Property Lending Barometer 2018 - KPMG
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Property Lending Barometer 2018 A survey of banks on the prospects for real estate sector lending in Europe kpmg.ie
Property Lending Barometer 2018 Introduction 3 Dear Reader, It is our pleasure to present the Property JOUIFTFDPVOUSJFT5IF#BSPNFUFS Lending Barometer 2018, which is the includes input from close to 70 banks 9th edition of our annual survey of banks’ active in these markets, collected SFBMFTUBUFěOBODJOH5IJTSFQPSUSFWFBMT QSJNBSJMZWJBJOEFQUIJOUFSWJFXTBOE insights into lending market conditions online questionnaires. Representatives in a range of countries in Europe and GSPNMFBEJOHěOBODJBMJOTUJUVUJPOTIBWF also gives a separate snapshot of the provided their views on the key issues participating countries to highlight their JOĜVFODJOHQSPQFSUZMFOEJOH unique market characteristics. 5IFěSTUIBMGPGUIJTSFQPSUQSPWJEFTBO Andrea Sartori 5IFQVSQPTFPGPVSSFQPSUJTUPBTTFTT overview of the European market as a Partner, the prospects and sentiment for bank whole, by focusing on key issues such Survey co-ordinator ěOBODJOHJOUIFSFBMFTUBUFTFDUPSJO as the strategic importance of real estate Head of Real Estate Europe based on interviews conducted ěOBODJOHGPSCBOLT UIFQSPQPSUJPOPG in Central & Eastern Europe (CEE) with bank representatives from 14 impaired loans and bank representatives’ European countries. views on how to manage these loans. E: email@example.com We also consider areas such as various 5IFSFDFOUMZQPTJUJWFHSPXUIQFSJPE banks’ average and preferred loan of the European economy is likely to size, as well as the length of their continue, though at a more moderate loan contract term. Furthermore, we pace. Unemployment is decreasing, have also taken the opportunity for 9th disposable income is expected to OFXěOBODJOHBOECBOLTĳBTTFUDMBTT JODSFBTF CVUJOĜBUJPOIBTCFHVOUP preferences into consideration. increase and interest rates may not annual edition remain unchanged for the medium term. 5IFTFDPOEIBMGPGUIFSFQPSUJODMVEFT of the survey 5FOTJPOTJOHMPCBMUSBEF TMPX#SFYJU BQSPěMFGPSFBDIDPVOUSZTVSWFZFE negotiations and the unresolved refugee In those sections we have addressed crisis in Europe overshadow long term the prospects and terms available for prospects for growth. EFWFMPQFSTBOEJOWFTUPSTUPěOBODFOFX SFBMFTUBUFEFWFMPQNFOUTBOEJODPNF A sustained growth tendency of lending generating properties, and survey Interviews conducted with activity in Europe is likely to prevail participants’ expectations for the next banks from in 2018, supported by eased lending NPOUIT conditions and stable demand since 14 European 2014. Competitive pressure in the ěOBODJOHTFDUPSBOEGBWPSBCMFPVUMPPL regarding risk have also spurred overall We would like to take this opportunity to thank all of those who participated in this TVSWFZ5IFJSDPPQFSBUJPOXBTLFZUP growth in lending. Further easing of the success of this initiative. countries credit terms and increasing loan demand are expected to have a positive effect 8FIPQFZPVXJMMěOEPVSSFQPSU POěOBODJOHCPUIDPSQPSBUJPOTBOE informative and enlightening in IPVTFIPMET5IF&VSPQFBONBSLFUGPS supporting your future business loan portfolios saw a return to growth EFDJTJPOTSFMBUFEUPSFBMFTUBUFěOBODJOH Close to JO5IFUPUBMWBMVFPGSFBMFTUBUF If you would like to receive any backed loan portfolio sales reached over DMBSJěDBUJPOPSEJTDVTTUIJTZFBSĳTTVSWFZ 70 banks EUR 100 billion for a third consecutive year, at a record EUR 114 billion. results, please feel free to contact us or any member of KPMG’s Real Estate Advisory Practice. surveyed 5IJTSFQPSUJTBOBOBMZTJTPGUIFěOEJOHT of our survey of the leading banks active Yours sincerely, Andrea Sartori
Table of contents Overview of the European 7 real estate market Managing impaired loans 12 ProspFDUTGPSSFBMFTUBUF 15 loan portfolios 0QQPSUVOJUJFTGPSěOBODJOH 18 OFXSFBMFTUBUFQSPKFDUT Closing the gap: 27 UIFDPOWFSHFODFPGUIF$&&SFHJPO $PODMVTJPOT 31 $PVOUSZQSPěMFT 33
Property Lending Barometer 2018 Our methodology 5 .FUIPEPMPHZBOETBNQMFQSPěMF Central & Eastern European (CEE) Survey limitations FDPOPNJFT5IFTFDPVOUSJFTBSFMPDBUFE 5IJTTVSWFZBJNTUPQSPWJEFBOBOBMZUJDBM either in Central or Eastern Europe, 5IFGPMMPXJOHMJNJUJOHGBDUPSTTIPVMECF overview of the current approach of including the Balkans. Due to their noted: CBOLTUPSFBMFTUBUFěOBODJOHJO&VSPQF geographic proximity and comparable Lending institutions from the following stages of economic development, it – 8IFOUIFBOTXFSTHJWFOUPTQFDJěD countries are represented in the 2018 is our assumption they share similar RVFTUJPOTXFSFOPUTVGěDJFOUUP survey: Austria, Bulgaria, Croatia, BEWBOUBHFTBOEDIBMMFOHFT5IFHSPVQJOH provide reliable information on a Cyprus, the Czech Republic, Hungary, includes Bulgaria, Croatia, the Czech TQFDJěDDPVOUSZ XFIBWFJOEJDBUFE Ireland, the Netherlands, Poland, Republic, Hungary, Poland, Romania, this, or the country was omitted from Romania, Serbia, Slovenia, Slovakia and Serbia, Slovakia and Slovenia. that part of the analysis. Sweden. 0UIFS&VSPQFBOFDPOPNJFT In contrast – In the case of some parameters and 5IFEBUBGPSUIFTVSWFZ1 were primarily to the CEE markets, the category DSPTTUBCVMBUJPOT TVSWFZěOEJOHT DPMMFDUFEUISPVHIJOEFQUIJOUFSWJFXT “Other European Economies” consists may be considered indicative but not with bank representatives and via of countries from across Europe, most representative due to the low number online questionnaires. Depending on of them representing more mature real of responses to some questions. the survey participants’ organizational estate markets. Due to their economic structure, interviewees were the capabilities, they provide a benchmark for – As in previous years, our assessment IFBETPGSFBMFTUBUF QSPKFDUěOBODJOH BTTFTTJOHEBUBGSPN$&&5IJTDBUFHPSZ of the residential sector excluded or risk management departments. includes Austria, Cyprus, the Ireland, the residential projects whose Banks were selected from among the Netherlands and Sweden. construction costs were below EUR MFBEJOHěOBODJBMJOTUJUVUJPOTPQFSBUJOH 10 million. JOFBDIJOEJWJEVBMDPVOUSZ5IFTVSWFZ participants entailed nearly 70 banks, all of which were active in the real estate market in Europe over the last year. Data collection for this survey took place from May to July 2018. "MNPTUUXPUIJSETPGTVSWFZQBSUJDJQBOU banks were local, i.e. those operating predominantly within one European country, whilst the rest were mainly regional banks; some multinational banks also participated. Comparison of surveyed countries Based on the countries geographic locations, we have created the following two categories for the purposes of our analysis: Source: KPMG Property Lending Barometer, 2018 Geographic abbreviations AUT – Austria; BEL – Belgium; BUL – Bulgaria; CEE – Central & Eastern Europe; CRO – Croatia; CYP – Cyprus; CZE – Czech Republic; DEN – Denmark; EMA – Europe, Middle East and Africa; GER – Germany; HUN – Hungary; IRE – Ireland; ITA – Italy; NLD – Netherlands; POL – Poland; ROM – Romania; SRB – Serbia; SVK – Slovakia; ESP – Spain; SWE – Sweden; GBR – United Kingdom; WE – Western Europe 1 The survey also uses information obtained from public sources, which KPMG believe to be reliable. These market reports were published in 2017 and 2018 by BNP Paribas Real Estate, $PMMJFST*OUFSOBUJPOBM $VTINBO8BLFěFME &DPOPNJTU*OUFMMJHFODF6OJU &)- &VSPQFBO$FOUSBM#BOL +POFT-BOH-BTBMMF .(3FBM&TUBUF 3FBM$BQJUBM"OBMZUJDT *.' 0&$% and Societe Generale.
