Sunday 19 November 2017

Banks start cutting lending to riskier European property

Banks are becoming wary of risky European property investments
Banks are becoming wary of risky European property investments

Jack Sidders

Banks in Europe are starting to get nervous about real estate again.

The amount of money available for property investment globally has fallen on an annual basis for the first time since 2011, led by Europe, as the amount of debt on offer diminishes, according to a report published this week by broker Cushman & Wakefield Inc.

Lenders are prepared to offer less credit than before, particularly on riskier properties, the report shows.

A total of $435bn of newly raised equity and debt is available to invest in commercial real estate, 2pc less than a year ago, Cushman said.

For the first time the equity targeting real estate investments in the Americas exceeded Europe, the Middle East and Africa, as a result of the dollar's strength, according to the report.

Investors had consistently allocated more money to real estate since emerging from the global financial crisis as low interest rates diminished returns from government and corporate debt.

Rising US interest rates and political uncertainty have now stemmed that tide.

"As the real estate cycle enters a stage of maturity in many key markets, investor focus has shifted from raising new funds to identifying and deploying capital already allocated to the sector," Cushman & Wakefield researchers including Elisabeth Troni said in the report.

"Banks and alternative lenders saw a large rise in new debt origination from 2014 to 2016, but this trend appears to have moderated in 2016, alongside a slowdown in investment transaction volumes."

When denominated in euro, the amount of equity targeting EMEA is unchanged from a year ago, according to the report.

The equity available for real estate in the Americas climbed 8.2pc as investors sought protection from rising inflation in the US, the report shows. The equity available across the the Americas ($79bn) surpassed the EMEA region ($72bn) for the first time.

On a more sobering note, however, average loan-to-value ratios, which reflect the amount of credit lenders are willing to offer against the value of a property, declined in every region globally.

EMEA had the biggest drop, falling four percentage points to 44pc, while the Americas decreased three points to 54pc.

"Lenders are also lending against a narrower range of asset type than in the past," Troni wrote in the report.

This suggests "that recent regulatory changes may be inadvertently driving concentration risk among lenders," she wrote.

(Bloomberg)

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