European banks prefer residential in terms of real estate financing, followed by office, while the hotel sector remains the least desirable asset class, KPMG's Property Lending Barometer reveals.
Indeed, Brexit is likely to affect bank lending to the real estate markets in Europe, according to KPMG's Property Lending Barometer 2017. The 8th edition of KPMG's comprehensive survey, which measures the sentiment for bank financing in the real estate sector in 17 countries across Europe, finds that survey respondents believe that more developed markets are likely to reap the spoils of Brexit in the next year-and-a-half, while less developed ones could suffer from the United Kingdom's pullout from the European Union.
“Banks in Ireland and the Netherlands expect particularly positive effects in their respective markets,” explains partner and head of Real Estate in Central & Eastern Europe, Andrea Sartori, who helped coordinate the study. “Overall,” he adds, “the responses reveal a significant degree of uncertainty about the potential impact of Brexit on real estate lending in Europe.”
KPMG's Property Lending Barometer 2017 aims to provide an analytical overview of the current approach of banks to real estate financing in Europe. The following countries are represented in the 2016 survey: Austria, Bulgaria, Croatia, Cyprus, the Czech Republic, Germany, Hungary, Ireland, the Netherlands, Poland, Romania, Serbia, Slovakia, Spain, Sweden, Turkey and the United Kingdom. The survey categorizes these countries into three distinct groups—“dominant,” “established,” and “other”—according to factors like their GDP, population, and risk profiles.
Increasing lending activity foreseen
Moreover, this year's Property Lending Barometer bears moderately good news for many property markets in that the increased lending activity witnessed seen in recent years in Europe is likely to continue in 2017. The greater availability of finance is being bolstered by eased lending conditions and sustained demand across all loan categories, according to the European bank representatives who participated in KPMG's study.
Of the economic drivers, Andrea Sartori says: “Low general interest rates are driving the growth of the aggregate loan portfolio. Meanwhile, debt sales markets in Europe are still on the upswing, with the total value of loan sales likely to exceed EUR 100 million for the third consecutive year.”
He adds that the economic outlook across Europe is fairly upbeat, exhibiting favorable economic indicators like low inflation, decreasing unemployment and increased investment—all factors potentially bolstering activity in the real estate sector. In this`, the 5th year of recovery after the financial crisis, steady growth is expected throughout the European Union.
In this edition of KPMG's Property Lending Barometer, Senior Partner from Serbian office, James Thornley, gives his point of view: “Given the overall optimistic outlook, lenders seem to be capable to support significantly larger projects in the real estate”, says Thornley.
High rates of fully-compliant loans, for some
Meanwhile, survey respondents have indicated that their proportion of fully compliant loans is higher than 85% in all surveyed Western European countries included in the Property Lending Barometer. However, the study shows that in Bulgaria, Croatia and Cyprus the proportion of fully compliant loans is still at or below 65%.
“The proportion of non-performing loans has been somewhat quelled, even in the less stable economies,” he explains. “Nevertheless, banks are still only cautiously open to offering real estate financing in these markets.”
Respondents continue to prefer restructuring problematic loans rather than seeking foreclosure, according to Mr. Sartori, especially in more established economies.
Unlike in previous years, the preferred asset class in all country groups is residential, followed by office. The hotel sector remains the least desirable by banks in terms of financing.
KPMG's Property Lending Barometer 2017 also includes sections on prospects for real estate portfolios, analyses how much banks are focusing upon financing real estate projects and the disposal of loan portfolios, among other crucial topics. The publication provides in-depth profiles of how property lending is taking place in each individual market included in the survey – crucial information for those looking to do business in those countries.
An upbeat mood for investors
Mr. Sartori concludes by adding that there is good news for those investors interested in investing in Europe's property markets, as financing conditions continue to be relatively favorable in Europe, according to the survey's respondents, although significant external risks give reasons to be cautious about general economic prospects.
© 2019 KPMG Hungária Kft., the Hungarian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.