The 9th edition of KPMG’s comprehensive survey which assesses the prospects for lending in the real estate sector in 14 countries across Europe.
KPMG’s Property Lending Barometer 2018 aims to provide an analytical overview of the current approach of banks to real estate financing in Europe. It also reports on banks’ preferred asset classes, assesses the effect that alternative lenders have upon these markets, and how lending institutions are faring when it comes to impaired loans.
The survey queried 70 representatives of lending institutions from: Austria, Bulgaria, Croatia, Cyprus, the Czech Republic, Hungary, Ireland, the Netherlands, Poland, Romania, Serbia, Slovenia, Slovakia and Sweden.
At a glance
European countries face varying macroeconomic outlooks and perceived risk profiles, both of which fundamentally shape the prospects for each country’s real estate market. And while financing conditions remain overall positive in Europe, countries need to focus on the increasing external risks.
Juliana Mateeva, Real Estate Lead, comments on the survey results: “Real estate financing is an increasing strategic focus of Bulgarian banks. They have indicated their preference for the office segment, and the industrial/logistics asset class is also gaining popularity in the CEE region.”
Banks’ preferences in providing financing
As in previous years, residential is the most preferred asset class among those surveyed in more established markets, especially in Ireland, the Netherlands and Austria. In Central & Eastern Europe, on average, office is most preferred, especially in Hungary and Bulgaria.
Among CEE markets, the popularity of the industrial/logistics asset class significantly improved across most markets since the previous survey, particularly so in the Czech Republic, Romania and Slovakia. The least preferred asset class on average was the hotel sector, with the exceptions of Croatia and Cyprus, where banks representatives expressed a strong preference for this class.
The survey participants view non-local commercial banks as their key competitor in most of the countries. Private equity/debt funds are considered similarly strong competitors both in Central & Eastern Europe and in other European markets. Insurer/pension funds are recognized competitors in real estate lending predominantly in other European markets.
In terms of which alternative lenders are likely to increase their lending activity the most, responses indicated that private equity/debt funds are expected to see the strongest growth in this area, closely followed by non-local commercial banks. Investment banks and insurers/pension funds are also expected to grow moderately. Responses showed similar patterns in Central & Eastern Europe, as well as in other European countries surveyed, with the only notable difference being the somewhat stronger growth prospects of insurers/pension funds in more established economies.
Closing the gap: the convergence of the CEE region
This historical perspective on how the financing of Central & Eastern European real estate markets performed against Western European benchmarks reveals a closing of the gap.
Presumably as a result of successfully restructuring of their portfolios, all participating countries experienced an improvement in the structure of their real estate loan portfolios. With a couple of exceptions, all CEE countries have managed to reach Western European levels in terms of the proportion of fully compliant real estate loans by 2018, as all improved to above 85%, with Croatia and Bulgaria, though improving, still lagging behind at 68% and 78%, respectively.
For further insights on the lending market in Bulgaria and Europe, see KPMG’s Property Lending Barometer 2018.