcing layoffs at restaurants and retail stores.

“Once those offices are empty, there are few alternatives and not a lot of life after hours,” said Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia University’s Graduate School of Business who is one of the authors of a paper that coined the “urban doom loop” phrase. Midsize cities “have a much bigger chasm to cross than what New York City has to go through. The situation is worse in those places with so little else in place.” He added, “It is a train wreck in slow motion.”

Economists caution that such a train wreck is not guaranteed, and the spiral has not kicked into gear anywhere yet. There are a few reasons: Many cities are still leaning on historic levels of state and local stimulus aid from the 2021 American Rescue Plan, and those funds may not run out for another year or two. A large share of the outstanding business and mortgage loans are also not due for a few more years. Plus, the economy continues to defy the odds, dampening concerns that widespread layoffs or drops in consumer spending could trigger this dangerous loop.

Yet the Federal Reserve has highlighted commercial real estate as one of the risks to financial stability. And troubling signs are piling up, often in places that are already vulnerable. Midsize cities have some of the highest rates of office delinquency, where loan payments on buildings are behind schedule, and the lowest rates of office occupancy.

The average delinquency rate across the 50 largest metro areas in the country is about 5 percent. But in places like Charlotte in North Carolina or Hartford in Connecticut, it is almost 30 percent, according to data from the real estate analytics company Trepp.

Likewise, occupancy rates average about 87 percent. But in Oklahoma City, it is just 71 percent, and 76 percent in Memphis and St. Louis.

Experts caution that the trend could easily escalate, especially as properties come up for refinancing. “You are going to see some trickle effects, but the downpour is yet to be seen over the next 18 to 24 months,” said Lonnie Hendry, senior vice president at Trepp. “It is very early in the cycle.”

The concept of the doom loop took off in the past year on the heels of research from Van Nieuwerburgh. Next came a kind of buzz that rarely follows academic papers, with media requests pouring in and at least one headline dubbing Van Nieuwerburgh “the prophet of urban doom.” But all the research makes clear the doom loop is not inevitable anywhere.

Some cities will not face the downward spiral at all, while others might experience different harms from vacant commercial space than others, said Tracy Hadden Loh, who specializes in commercial real estate and governance at the Brookings Institution. She noted that some cities were already struggling with office vacancies before the pandemic, so they are not facing an entirely new phenomenon. It also matters how cities have been using stimulus funds and when they will run out.

Crucially, wonky tax rules mean certain places are more exposed than others: Chicago and Boston, for example, have large office footprints and rely heavily on property tax revenue. Philadelphia, meanwhile, depends more on wage taxes from commuters than on real estate, and that revenue could dry up if people are not venturing into the office. “It really depends on the city,” Loh said. “The local tax structure matters tremendously in the United States. You can’t make a 100 percent true general statement about any class of cities because they each have their own bespoke revenue structure that has evolved over time.”

Still, each day, with every new mortgage default and every distressed building sale, it is clear how few solutions there are. In cities large and small, some property owners have tried to turn vacant offices into something else altogether, like apartments, kitchen spaces or even spas. But those workarounds can be prohibitively expensive, if they work at all. Plus, these solutions have not taken off on a massive scale.

Take Minneapolis, where many of the stressed loans are concentrated in downtown buildings struggling to attract new customers. In March 2021, Target announced plans to vacate a major complex there, cutting its lease of almost 1 million square feet, or roughly three-fourths of space available in the entire building. The big box retailer held onto other large leases in Minneapolis and said the 3,500 corporate employees who worked at City Center would instead transition to other major headquarters in town.

The move was a massive blow to downtown Minneapolis, said Brian Anderson, director of market analytics at CoStar Group. The empty space has not drawn much appetite from prospective tenants. “The more those companies opt to utilize remote-hybrid work, that is going to matter. That is going to create big shifts,” he said.

Downtown Washington is in another kind of bind. In the District, office leasing activity reached a historic low in the first quarter, with only 900,000 square feet of office leases signed. That is down from the five-year quarterly average of 2 million square feet, according to Trepp.

The takeaway: There is less and less appetite for office space, with little sign the trend will turn around. Much depends on what happens with the more than $5 trillion in commercial real estate debt sloshing around the economy, and the $2.75 trillion in commercial mortgages that are slated to mature by 2027.

The tidal wave of looming deadlines could hit regional banks the hardest, as they hold roughly two-thirds of the total commercial real estate debt in the country (not just including office space) and are more susceptible to what happens in individual cities. Economists have been worried about regional lenders ever since the banking crisis earlier this year, when the demise of two midsize firms suddenly jeopardized the economy.

