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This year’s edition of KPMG's survey included over 40 participating lending institutions in 11 CEE markets who provided their responses to questions about their level of impaired loans, real estate’s importance as part of a bank’s lending strategy and their loan size averages and preferences, among others. For this 12th edition of the PLB, KPMG collected data via online questionnaires and through in-depth interviews with bank representatives in May and June of 2021. In addition to providing detailed information on lending sentiment and the CEE property markets as a whole, the 2021 edition of our Barometer also includes individual country profiles providing insights for each of the markets surveyed.

Investments into property in Central & Eastern Europe (CEE) for H1 2021 were down by a whopping 22% compared to the same period a year earlier, which may come as no surprise, given the immense economic repercussions of the COVID-19 international health crisis on most sectors.

Indeed, real estate development, investment and lending to the sector have taken a beating due to the pandemic's effects on the global economy, but, according to the results of the latest edition of KPMG’s Property Lending Barometer (PLB), an annual study by the global audit and advisory firm which measures banks’ lending sentiments in CEE property markets, property lending has gained an increased importance for banks in 2021, as on the one hand real estate loan portfolios are deteriorating, and, on the other, market conditions continue to gradually improve. Moreover, the tougher times mean that lending institutions within the region are able to pick and choose what types of developments and investments to grant loans to under stricter terms and conditions.

COVID continues to exert influence on property markets

Property transactions in CEE totalled EUR 4.9 billion for H1 2021, with 80% of that coming from three countries in the region: over half attributable to Poland (53%), followed by the Czech Republic and Hungary, at 18% and 13%, respectively. Slovakia, Romania and Hungary continued to grow for H1, while Bulgaria and the Czech Republic saw the steepest drops in investment activity, year on year.

Once again, in 2021, KPMG’s survey was conducted in never-before-seen times for the global economy, given the continued effects of the global health crisis. According to the PLB survey participants, not only is the global pandemic continuing to affect property lending, but in a query ranking the most important aspects affecting bank lending to real estate it has also overtaken local macroeconomic conditions, they say, as exerting the greatest influence upon how lending to real estate projects takes place, for example determining what sorts of property developments are likely/unlikely to receive funding.
Bank representatives also revealed that although sustainability is currently a hot topic among real estate professionals and one which is mentioned frequently at industry events focusing on the future of the real estate industry, it is still not a key factor when considering the financing of a real estate asset.

Residential asset class overtakes industrial/logistics segment

Meanwhile, according to survey respondents the residential asset class has become the most attractive one for a majority of the region's banks over a year after the breakout of the COVID-19 pandemic, overtaking the industrial/logistics segment, which, in the throes of the pandemic overtook the office asset class in 2020.

Head of KPMG’s Real Estate practice in CEE, Andrea Sartori, who initiated the Barometer, explains that even though property development in Europe is steeped in an uncertain environment due to the continuing effects of the global health crisis, most banks in the region that participated in the survey have increased their focus on lending to real estate compared to last year. Ultimately, this translates into banks looking for more “sure things” when it comes to what they're willing to finance.

Another big change seen in this year's survey is the emergence of the residential segment as the most popular asset class in a number of countries, with industrial/logistics coming in 2nd place, according to the bank representatives who responded to KPMG's survey.

“This is perhaps no surprise,” Mr Sartori says, “as it's obviously a consequence of the pandemic on how people are doing business – in both our region and around the world: either completely from home or going into offices on an irregular basis. That's not only been a shock to the office segment, but has meant that residential is in focus, overall, for societies themselves – all of our homes are now dual purpose: serving both home and work life.”

Last year logistics got a huge boost (and was at the top of last year's PLB) from lockdown times during the pandemic when consumers were having every product imaginable delivered to their homes rather than visiting shopping malls. What still has to be assessed is whether or not certain recent trends, such as working from home and replacing physical shopping with online shopping, at least partially, will become regular habits of people living in the CEE.

As a special addendum to this year's survey, developers from seven countries in the CEE region shared their perspectives on real estate financing in these challenging times. In terms of how they select from two banks offering similar financing conditions, the developers indicated that for them the speed of the process is the most important criterium.

In addition to such interesting findings, KPMG's Property Lending Barometer also includes detailed information on respondents’ indicated loan-to-cost and loan-to-value ratio expectations, their pre-let and debt service coverage expectations as well as hoped for interest premiums.

Property and bank lending sentiment in Serbia

As for recent developments in real estate and property lending in Serbia, KPMG's Director, Sanja Kočović says “The strategic importance of real estate financing has increased for banks in Serbia compared to last year, as well as banks’ openness to finance new developments and income generating projects. The residential asset class rose to the most popular position among banks surveyed, closely followed by last year’s favourite, the industrial/logistics asset class.”

For more individual market specifics as well as insights on the future of real estate lending this year, be sure to get your copy of KPMG’s Property Lending Barometer 2021.

Sanja Kočović

Director, Financial Institutions & Services

KPMG in Serbia

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Property Lending Barometer (PLB) 2021