Property Lending Barometer 2018 6 Overview of the European real estate market Average GDP growth forecast (2018 - 2020)* Central & Eastern European economies Other European economies Sweden 2.23% Ireland 3.80% Netherlands 2.17% Poland 3.53% Czech Republic 2.97% Slovakia Austria 3.53% 2.17% Hungary Slovenia 2.87% 3.60% Croatia 2.70% Serbia 3.30% *Source: Economist Intelligence Unit
Property Lending Barometer 2018 Overview of the European real estate market 7 Overview of the European real estate market Macroeconomic outlook of the region DPNNPOFYQFDUBUJPOSFHBSEJOHUIFTIPSU term future of oil prices. Eased lending Following the weak growth period after conditions, increasing loan demand and the economic crisis, the global economy consistently low interest rates in previous is in a phase of steady improvement. years caused an increase in the value of 5IFVOFNQMPZNFOUSBUFJOUIF&VSPQFBO certain assets, including real estate. In Union has been decreasing since spite of the recently increased interest 2013 and is anticipated to reach its rates in the USA, European rates are lowest level in 40 years. In line with not expected to increase this year, until the relative scarcity of labour, real the quantitative easing policy set by the wages are projected to rise in several European Central Bank ends, with the countries, while household income is exception of the UK where the Bank of likely to continue its robust growth trend England raised interest to its highest manifested since the millennium. since 2009. In this context, the trajectory of the European economy may be Average real GDP growth in the countries JOĜVFODFECZBSBOHFPGSJTLGBDUPST Romania included in this year’s survey was 4.1% 3.73% last year, which signals accelerated Besides the potentially detrimental growth compared to previous years. impact of a slowing Chinese economy, 'PSFDBTUTJOEJDBUFNPSFNPEFSBUFCVU there is also a risk of a deepening trade robust growth in the next few years, with war between China and the USA, with Bulgaria all countries growing by less than 4% in far reaching consequences on global 3.03% 2019, and the average growth for these trade. Political uncertainties and threats to economies reaching 2.4% by 2020. economic growth appear to prevail, such as slow Brexit negotiations, and Europe’s *OĜBUJPOSBUFTTJHOJěDBOUMZJODSFBTFEJO still unresolved issue of a potentially Europe over the second half of 2017. enduring refugee crisis. Although the After a temporary decrease during the Macron reform program in France has ěSTURVBSUFSPG JOĜBUJPOJTFOUFSJOH had a positive effect on investments and a steady growth phase and is expected given the country higher growth potential, to reach a rate of 2.1% by the end of this the social support of the program may year. Oil prices have been volatile and not be strong enough to allow for a there are several unpredictable forces sustained economic impact. Meanwhile, behind the change in today’s oil prices. In the German economy is booming, with Cyprus November 2017 OPEC agreed to maintain increasing savings and investment, 2.70% oil production cuts throughout 2018 to fundamentally driving the growth QVUBĜPPSVOEFSQSJDFTZFU UIFSFJTOP prospects of the region.
Property Lending Barometer 2018 8 Overview of the European real estate market However, outstanding questions related Bank lending experienced growth of their total and to the migrant crisis have put pressure liquid assets mainly due to favorable on the government coalition, causing 5IFTVTUBJOFEHSPXUIPGMFOEJOHBDUJWJUZ SFHVMBUPSZPSTVQFSWJTPSZBDUJPOT5IF uncertainty in Germany’s political in Europe has been supported by eased European Central Bank’s quantitative environment that has not been in the lending conditions and stable demand easing has continued to support country for many years. since 2014. Competitive pressure in borrowing opportunities and improve the UIFěOBODJOHTFDUPSBOEGBWPSBCMFSJTL QSPTQFDUTGPSCBOLMFOEJOH5IJTZFBS Due to the diverse economic and perceptions have also spurred overall the ECB reduced its monthly net asset social context of various economies in loan growth. Competitive pressure in purchases by half compared to 2017, from Europe, the extent to which the above UIFěOBODJOHTFDUPS BOEGBWPVSBCMFSJTL &63CJMMJPOUP&63CJMMJPO5IJTQBDF macroeconomic and political factors perceptions have also spurred overall is scheduled to be reduced to EUR 15 NBZJOĜVFODFUIFBDUVBMFDPOPNJDBOE loan growth and this positive tendency is billion until December, when the program political trajectory of various countries is likely to prevail throughout 2018. During will be phased out completely. expected to vary greatly. UIFěSTUIBMGPG &VSPQFBOCBOLT Meanwhile, the cleaning and Breakdown of real estate transactions volume strengthening of banks’ balance sheets - Europe, H1 2018, H1 2017 (%) BSFTUJMMBQSJPSJUZ5IF&VSPQFBONBSLFU for loan portfolios saw a return to growth H1 2018 H1 2017 JO5IFUPUBMWBMVFPGSFBMFTUBUF backed loan portfolio sales reached over EUR 100 billion for a third consecutive 2 2 year, totalling a record of EUR 114 billion. Pressure from European regulators 2 12 1 1 3 concerning balance sheet consolidation 14 24 3 27 BOEUIFTBMFPGOPOQFSGPSNJOHMPBO 4 portfolios remain considerable drivers of 3 2 the market. 4 5 4 Real estate market in Europe 22 6 26 9 10 6 8 %VSJOHUIFěSTUIBMGPG UPUBM investment volume decreased by 19% compared to H1 2017, reaching just CFMPX&63CJMMJPO5IJTJTDPOTJEFSFE UIFMPXFTUMFWFMěSTUIBMGTJODF5IF GBR GER FRA NLD ESP SWE POL slowdown is partly due to the amount ITA IRE BEL DEN Other Europe PGQFOEJOHEFBMTSFDPSEFEJOUIFěSTU months along with the maturity of the Source: Real Capital Analytics market and high prices in Europe’s core Breakdown of real estate transactions volume - countries and cities. Political concerns are also considered as a negative driver Central & Eastern Europe, H1 2018, H1 2017 (%) for investments. H1 2018 H1 2017 Real estate investment activity shows a 2 diverse picture across Europe. Germany and the UK were responsible for half of 6 6 7 total investment volume in Europe, at 7 8 22% and 27%, respectively during the 28 ěSTUNPOUITPG5IFGPSNFSIBT showed a notable volume decrease of 6 15 31%, while the UK market volume has 58 GBMMFOCZTJODFUIFěSTUIBMGPG 5IFXJOOFSTPGZFBSPOZFBSJODSFBTFT 17 are undoubtedly Poland and Ireland 40 which exhibit almost double the real estate investment volumes compared UP)5IF/FUIFSMBOETBMTPCFBST a positive change of 17% growth from the previous year, as it attracts 9% POL CZE HUN ROM SVK BUL of the total volume in Europe. Other Source: Colliers major markets, such as Spain, Italy and
