even referring to the area as one coherent ‘eurozone’ seems something of a misnomer.
I
Take Italy, for example. While stars such as George Clooney and Mel Gibson are buying there; the Hollywood rubber stamp has done little to lift prices. Te word from a range of international property experts eyeing Italy is “buy, buy, buy,” with a strong pound generating a great deal of interest from the British in buying across Italy. But there are strong caveats. While the more adventurous property investor may be tempted to take advantage of the current eurozone woes to seek ‘distressed’ bargains; the crisis is far from over and the risk to property values in some countries is still unacceptably
high - according to analysts.
Distressed property in Portugal and parts of Spain, for instance, which can be snapped up at less than 50 per cent of pre-downturn
prices, is attracting the interest of long term, risk-taking investors who intend to benefit from potential capital growth when demand recovers. “But until the Greek crisis is over, prudent investors are advised to take
a wait and see approach towards buying properties in high risk countries, such as Spain, Italy and Portugal,” said one industry watcher. “Te persistence of the crisis, coupled with slow growth projections and
a weak performance from European Union authorities and governments, means things are likely to get worse before they get better,” said Stuart Law, chief executive of buy to let specialist, Assetz. It might be an extreme scenario, but if the eurozone broke up, the impact
on sterling or dollar denominated property values for foreign investors could be devastating in weaker countries, if they exited the Euro and returned to a devalued national currency. While property may look appealingly cheap in some cases, it could be
worth half of today’s values to a foreign owner, if it was suddenly being valued in drachma, for example, which analysts suggest could face a 50 per cent devaluation if Greece leaves the euro.
Risk premiums? Investors putting money into eurozone real estate markets should be demanding higher risk premiums - due to the potential repercussions of the sovereign debt crisis, according to industry experts. A recent report from AEW Europe and investment bank Natixis
calculated the “average probability risk yield premium” that should be taken into account across different European property markets to convey the likelihood of each country exiting the single currency. Te study did not apply this suggested premium to Germany, the Netherlands or Austria due to their stable public finances. However, it recommended a risk premium of ten basis points
t’s a confusing time if you’re looking to invest into property – private or commercial across the eurozone. With such disparity between markets,
for France and Belgium, while 375 basis points was suggested for Greece. Madhi Mokrane, head of research and strategy at AEW Europe, said investors should be “demanding” these higher risk premiums. He added that his firm anticipates “non super-safe yields will be rising
across the board in the eurozone by year-end unless a convincing solution to the crisis is found to satisfy financial markets”. CB Richard Ellis believes global real estate investors are focusing their
attention on a small number of core markets on the continent, with London attracting the highest volumes of capital, followed by Paris, Berlin, Moscow and Frankfurt.
While the most desirable regions where demand exceeds supply - such
as France’s Cote d’Azur and Paris – will always remain popular; raising finance remains a challenge in the eurozone. Cash-rich second or holiday home buyers who can afford to take a longer term view and buy for the location and climate, may still feel the time is right to seek out a bargain. Reports and market watchers suggest that investors would do well to “sit tight” until the situation becomes clearer - or concentrate on safer countries with less exposure to a partial Eurozone break-up such as the UK, USA or France.
Retail growth in new markets Meanwhile, capital flows into the European retail property continue to
follow economic performance, with Germany and those markets just outside the eurozone, such as Russia, clear favorites with investors, according to global real estate adviser CBRE. European retail property investment grew to €9.4 billion in the final
quarter of 2011; bringing the annual total to €37.2 billion. Te defensive characteristics of good quality retail assets continue to attract local and international investor demand despite an uncertain economic and political environment. As a result, retail in 2011 generated a large share of the overall commercial real estate investment across many European markets, growing to just above last year’s record of 32 per cent on the pan- European level. Capital flows continue to favour Europe’s stronger, faster growing
economies, with Germany, some of the Nordic and Central and Eastern European (CEE) markets seeing robust activity. Te German retail market has seen remarkable growth – tripling since 2009, while the retail share of overall commercial property investment jumped to 48 per cent in 2011, up on 2010’s 42 per cent. Iryna Pylypchuk, associate director, EMEA Research, CBRE, said: “Germany, the Nordics, and some CEE markets have been the biggest beneficiaries of investor demand, especially when it comes to international capital looking for new retail opportunities. In an uncertain economic and political environment, investor strategies will remain risk-averse.” John Welham, head of European retail investment, CBRE, said: “Some of
the CEE markets will become extremely attractive from both an economic and pricing perspective. One step removed from the eurozone crisis, these younger economies offer further potential, especially as Russia becomes more of an international market” l
APRIL 2012 I CITYSCAPE I 27
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