The 10th anniversary edition of KPMG’s comprehensive survey providing insights into prospects for bank financing in the real estate sector in 15 European countries.
KPMG’s Property Lending Barometer 2019 offers valuable information for those seeking bank financing in European markets. In the Barometer, you will find an overview of:
— European real estate markets
— The attractiveness of real estate financing compared to other industries, and
— Prospects for financing new real estate projects, including banks’ asset class preferences, along with the criteria for financing new development and income generating projects.
The survey queried representatives of close to 70 banks from Bulgaria, Croatia, Cyprus, the Czech Republic, Finland, Germany, Greece, Hungary, Ireland, the Netherlands, Poland, Romania, Serbia, Slovakia and Slovenia.
A host of macroeconomic and political factors aggravated by uncertainty, trade tensions and crisis forecasts shape the prospects for each country’s real estate market. The focus on real estate financing has been preserved or increased in almost all countries while banks also vie for opportunities in food and beverages, and manufacturing.
Juliana Mateeva, Real Estate Lead, comments on the survey results for Bulgaria: “With a growing demand for modern office facilities in attractive locations, banks in Bulgaria are competing to finance good quality, well-structured projects on the Sofia market. While the concentration of real estate developments and transactions is in the capital, the trend of business process outsourcing and IT businesses establishing hubs in other big cities is expected to drive the demand outside of the Bulgarian capital.”
The performance of real estate markets in Europe
A trend of declining total investment volume in Europe continued, reaching only EUR 114.3 billion in the first six months of 2019 which is 15% lower than the comparable figure for the previous year. This sustained slackening is mainly due to a combination of moderate economic prospects, political uncertainties, a shortage of suitable assets, and changing demand patters across Europe.
Real estate investment activity varied greatly across the various economies in the region. Investment volumes, in aggregate, significantly and consistently increased in the six major CEE countries (the Czech Republic, Poland, Hungary, Romania, Slovakia, Bulgaria) in the last five years. In the first half of 2019, the total investment volume was EUR 5.5 billion – equivalent to a slight drop compared to the figure for the first half of 2018.
However, historically, growth has been seen in the second half of each year so overarching growth trends may be sustained this year as well.
Disposing of loan portfolios
There is no change in the historical pattern, as banks in most countries have not indicated their willingness to dispose of part of their loan portfolios in the upcoming 12-18 months. In more than half of the countries surveyed, none of the banks showed any interested in this possibility.
As in previous years, the banks’ responses reveal that overall banks view non-local commercial banks as their key competitors in most of these markets, especially in Central and Eastern Europe. In other European countries, private equity/ debt funds are considered as similarly strong competitors. Insurer/pension funds are considered as a threat more in the other European economies, and less in the CEE markets.
Asset class preferences
Overall, residential remains the most preferred asset class among the surveyed banks in the other European economies country group, especially in more established markets. In Central and Eastern Europe, on average, office is the most preferred, especially in Poland and Hungary.
The least preferred asset class on average was the retail sector, especially in Germany, Finland and Poland. Hotel, resort was also less preferred, with the exception of the popular tourist destinations Greece, Croatia, and Cyprus.
In Bulgaria, office is by far the preferred class followed by industrial/logistics. Retail comes in third though significantly lower than the first two classes followed closely by residential and hotel.
Criteria for financing
In terms of criteria, there is no change in the historical consensus among banks participating in our survey. In the majority of the countries the most important criteria for obtaining financing for real estate projects are a strong business model and the quality of the asset. The only exception this year was Cyprus, where the reputation and references of the developer/operator was selected as the primary decision criterion.
Other important criteria for all countries are the reputation and references of the developer/operator as well as the level of owner’s equity in a proposed project.
For further insights on the lending market in Bulgaria and Europe, see KPMG’s Property Lending Barometer 2019.
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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.