Property Lending Barometer 2018 Overview of the European real estate market 9 Cross-border investment in billion (EUR 5.6 billion in total), which %BUBGSPNUIFěSTUIBMGPGTIPXT Europe, 2017 (%) means that during the last 12 months, UIBUUIFPGěDFTFDUPSJTTUJMMUIFNPTU the average total growth rate of these TJHOJěDBOUBU GPMMPXFECZSFUBJM CEE countries was 4%. In H1 2018, (20%), residential (19%), industrial (11%) investment in Poland leads the region and hotel (7%). None of the sectors with a share of more than half of total has escaped from the effects of a 17 transaction volumes (58%), followed HFOFSBMTMPXEPXO XJUIBZFBSPOZFBS by Czech Republic (17%). Compared EFDSFBTFPGBSPVOE5IFNPTU 6 to H1 2017, the most notable winner, modest drop occurred in the residential 39 in this respect, was Slovakia with a TFDUPS CZ5IFJOEVTUSJBMTFDUPS growth rate of 117%. However, half of decreased the most by 24%. UIFDPVOUSJFTFYQFSJFODFEZFBSPOZFBS 19 EFDSFBTFT$[FDI3FQVCMJD Prime yields are expected to remain )VOHBSZ BOE#VMHBSJB stable through 2018, with little change 19 in the countries in our sample. Following &VSPQFBODSPTTCPSEFSJOWFTUPST UIFEFDMJOFGSPN UIFěSTUTJHOTPG invested EUR 53.4 billion in Europe, stabilization were acknowledged in Q4 which is a 14% increase compared to a 2017. Concerning CEE countries, there ZFBSFBSMJFS5IFJSNBJOUBSHFUNBSLFUT XBTBTMJHIUEFDSFBTFPGPGěDFTFDUPS Europe Americas were Germany, the Nordics and the yields in Q2 2018 compared to a year UK. American investment in Europe ago with an average of 0.28 percentage Asia Paciﬁc Middle East remained stable after reaching its points, which is more severe than the QFBLJO5IF"NFSJDBTTIBSFXBT comparable decrease of yields in high Other foreign not allocated close to 19% of total investment with street retail with an average of 0.11 the main deals occurring in Germany, percentage points, but more moderate Source: BNP Paribas Real Estate the UK and France. Middle Eastern than in the logistics sector (0.32 DSPTTCPSEFSJOWFTUPSTSFQSFTFOUB percentage points). Current yields are Sweden, have stepped into a path of stable 6%, having invested EUR 7.5 JOUIFSBOHFPGXJUITJHOJěDBOU decline for the second consecutive year. billion in markets outside their region. differences across regions and cities. %VSJOH "TJB1BDJěDJOWFTUNFOU *ONPSFFTUBCMJTIFEFDPOPNJFT PGěDF Investment volumes in the six major into Europe almost doubled, with the yields decreased the most by an CEE countries (the Czech Republic, greatest focus on the United Kingdom. average 0.3 percentage points, followed Poland, Hungary, Romania, Slovakia, by high street retails and logistics with Bulgaria) have been increasing since 5IFSFIBTCFFOOPOPUBCMFDIBOHF equally 0.09 percentage points. Yields 2012. In both quarters of 2018 the in the breakdown of investment by SBOHFCFUXFFOJOUIFTF total investment volume was EUR 2.8 asset type in Europe since last year. economies.
Property Lending Barometer 2018 10 Overview of the European real estate market Investment by asset type in Europe, H1 2018 Residential 19 7 43 Hotel/Resort 11 Ofﬁce Industrial/Logistics 20 Retail Source: Real Capital Analytics Top buyers by location, H1 2018 (ranked by investment volume) The below tables present and rank the top buyers by location and by investment volume. Aroundtown topped the European market with a total investment volume slightly over EUR 2bn followed by BNP Paribas. United Kingdom Germany 1 Unibail-Rodamco-Westﬁeld 1 Aroundtown 2 Prudential plc 2 BVK 3 CK Asset Holdings 3 Universal-Investment 4 Brookﬁeld AM 4 Corestate Capital 5 TH Real Estate 5 Union Investment France Nordics 1 BNP Paribas 1 Heimstaden 2 TwentyTwo RE 2 Norden A/S 3 Societe Generale 3 Klovern AB 4 BVK 4 Dades A/S 5 Hines 5 Ragde Eiendom AS Central Europe Southern Europe 1 Oaktree 1 Kryalos AM 2 PIMCO 2 Groupe Auchan SA 3 Redeﬁne (REIT) 3 DekaBank 4 Goldman Sachs 4 Kildare Partners 5 EPP REIT 5 Apollo Global RE Source: Real Capital Analytics
Property Lending Barometer 2018 Overview of the European real estate market 11
Property Lending Barometer 2018 12 Managing impaired loans Managing impaired loans Following the global economic crisis, banks had a range of options when dealing with impaired loans, including SFTUSVDUVSJOH GPSFDMPTJOHPSTFMMJOHOPO QFSGPSNJOHMPBOQPSUGPMJPT5IFFYUFOU of successfully managing impaired loans has been greater in Western European markets, and at a swifter pace, factors XIJDIBSFBMTPSFĜFDUFECZUIFGBDUUIBU UIFOVNCFSPGOPOQFSGPSNJOHMPBO portfolio transactions in the real estate sector have been increasing, particularly in more developed markets. 5IJTQBSUPGUIFTVSWFZGPDVTFTPOCBOLTĳ options for managing real estate loans where there is a technical breach of contract, or where debtors cannot pay their capital and/or interest on time. Current state and future expectations for impaired loans While in more established real estate markets the proportion of fully compliant loans has been consistently higher in recent years, our current results show positive developments in most countries, but particularly in Hungary (whose the current rate of fully compliant loans reached 90%), Romania (89%), Serbia BOE$SPBUJB 5IFPOMZ country in our survey lagging behind with a deteriorating ratio is Cyprus (56%).