What else happens in the broader economy also matters. The Federal Reserve is still trying to tame inflation and has pledged to keep interest rates high for as long as necessary. The goal is to slow the economy by cooling demand for loans and investment, which appears to be working. A July report said lenders have been seeing less demand for commercial real estate loans at the same time banks are tightening their standards.

In that way, Hendry said he worries the doom loop could stem from factors large and small. “If you have a mortgage with an interest rate in place at 3.5 percent, and you want to refinance at 7 percent, that is unavoidable, regardless of geography,” he said.

source: washingtonpostdotcom

Bounce in European property stocks: false start or turning point?

It’s hard to be bullish about real estate in an environment of sharply higher interest rates. Yet unloved property stocks in Europe staged a surprise rally this summer, suggesting contrarian investors are starting to look past the worst.

Two years of steep falls have made European property a short-seller favourite as sector valuations and investor positioning plunged to levels last seen during the 2008 global financial crisis.

A gauge of European real estate shares (.SX86P) has halved in value to about $131 billion since 2021, but the mood shifted in July as earnings expectations improved.

The index outperformed the broader market (.STOXX) in July by as much as 10 percentage points before a volatile August, squeezing short sellers just as inflows into some sector-focused exchange traded funds picked up.

Gerry Fowler, Head of European Equity Strategy at UBS, said bond yields in Europe seemed to have stabilised on bets the European Central Bank would hike interest rates just one more time in September, and that was starting to ease pressure on real estate companies while encouraging more investor interest.

“Things aren’t great for real estate companies and that’s why they are trading at a huge discount. Do we expect them to immediately go back to full valuation? Probably not. But from a direction of travel perspective things have started turning the corner,” he said. “In the last month or two we’re starting to get hints of companies’ ability to re-focus on profit growth”.

Refinitiv data shows earnings revisions turned positive in July after 15 months of downgrades. Profits are now seen rising 1.4% in 2024, versus previous expectations of a slight drop.

However, Zsolt Kohalmi, co-CEO at Pictet Alternative Advisors in London, said interest rates in Europe would need to fall by some 150 basis points to kick-start the market which was struggling due to a “complete standoff” in transactions because buyers and sellers are unable to agree on price.

“Some people this summer are making the bet that it’s going to be all rosy. Inflation is going to come down, interest rates are going to come down and some of these structural problems of real estate will be solved,” he said.

“It is a scenario. But I don’t know how likely it is… I think it’s going to take longer and we may have another low before we have ups,” he said.

Shares on loan, a proxy for short interest, across Europe’s listed real estate management and development firms has fallen by almost a third since a peak in May to below 1.7% of their market capitalisation, according to S&P Global Market Intelligence.

Meanwhile, BlackRock’s iShares European Property ETF (IPRP.L) has seen a 10% surge in inflows from late February, according to data on its website.

Most investors are still steering clear. Bank of America’s fund manager survey (FMS) in August showed investors had capitulated with positioning falling all the way down to 2008 levels, but buying REITs (real estate investment trusts) was its top contrarian trade.

Real estate in Europe is 30% cheaper than its 20-year average price-to-book valuation and displays a 49% discount to the market, its biggest in fifteen years, Refinitiv data shows.

A report in July by the corporate and investment banking unit at Natixis suggested European commercial property transactions dropped 60% year-on-year in the first quarter.

Natixis is modelling for declines in property values and sees risks of rating downgrades for six out of 22 REITs, which could add to challenges of securing debt financing, it said.

Banks are increasingly vigilant about a deterioration in the quality of their loans to real estate firms, with key ratios including loan-to-value under sustained pressure, raising the prospects of covenant breaches which could force borrowers to top up equity or even sell assets.

Societe Generale, which has had zero real estate exposure for over a year, views the summer bounce as a false start and believes there is no clear direction in the sector’s earnings.

“We don’t like picking up pennies in a low-liquidity market. Opportunities may emerge… but this doesn’t paint a great picture for the sector,” said Charles de Boissezon, Head of Equity Strategy at the French bank.

Risks for real estate include another wave of inflation. Pictet’s Kohalmi also said the “biggest unknown” was contagion from the next round of refinancing, especially in the highly oversupplied market of office buildings in the U.S.: “Because senior banks don’t want to refinance, nobody knows how it will play out”.

For UBS’s Fowler, however, European real estate stocks have room to keep outperforming into year-end: “The best ideas are when you can’t fully justify a bullish case… By the time you know for sure that things are better it’s probably already too late”.

source: reuters