A survey of banks on the prospects for real estate sector lending in Europe
According to KPMG’s Property Lending Barometer, a well-established white paper which assesses banks’ lending sentiments toward the real estate markets across Europe, despite the fall being seen in the overall volume of investments those initiating property investments on the continent have maintained their eagerness for doing just that, while lending institutions are also keen on loaning to such projects, with a lack of loan placement opportunities creating a barrier in real estate lending.
Including a hat-tip in its design to the over 100-year-history of Bauhaus architecture, the 10th edition of KPMG’s comprehensive study shows that, overall, real estate investment in Europe looks to maintain a steady path going forward, despite potential causes for market agitation like trade tensions, or potential game-changers like Brexit.
Banks positive about lending to real estate projects
To those interested in investing in European real estate markets, the willingness of banks to lend to property development projects looks to be positive. So say a majority of the nearly 70 respondents (from 15 countries) who participated in this year’s KPMG Property Lending Barometer.
Head of KPMG’s Real Estate practice in Central & Eastern Europe (CEE), Mr Andrea Sartori, who initiated the survey which has been ongoing now for 10 years, confirms the willingness of banks across Europe to continue lending to real estate projects, according to those who participated in KPMG's survey.
Regarding this phenomenon, he explains: “Due to the dearth of prime properties, banks appear more open to speculative developments and those in secondary markets.”
Maintained focus on property lending
Meanwhile, participating financial institutions also say they are maintaining their focus upon real estate lending, even despite some economic frailties that may be apparent in the numbers, like sluggish GDP growth in much of Europe.
“For the next 2 years, on an aggregate basis Europe is only forecast to grow at around 1.4%. Developing economies in Central & Eastern Europe (CEE) are exhibiting much better GDP rates, especially in places like Poland and Romania,” Mr Sartori observes.
Continued appetite for lending, despite uncertainties
Meanwhile, trade tensions between Europe, the US and China may also make for undercurrents that rock the boat when it comes to global investment. In fact, for the first half of 2019 investment volumes in Europe appear to be down around 15%, especially in major markets like Germany and the UK.
And Mr Sartori points out that developing economies in CEE have seen consistent increases in investment volumes in the last 5 years. “The six major countries in CEE - Czech Republic, Poland, Hungary, Romania, Slovakia and Bulgaria - saw investments totaling EUR 5.5 billion for the first half of this year,” he said, adding that Poland accounts for more than half of that total, with the Czech Republic also making a significant contribution.
Real estate lending important strategically, preferred projects
Most of the respondents to KPMG’s survey gave a high strategic importance to property lending, with only two countries, Croatia and Slovenia, ranking it of lesser importance to their banks’ activities.
In terms of what types of projects are preferred by our survey respondents, the residential segment is preferred in more developed economies included, while most banks within CEE fancy office projects. Another long-term trend is survey participants’ overwhelming liking for the office segment of the property markets, although hotel investments are popular in places whose economies are quite reliant upon tourism.
According to respondents, they are interested in loaning to prime standing investments in the next 12-18 months, and in terms of the criteria upon which they decide to make a loan to a project, they indicated that the business model strength/asset quality are the most crucial factors for their consideration.
Insights from KPMG market experts
Along with the study’s overall analysis and continental perspective, KPMG’s Property Lending Barometer contains sections dedicated to each of the economies included in the study: Serbia, Bulgaria, Central and Eastern Europe, Croatia, Czech Republic, Cyprus, Europe, Middle East and Africa, Finland, Germany, Greece, Hungary, Ireland, Netherlands, Poland, Romania, Slovakia and Slovenia.
Property Lending Barometer
Not only do market-specific experts give you insights you won’t find anywhere else. The fact that KPMG’s Property Lending Barometer has been steadily and continually conducted for the last 10 years gives the study added credibility.
© 2021 KPMG Croatia d.o.o., a Croatian limited liability company and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.