Property Lending Barometer 2018 Managing impaired loans 13 Restructuring as an opportunity to Banks see restructuring most positively in manage impaired loans Sweden, the Czech Republic and Austria, where the ratio of impaired loans that may Respondents in our survey claimed be managed through restructuring are over that almost 75% of their impaired real 90%. Cypriot banks are the least optimistic estate loan portfolios can be successfully (45%), while banks in Romania, Poland and managed through restructuring. Bulgaria are also cautious (58%, 61%, and 5IJTSFĜFDUTBTUBCMFUSFOEUIBUUIF 62%, respectively). rescheduling or restructuring of loans have been the preferred approach for managing impaired loans. Proportion of impared real estate loans per country 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CZE SVK POL HUN ROM SRB BUL CRO SWE IRE AUT NLD CYP Minor problem Serious problem Fully compliant real estate loans (e.g. technical breach of Loan to Value covenant) (e.g. unable to meet scheduled payments) Source: KPMG Property Lending Barometer, 2018 Proportion of impaired real estate loans that may be managed successfully through restructuring 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% CZE SVK HUN CRO SLV SRB BUL POL ROM SWE AUT IRE NLD CYP Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 14 Prospects for real estate loan portfolios
Property Lending Barometer 2018 Prospects for real estate loan portfolios 15 Prospects for real estate loan portfolios In this section, we assess survey participants’ expectations for the future of their real estate loan portfolios in light of recent developments, as well as their strategic BQQSPBDIUPSFBMFTUBUFěOBODJOH Strategic importance of real estate responded most positively, while a Netherlands afforded it below average ěOBODJOH OVNCFSPG$&&DPVOUSJFTBMTPDPOěSNFE importance. that they consider real estate 4VSWFZSFTVMUTUIJTZFBSDPOěSNFEBMPOH ěOBODJOHUPCFPGTJHOJěDBOUTUSBUFHJD *OUFSFTUJOHMZ XIJMFUIFTFěOEJOHT UFSNUSFOEUIBUSFBMFTUBUFěOBODJOHJT importance, including Hungary, Bulgaria, EPOPUGVMMZSFĜFDUUIFVOEFSMZJOH clearly more strategically important in Slovenia, the Czech Republic and macroeconomic conditions of the more established economies. Banks Poland. Similar to last year, respondents countries surveyed, the pattern appears from Ireland, Sweden and Austria from Croatia, Cyprus, Slovakia, and the to be relatively enduring. Strategic importance of real estate ﬁnancing for banks Central & Eastern European economies Other European economies 5 HIGH 4.5 4.25 3.83 4.00 4.00 4 3.75 3.67 3.60 3.60 3.5 3.40 3.20 3.10 3.10 3 2.75 2.67 2.5 2 1.5 LOW 1 HUN BUL SLV CZE POL ROM SRB SVK CRO IRE SWE AUT NLD CYP Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 16 Prospects for real estate loan portfolios $IBOHFJOGPDVTPOSFBMFTUBUFěOBODJOH Focus on real estate ﬁnancing within the bank's lending within the banks’ lending activities acitvity compared to one year ago Banks were also asked how their focus has Central & Eastern European economies DIBOHFEUPXBSETSFBMFTUBUFěOBODJOHBTBO element of their lending activity compared to one year earlier. Banks from almost all countries indicated an increase since last year, the only exceptions being Cyprus, the Netherlands and Poland, 0 2 55 27 16 who reported that their focus on real estate ěOBODJOHXBTNBJOUBJOFEDPNQBSFEUP UIFQSFWJPVTZFBS5IFTJHOJěDBOUJODSFBTF in focus was noted in Bulgaria, Slovenia, Romania, Hungary and Serbia, also SFĜFDUJOHBUSFOEPWFSBOVNCFSPGZFBST (with the exception of Slovenia which was not included in the survey last year). Other European economies Most important factors affecting real estate loan portfolios Banks were also asked to identify the key drivers affecting their real estate portfolios. 0 6 67 27 0 Similar to previous years, the most TJHOJěDBOUGBDUPSGPSCBOLTJO&VSPQFXFSF the macroeconomic conditions in the local market. Increased uncertainty in the global political and economic environment that affected local economies in 2016 appears UPCFBSBOFOEVSJOHJOĜVFODFPOCBOLTĳ lending activities. Signiﬁcantly decreasing Decreasing Maintained No other factor affects banks’ real estate Increasing Signiﬁcantly increasing lending activity by a comparable measure, according to this year’s survey results. Source: KPMG Property Lending Barometer, 2018 Most important factors affecting real estate loan portfolios CEE economies Other European economies Macroeconomics conditions in the local market Lack of prime properties Lack of active properties Activities of European Central Bank / National Banks Macroeconomic conditions in Europe New strategy Lack of equity Decreasing / negative interest rates Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 Prospects for real estate loan portfolios 17 Nevertheless, a lack of investors and Central & Eastern Europe and in other the most, responses indicated that new strategy are additional factors that European markets. Insurer/pension funds private equity/debt funds are expected could impact the growth prospects of are recognized competitors in real estate to see the strongest growth in this area, their loan portfolios in Central & Eastern lending predominantly in other European DMPTFMZGPMMPXFECZOPOMPDBMDPNNFSDJBM European markets, more so than in more markets. banks. Investment banks and insurers/ established economies. A lack of prime pension funds are also expected to properties, the activities of the European In their response to our query on how grow moderately. Responses showed Central Bank and/or national banks, and they anticipate the real estate lending similar patterns in Central & Eastern macroeconomic conditions in Europe also activities of alternative lenders to change Europe, as well as in other European received moderately high scores in both in 2018 compared to 2017, respondents countries surveyed, with the only notable country groupings. agreed that all alternative lenders bear difference being the somewhat stronger prospects for growth. growth prospects of insurers/pension Disposing of loan portfolios funds in more established economies. In terms of which alternative lenders are In general, banks in most countries likely to increase their lending activity are now unwilling to dispose of part of their loan portfolios in the next NPOUIT*OIBMGPGUIFDPVOUSJFT Competition with alternative lenders surveyed, none of the banks showed any interest in this opportunity. Even in the remaining countries, less than a third of the respondents banks indicated such an interest. Only in three countries did we identify a notable inclination to disposal: in the Netherlands (40%), Level of competition Cyprus and Croatia (both 33%), mostly due to strategic exits by their banks. Capital adequacy was also mentioned as another factor for disposal by banks. Alternative lenders Banks were also asked which alternative lender they consider as their biggest competitor in terms of banks’ traditional SFBMFTUBUFMFOEJOH5IFJSSFTQPOTFT revealed, as in previous years, that UIFTFTVSWFZQBSUJDJQBOUTWJFXOPO Non-local commercial Private equity/debt Investment bank Insurer/pension fund local commercial banks as their key bank fund competitor in most of the countries. Central & Eastern European Markets Other European Markets Private equity/debt funds are considered similarly strong competitors both in Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 18 0QQPSUVOJUJFTGPSěOBODJOHOFXSFBMFTUBUFQSPKFDUT 2SSRUWXQLWLHVIRUƪLQDQFLQJ new real estate projects 5IJTTFDUJPOBTTFTTFTUIFPQQPSUVOJUJFTGPSEFWFMPQFSTJOPCUBJOJOHCBOLěOBODJOHGPS real estate projects. /FXěOBODJOH ěOBODFOFXEFWFMPQNFOUT"MMDPVOUSJFT 5IFMPOHTUBOEJOHQBUUFSOBQQFBSTUP were in the positive, with the only prevail in terms of banks operating in Survey participants in all countries are exceptions being Sweden and Cyprus, the eurozone area being less open to RVJUFPQFOUPěOBODFJODPNFHFOFSBUJOH where banks, on average, are less open lending in other currencies. Outside of projects, with the highest level of in this respect. Banks in Ireland, Austria the eurozone, banks in Croatia, Hungary, interest shown in Ireland, Hungary, and Slovenia exhibited the greatest Poland and the Czech Republic showed a "VTUSJBBOEUIF$[FDI3FQVCMJD5IF PQFOOFTTUPXBSETěOBODJOHOFX higher level of openness to the prospect, openness of banks in Slovenia and development projects. while Swedish banks indicated they were Cyprus is more tempered, but still less open. positive in this respect. Bank representatives were also queried on whether they are open to lending in Respondents expressed a more cautious currencies other than that of the country approach in terms of their willingness to where the property/bank is located. Openness of banks to ﬁnance development/income-generating projects Central & Eastern European economies Other European economies MORE OPEN LESS OPEN CRO ROM POL SVK CZE BUL HUN SRB SLV CYP SWE NLD AUT IRE New developments Income-generating projects Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 0QQPSUVOJUJFTGPSěOBODJOHOFXSFBMFTUBUFQSPKFDUT 19 Asset class preferences especially in Ireland, the Netherlands particularly so in the Czech Republic, and Austria. In Central & Eastern Europe, Romania and Slovakia. Banks also provided a response POBWFSBHF PGěDFJTNPTUQSFGFSSFE regarding their preferred asset class for especially in Hungary and Bulgaria. 5IFMFBTUQSFGFSSFEBTTFUDMBTTPO EFWFMPQNFOUěOBODJOHJOFBDIDPVOUSZ average was the hotel sector, with the Among CEE markets, the popularity exceptions of Croatia and Cyprus, where As in previous years, residential is the of the industrial/logistics asset class banks representatives expressed a strong most preferred asset class among those TJHOJěDBOUMZJNQSPWFEBDSPTTNPTU preference for this class. surveyed in more established markets, markets since the previous survey, Banks’ sector preferences in providing development ﬁnancing by asset class (5 - top priority) Ofﬁce Residential Retail Industrial/Logistics Hotel/Resort Central & Eastern European economies SVK 2.5 3.0 4.5 4.0 1.0 CRO 3.0 4.3 3.0 2.7 4.7 SLV 3.0 3.0 3.3 3.7 2.0 CZE 3.3 3.8 3.0 4.3 1.0 ROM 3.8 3.3 2.8 4.0 2.3 POL 4.0 2.5 2.8 3.3 2.3 SRB 4.0 4.2 2.8 2.2 1.8 BUL 4.5 3.5 3.0 2.8 3.3 HUN 5.0 2.8 3.3 3.2 1.3 Other European economies IRE 3.3 5.0 1.7 2.3 3.0 CYP 3.5 1.8 2.0 2.9 4.5 NLD 3.6 5.0 2.6 2.8 1.3 AUT 3.8 4.8 2.2 2.4 2.2 SWE 4.6 4.0 1.3 3.5 1.8 AVERAGE 3.7 3.6 2.7 3.1 2.3 0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5 0 1 2 3 4 5 Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 20 0QQPSUVOJUJFTGPSěOBODJOHOFXSFBMFTUBUFQSPKFDUT $SJUFSJBGPSěOBODJOH JNQPSUBOUDSJUFSJBGPSPCUBJOJOHěOBODJOH independent feasibility study/valuation for a project are a strong business model and the size of the requested loan, the Having seen how open banks are and the quality of the asset. latter also ranked the lowest in more UPěOBODJOHQSPQFSUJFT BOEIBWJOH established economies. considered their asset class preferences, Other important criteria are the the following section considers the reputation and references of the Loan-to-cost ratios (LTC) criteria in regards to selecting projects to developer/operator as well as the ěOBODF ěOBODJBMCBDLHSPVOEPGUIF Bank representatives were also developer/investor. questioned about their technical criteria "MPOHUFSNQBUUFSOBQQFBSTUPQSFWBJMJO GPSěOBODJOH5IFSFTQPOTFTPOUIFJS terms of a consensus among the banks 5IFMPXFTUSBOLFEDSJUFSJBJOUIF$&& MPBOUPDPTUSBUJPTWBSJFECZDPVOUSZBOE surveyed in all countries, that the most countries are the existence of an asset type. Banks’ most important criteria when considering real estate ﬁnancing CEE economies Other European economies Strong business model/quality of the asset Reputation and references of the developer/operator Financial background of the developer/investor Level of owner’s equity How well the project is planned, status of permitting process Pre-letting/pre-sale level Existence of an independent feasibility study/valuation Size of the requested loan Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 0QQPSUVOJUJFTGPSěOBODJOHOFXSFBMFTUBUFQSPKFDUT 21 Overall, the difference between the Poland, the Netherlands and Slovenia are In the case of other European economies, average ratios in CEE and other European UIFMFBTUDPOTFSWBUJWF XJUIBWFSBHF-5$ MPBOUPDPTUSBUJPTBSFCFUXFFOBOE countries, in terms of how much equity SBUJPTPG JFSFĜFDUJOHBDBQJUBMTUSVDUVSF banks require from developers is not PGEFCUBOEFRVJUZ *O TJHOJěDBOU BWFSBHF-5$SBUJPTBSF -PBOUPDPTUSBUJPTJO$&&FDPOPNJFTGPS these markets the residential sector also 0.67, and 0.64, respectively). However, UIFPGěDF SFTJEFOUJBM SFUBJM JOEVTUSJBM IBTUIFIJHIFTU-5$SBUJPPOBWFSBHF BU within the country groupings there are logistics and hotel sectors are in a range GPMMPXFECZPGěDFBU TJHOJěDBOUEJGGFSFODFTBDSPTTDPVOUSJFT PGCFUXFFOBOE JFSFĜFDUJOHB Banks in Sweden, Romania, Ireland DBQJUBMTUSVDUVSFPGEFCUBOE As in previous years, the hotel sector and Cyprus require the highest level of 23% equity). On average, the residential requires the highest equity ratio in most FRVJUZ XJUIBWFSBHF-5$SBUJPTPG TFDUPSIBTUIFIJHIFTU-5$SBUJPBU of the countries surveyed, in a range of 0.62, while banks in the Czech Republic, GPMMPXFECZPGěDFBU Loan-to-cost (LTC) ratio expectations for ﬁnancing highly rated real estate development projects in the next 12-18 months Central & Eastern European economies Other European economies 85% 80% 75% 70% 65% 60% 55% 50% 45% 40% CZE HUN POL SVK SLV BUL CRO SRB ROM AUT NLD SWE IRE CYP Ofﬁce Residental Retail Industrial/Logistics Hotel/Resort Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 22 0QQPSUVOJUJFTGPSěOBODJOHOFXSFBMFTUBUFQSPKFDUT Loan-to-value ratios (LTV) *O$&&FDPOPNJFT QSFMFUSBUJPTGPSPGěDF and retail projects are on average 44% "TJTTJNJMBSGPS-5$SBUJPT UIFSFJTOPU and 49%, respectively, while industrial is BTJHOJěDBOUEJGGFSFODFCFUXFFOUIF at 61%. BWFSBHF-57SBUJPPGUIFBTTFUDMBTTFT per country grouping, with the average #BOLTĳBWFSBHFQSFMFUSFRVJSFNFOU for CEE countries at 0.66, and for other JOPUIFS&VSPQFBONBSLFUTGPSPGěDF &VSPQFBODPVOUSJFTBU5IJTJOEJDBUFT developments is 60%, 67% for retail that banks are willing to provide similar developments and 73% for industrial amounts of credit in proportion to the developments. total appraised real estate value in both country groups. 5IFHFOFSBMUSFOEUIBUJOEVTUSJBMQSPKFDUT BSFSFRVJSFEUPPGGFSIJHIFSQSFMFU For Central & Eastern European SBUJPTUPPCUBJOěOBODJOHIBTCFFO FDPOPNJFT UIFMPBOUPWBMVFSBUJPTGPS DPOěSNFECZSFTQPOEFOUTJOWPMWFE UIFPGěDF SFUBJM JOEVTUSJBMMPHJTUJDTBOE JOPVSTVSWFZ SFĜFDUJOHUIBUCBOLT hotel/resort sectors range from 0.59 to are less open to speculative industrial JFSFĜFDUJOHBDBQJUBMTUSVDUVSFPG QSPQFSUZEFWFMPQNFOUT5IJTJTNBJOMZ EFCUBOEFRVJUZ 5IF related to the fact that in the industrial retail sector, on average, has the highest segment it is more common to develop -57SBUJP GPMMPXFEDMPTFMZCZPGěDF properties according to a “build to suit” industrial and hotel, at 0.66, 0.65 and concept, which means that the property 0.63, respectively. is developed based on the (dominant) UFOBOUĳTTQFDJěDOFFETBOESFRVJSFNFOUT In the case of other European economies, the range is somewhat broader, between Debt service coverage ratios BOE SFĜFDUJOHBDBQJUBM TUSVDUVSFPGEFCUBOE 5IFEFCUTFSWJDFDPWFSBHFSBUJPT FRVJUZ 5IFMPXFTUBWFSBHFQSPQPSUJPOT İ%4$3ı FYQFDUFEGPSJODPNF PGFRVJUZBSFSFRVJSFEGPSUIFPGěDFTFDUPS generating projects of investors with (35%), while the most equity is needed excellent reputations and sound business for hotel and resort projects (40%). plans were also examined. Similar to previous years, the hotel *ODPNFHFOFSBUJOHQSPKFDUTJOUIFPGěDF TFDUPSĳTMPBOUPWBMVFSBUJPJTUIFMPXFTU and retail sector offer the lowest DSCR among all the asset classes in both ratios (1.31 equally), considering all market groups, with an average of 0.62. responses across country groupings. Pre-let ratios Banks operating in CEE economies require the lowest DSCR ratio for the #BOLTĳQSFMFUFYQFDUBUJPOTBMTPWBSZ retail asset class, at an average of greatly across countries and sectors. GPMMPXFEDMPTFMZCZPGěDFBU 0OBWFSBHF QSFMFUSBUJPTGPSUIFPGěDF Industrial and hotel projects require and retail sectors are lower in most of higher DSCR ratios of 1.31 and 1.36, the markets compared to the industrial respectively. sector. In other European economies’ banks "MPOHUFSNUSFOEQSFWBJMTUIBUCBOLTJO expect the lowest average ratio for more established economies tolerate JOEVTUSJBM BOEPGěDF GPMMPXFE less risk in relation to the speculative by retail (1.44) and hotel/resorts (1.59). nature of real estate projects, and require 5IJTVOVTVBMQBUUFSOJTNBJOMZFYQMBJOFE EFWFMPQFSTUPBDIJFWFBIJHIFSQSFMFU by the relatively high DSCR ratios Dutch SBUJPXIFOěOBODJOHBQSPKFDU BMUIPVHI CBOLTBQQMZUPNPTUQSPKFDUT banks in Austria appear to be less except for industrial projects (1.43). conservative in this respect, especially in the retail sector compared to other banks operating in more established economies.
Property Lending Barometer 2018 0QQPSUVOJUJFTGPSěOBODJOHOFXSFBMFTUBUFQSPKFDUT 23 Loan-to-value (LTV) ratio expectations for ﬁnancing highly rated income-generating real estate projects in the next 12-18 months Central & Eastern European economies Other European economies 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% HUN SVK CZE POL SLV ROM SRB BUL CRO AUT IRE NLD CYP SWE Ofﬁce Retail Industrial/Logistics Hotel/Resort Pre-let-ratio expectations for ﬁnancing highy rated ofﬁce, retail and logistics real estate development projects in the next 12-18 months Central & Eastern European economies Other European economies 100% 80% 60% 40% 20% 0% SLV SRB HUN POL CRO CZE BUL ROM SVK CYP AUT IRE SWE NLD Ofﬁce Retail Industrial/Logistics Debt service coverage ratio expectations for ﬁnancing highly rated income-generating real estate projects for selected countries in the region Central & Eastern European economies Other European economies 2.00 1.90 1.80 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 CZE SVK HUN SRB POL CRO ROM SLV BUL AUT IRE CYP NLD Ofﬁce Retail Industrial/Logistics Hotel/Resort Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 24 0QQPSUVOJUJFTGPSěOBODJOHOFXSFBMFTUBUFQSPKFDUT Interest premiums PGěOBODJOHDPOEJUJPOTBNPOHCBOLT JODPNFHFOFSBUJOHQSPKFDUT BTUIFSFJT hence they required relatively low interest less risk associated with such projects Survey respondents submitted a range QSFNJVNTJONPTUNBSLFUT5IJTUSFOE (e.g. there is no longer risk related to the for the interest premium they would apply prevailed in some markets (e.g. Hungary, EFWFMPQNFOUQIBTF 5IFEJGGFSFODFJO POBNPOUI&VSJCPSCBTJT JGBEFWFMPQFS Poland, Ireland), but in other markets it required average risk premiums between or investor of outstanding reputation with was reversed (e.g. Romania, Bulgaria, JODPNFHFOFSBUJOHBOEEFWFMPQNFOU a solid business plan approached them. the Netherlands), according to this year’s projects vary across the countries. For results from our survey. example, Polish banks offer premiums 5IJTTFDUJPOPGPVSSFQPSUPOMZJODMVEFT UIBUBSFMPXFSCZŨCBTJTQPJOUT UXPBTTFUDMBTTFT PGěDFBOESFUBJM XIJDI 5IFQSFNJVNBQQMJFEPOOFXPGěDFBOE POBWFSBHFGPSJODPNFHFOFSBUJOH are in 2018 key focus sectors from a real retail developments in Central & Eastern PGěDF BOESFUBJM BTTFU estate investment perspective in Europe. European economies currently ranges classes compared to premiums for new Premiums for all asset classes in each GSPN0OBWFSBHF $[FDI EFWFMPQNFOUT #BOLTJO country are presented in the country banks require the lowest premiums, the Netherlands provide lower premiums QSPěMFTFDUJPOPGUIJTSFQPSU while Croatian banks require the highest. CZCBTJTQPJOUTPOBWFSBHF GPS PGěDFBOESFUBJM JODPNF Overall, interest premiums are the Banks were also queried about the generating projects than for new lowest in economies with lower risk interest premium that they would apply EFWFMPQNFOUT QSPěMFTBOEXFMMFTUBCMJTIFESFBMFTUBUF POBNPOUI&VSJCPSCBTJTPOMPBOTGPS markets, spurred by competition among IJHIRVBMJUZJODPNFHFOFSBUJOHQSPQFSUZ Among the CEE economies, Czech ěOBODJOHJOTUJUVUJPOTUIBUDPOUSJCVUFE projects. and Slovakian banks apply the lowest to more favorable conditions available premiums, while the highest are applied to borrowers. However, there are Based on the responses of those by Serbian and Croatian banks. In the FYDFQUJPOT BTSFĜFDUFECZUIFSFMBUJWFMZ surveyed regarding the interest premiums case of the other European economies, higher loan interest premiums in the BQQMJFEPOJODPNFHFOFSBUJOHQSPKFDUT banks in Sweden require the lowest, Dutch and Irish real estate markets. these countries we ranked regarding while Cypriot banks mandate the highest the favorability of the terms they offer. QSFNJVNTGPSJODPNFHFOFSBUJOH In previous years there was a tendency Compared to interest premiums required projects. that an improved economic environment for new developments, a lower premium across Europe resulted in the easing is applied by most of the banks for Loan interest premium applied by banks for highly rated estate development projects in selected countries Central & Eastern European economies Other European economies 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% CZE SLV SVK POL HUN SRB BUL ROM CRO AUT SWE NLD CYP IRE Ofﬁce Retail Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 0QQPSUVOJUJFTGPSěOBODJOHOFXSFBMFTUBUFQSPKFDUT 25 Length of loan policies limit the longest term of the JTJOBSBOHFPGZFBST8IFODFSUBJO loan they contract for. Consequently, the conditions are met, Irish banks are ready Survey participants were asked what the difference between the implied maximum to apply a very low amortization rate (2%), minimum required average annual loan amortization period and the available yet their maximum length of contract is BNPSUJ[BUJPOSBUFXPVMECFBUUIF-57 maximum contracted length of the loans relatively low (average 8.9 years). level applied for highly rated real estate is much greater in more established projects, as well as what the longest economies in other European countries In comparison with banks’ responses for contracted term of the loan would be for (22 years) than the average in the CEE UIJTTUVEZMBTUZFBS UIFSFJTOPTJHOJěDBOU ěOBODJOHBQSJNFJOWFTUNFOUJODPNF countries (8 years). difference in terms of the average implied generating property. maximum amortization period (24 years) In Central & Eastern European and the average available maximum Calculating the implied maximum economies, the implied maximum contracted length of the loans (11 years). amortization period from the minimum amortization period of the loan and the amortization rate, and cross checking that available maximum contracted length In terms of asset classes, taking the against the longest indicated contracted PGUIFMPBOSBOHFZFBSTBOE average of all markets surveyed, there are term banks apply, the difference reveals years, respectively. Banks in Poland, OPTJHOJěDBOUEJGGFSFODFTCFUXFFOUIF insights into the market conditions of when certain conditions are met, are amortization rates applied for different banks in the various economies they ready to apply the lowest average BTTFUDMBTTFT5IFSBUFTSBOHF operate in. amortization rate level (3.6%). XJUIPGěDFQSPKFDUTSFDFJWJOHUIFNPTU favorable terms, and industrial projects Overall, banks in more mature markets In other European economies, the implied the least favorable ones. Similarly, on operate in competitive environments maximum amortization period of loans average, the available maximum contract which drive them to offer low SBOHFTGSPNZFBST XIJMFUIF length applied by banks for different asset amortization rates; however, their internal available maximum length of contracts classes ranges from 10.2 to 11.2 years. Loan interest premium applied by banks for highly rated income-generating real estate projects in selected countries Central & Eastern European economies Other European economies 8.0% 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% CZE SVK SLV POL HUN BUL ROM SRB CRO SWE AUT IRE NLD CYP Ofﬁce Retail Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 26 0QQPSUVOJUJFTGPSěOBODJOHOFXSFBMFTUBUFQSPKFDUT Maximum amortization period* and available longest contracted term (in years) Central & Eastern European economies POL CZE SVK HUN CRO ROM SRB BUL Other European economies IRE SWE NLD AUT CYP AVERAGE 0 5 10 15 20 25 30 35 40 45 50 55 60 Maximum amortization period* Longest contracted term *Note: Implied maximum amortization period expressed in years, which is calculated from the minimum annual amortization rates (expressed in percentage) provided by the surveyed banks. Source: KPMG Property Lending Barometer, 2018
Property Lending Barometer 2018 Closing the gap: the convergence of the CEE region 27 Closing the gap: the convergence of the CEE region 5IJTTFDUJPOSFWFBMTBIJTUPSJDBMQFSTQFDUJWFPOIPXUIFěOBODJOHPG$FOUSBM&BTUFSO European real estate markets performed against Western European benchmarks. Based on previous KPMG Property Lending Barometer surveys, eight countries are included in the CEE grouping: Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Serbia and Slovakia. In the Western European sample, we included four countries in our analysis: Austria, Ireland, the Netherlands and Sweden. 'BDUPSTJOĜVFODJOHMPBOQPSUGPMJPT in Western Europe has been the lack of prime properties, until macroeconomic Initially we observed what factors factors rose to the top of the ranking JOĜVFODFEUIFCBOLTĳSFBMFTUBUF in 2018. In the meantime, in CEE, the portfolios in the two regions, and how lack of prime properties has been a UIFTJHOJěDBODFPGUIFTFGBDUPSTIBT moderately important factor, but never DIBOHFEPWFSUIFZFBST5IFNPTU UIFNPTUJOĜVFOUJBMPOF TJHOJěDBOUGBDUPSJOUIF$&&SFHJPO has always been the macroeconomic 5IFBDUJWJUJFTPGUIF&VSPQFBO$FOUSBM conditions in the local market, and this Bank and national banks have made an has also become the most important increasingly important impact on banks’ factor in Western Europe. real estate portfolios in both regions examined, particularly in 2016 when Due to the maturity of the more it was the most important factor in established real estate markets, the most Western Europe. JOĜVFOUJBMGBDUPSGPSSFBMFTUBUFQPSUGPMJPT
Property Lending Barometer 2018 28 Closing the gap: the convergence of the CEE region Most signiﬁcant factors inﬂuencing banks’ real estate loan portfolio 2015 2016 2017 2018 CEE Macroeconomic conditions in the local market CEE Activities of European Central Bank / National Banks CEE Lack of prime properties WE Macroeconomic conditions in the local market WE Activities of European Central Bank / National Banks WE Lack of prime properties Source: KPMG Property Lending Barometer 2015-2018 Loan interest premiums premiums in the CEE region (3.7% for than half of their portfolios impaired. In PGěDFBOEGPSSFUBJM POBWFSBHFJO the more established Western European A dynamic change in loan interest 2015) were much higher than comparable markets in our sample, the proportion of premiums applied by banks for highly Western European premiums in a range fully compliant loans was over 80% at rated real estate development projects PGJO CFGPSFUIFEJGGFSFODF the time. IBTBMTPCFFOFYBNJOFE CPUIGPSPGěDF between the regions shrank, with CEE and retail projects. A retrospective view QSFNJVNTEFDSFBTJOHUPCZ Presumably as a result of successfully shows the clear convergence of the two 2018, in close proximity to Western restructuring of their portfolios, both regions, as the relatively high interest European premiums in a range of regions experienced an improvement QSFNJVNTJOUIF$&&SFHJPO in the structure of their real estate loan on average in 2015) gradually decreased, portfolios. With a couple of exceptions, approaching the level of what banks Impaired loans all CEE countries have managed to reach BQQMZJO8FTUFSO&VSPQFJF Western European levels in terms of the GPS$&&BOEGPS8FTUFSO In 2015, the CEE region was quite proportion of fully compliant real estate Europe in 2018. diverse in terms of the proportion of loans by 2018, as all improved to above impaired loans in banks’ real estate 85%, with Croatia and Bulgaria, though 5IFUSFOEJOMPBOJOUFSFTUQSFNJVNT portfolios. Some countries, like the Czech improving, still lagging behind at 68% applied by banks for highly rated income Republic and Poland had over 85% of and 78%, respectively. generating projects shows a similar their portfolios fully compliant, while QBUUFSO5IFSFMBUJWFMZIJHIJOUFSFTU others like Croatia and Serbia have more
Property Lending Barometer 2018 Closing the gap: the convergence of the CEE region 29 Loan interest premium to be applied by banks for highly rated real estate development projects 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 2015 2016 2017 2018 Ofﬁce CEE Ofﬁce WE Ofﬁce CEE Ofﬁce CEE Source: KPMG Property Lending Barometer 2015-2018 Loan interest premium to be applied by banks for highly rated real estate development projects 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 2015 2016 2017 2018 Ofﬁce CEE Ofﬁce WE Ofﬁce CEE Ofﬁce CEE Source: KPMG Property Lending Barometer 2015-2018 The proportion of fully compliant real estate loans 95% 85% 75% 65% 55% 45% 35% 2015 2016 2017 2018 CRO SRB BUL ROM HUN SVK NLD AUT POL CZE IRE SWE Source: KPMG Property Lending Barometer 2015-2018
Property Lending Barometer 2018 30 Conclusions
Property Lending Barometer 2018 Conclusions 31 Conclusions European countries face varying macroeconomic outlooks and Alternative lenders are expected to increase their involvement QFSDFJWFESJTLQSPěMFT CPUIPGXIJDIGVOEBNFOUBMMZTIBQFUIF JOěOBODJOHSFBMFTUBUFJOBMMNBSLFUTJODMVEFEJOPVSTVSWFZ prospects for each country’s real estate market. "NPOHUIFBMUFSOBUJWFMFOEFST OPOMPDBMDPNNFSDJBMCBOLT are banks’ biggest competitors in the CEE region, while private equity/debt funds and insurer/pension funds provide a comparative threat in more established markets. 8IJMFěOBODJOHDPOEJUJPOTSFNBJOPWFSBMMQPTJUJWFJO&VSPQF increasing external risks limit the general growth prospects. "MPOHUFSNQBUUFSOQSFWBJMTBTCBOLTJOHFOFSBMQSFGFS ěOBODJOHJODPNFHFOFSBUJOHQSPKFDUTPWFSOFXEFWFMPQNFOUT A decline in total investment volume continued for the third DPOTFDVUJWFZFBSJO&VSPQFJOUIFěSTUNPOUITPG While Germany and the UK continued to attract over half of UPUBM&VSPQFBOUSBOTBDUJPOWPMVNFEVSJOH) TJHOJěDBOU growth occurred in Ireland and Poland. 5IFQSFGFSSFEBTTFUDMBTTJONPSFFTUBCMJTIFENBSLFUTJT SFTJEFOUJBM GPMMPXFECZPGěDF TJNJMBSUPMBTUZFBS)PXFWFS JO$&&NBSLFUT PGěDFJTNPTUQSFGFSSFE5IFIPUFMTFDUPS SFNBJOTUIFMFBTUEFTJSBCMFCZCBOLTJOUFSNTPGěOBODJOH JO both country groups. 5IFQSPQPSUJPOPGOPOQFSGPSNJOHMPBOTIBTTJHOJěDBOUMZ decreased in all markets, with a few exceptions; banks DPOěSNFEUIFJSPQFOOFTTUPPGGFSSFBMFTUBUFěOBODJOH FTQFDJBMMZGPSJODPNFHFOFSBUJOHQSPKFDUT Similar to the last two years, the difference between the implied maximum amortization period of loans and the available maximum contracted length of loans offered by banks is much greater in more established economies (22 years) than in CEE Banks in our survey indicate a preference restructuring economies (8 years). problematic loans rather than seeking foreclosure, especially in more established economies. 4JNJMBSUPQSFWJPVTZFBST BNBSLFUTQFDJěDBOBMZTJTGPS each country is provided in the section that follows. 5IFTFDPVOUSZQSPěMFTIJHIMJHIUUIFTVSWFZFENBSLFUTĳ VOJRVFDIBSBDUFSJTUJDTBTSFĜFDUFECZUIFJSWBSZJOHNBSLFU fundamentals, as well as the present and prospective 5IFGPDVTPOSFBMFTUBUFěOBODJOHIBTJODSFBTFEJOBMM DPOEJUJPOTGPSěOBODJOH countries, except Cyprus, the Netherlands and Poland, where it has remained unchanged since last year.
Property Lending Barometer 2018 32 $PVOUSZQSPěMFT
Property Lending Barometer 2018 $PVOUSZQSPěMFT 33 &RXQWU\SURƪLOHV Austria Bulgaria 34-35 36-37 Croatia Cyprus 38-39 40-41 $[FDI Hungary 42-43 3FQVCMJD 44-45 Ireland Netherlands 46-47 48-49 Poland Romania 50-51 52-53 Serbia Slovakia 54-55 56-57 Slovenia Sweden 58-59 60-61
Property Lending Barometer 2018 34 $PVOUSZQSPěMFT Economy 2.9% 2.0% 4.9% GDP Growth *OĜBUJPO Unemployment rate 2018 F 2018 F 2018 F Austria Source: Economist Intelligence Unit Prime yields 3.50% 3.75% 5.75% Investment volume reached a peak in High Street Retail 0GěDF Industrial 2017, while yields hit a (Q1 2018) (Q1 2018) (Q2 2018) record low. Investors, especially from Source: EHL Source: EHL 4PVSDF$VTINBO8BLFěFME Germany, acquired Key investment transactions H1 2018 trophy assets in 7JFOOBĳTPGěDFNBSLFU City Property Seller Buyer Vienna FMZ Stadlau Tristan Capital Bayerische retail park Partners Versorgungskammer In 2018 sustained high demand in the Vienna The Icon Vienna Signa Allianz investment market is facing limited Vienna Porr Tower HPM Privatstiftung KFIM & JR AMC availability of high Motel One quality assets. Vienna West Bahnhof Acron Group Real I.S Vienna EHK 107 Haring Group Union Investment Christoph Fida Source: KPMG Property Lending Barometer, 2018 Transaction volume and YoY change H1 2018 1,468 EUR m Source: Real Capital Analytics -27 %
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