In general, bank financing of property investment and development projects has taken a “big step forward” in Europe, according to a recently released survey by KPMG, Property Lending Barometer 2015. This comprehensive, 50-page study by KPMG, interviewing bank representatives from European countries, assesses banks’ sentiment towards property financing and key financing parameters.
The respondents to the 6th edition of KPMG's annual study were representatives from over 90 financial institutions and 21 countries. The surveyed economies were categorized as “dominant1”, “established2” and “other3” less established economies.
“Banks' sentiments are improving and they are becoming more willing to finance real estate projects” notes KPMG's Andrea Sartori, Partner and Head of Real Estate in Central & Eastern Europe, who also coordinated this year's edition of the Property Lending Barometer.
“Europe is seeing record low interest rates, as well as an asset purchase program initiated by the European Central Bank, which is expected to enhance the liquidity position of the banks. There is also increased competition that banks are facing from alternative lenders such as private equity/debt funds and investment banks.
“As a result investors are snapping up the choice products on Europe's property markets, especially in more established economies,” he adds.
Meanwhile, banks in the less established markets appear to still be facing difficulties caused by the sizeable proportion of non-performing loans in their loan portfolios, according to KPMG's report.
The recovery in real estate lending, according to the report, is most tangible in the more developed European economies; less-established economies, it adds, are still under pressure to deal with the damage caused by the global financial crisis. Banks in other less established economies such as Serbia and Croatia exhibit a larger proportion of impaired loans, which has made banks skittish about lending to the real estate sector.
KPMG's Andrea Sartori points out: “Due to this large proportion of impaired loans, so-called other economies, as outlined in our study, could very well be potential targets for those looking to pick up distressed loan portfolios.”
The survey also offers an evaluation of the criteria that European financial institutions are taking into consideration when providing loans to property developments/investments.
“Most banks in our survey – regardless of which economy they're working in– emphasized that the projects they were willing to finance bear a strong business model and be a high quality asset,” he explains. Mr. Sartori adds that while another criterium (second in the ranking), reputation and references of the developer/operator, was more crucial for dominant/established economies included in the study, the level of owner's equity was more important (and the second priority) for less established economies.
“Our survey respondents report that they still prefer income-generating projects compared to new developments, especially in the dominant and established economies,” he explains.
Among other interesting findings from KPMG is that the residential segment is the preferred asset class for banks’ in the case of development financing in dominant/established economies categorized in the survey, followed by retail, office, and industrial space. In other less established economies, however, office space ranked 1st, followed by retail, residential and industrial. The Property Lending Barometer finds that lenders are the more interested to finance hotel projects in countries heavily reliant on tourism, like Greece or Cyprus.
Including survey responses on the prospects and terms available to real estate developers and investors, Property Lending Barometer 2015 also contains invaluable information for those seeking bank financing, offering up the specifics in the 21 surveyed European markets as well as respondents' expectations for the next 12-18 months.
To receive your complimentary copy of KPMG's Property Lending Barometer 2015, or to speak to a KPMG expert for more insights into the results of the survey, contact:
Partner, Survey co-ordinator
Head of Real Estate in CEE
1 Italy, Germany, Spain, United Kingdom
2 Austria, the Czech Republic, the Netherlands, Poland, Slovakia and Sweden
3 Baltic states, Bulgaria, Croatia, Cyprus, Greece, Hungary, Romania, Serbia and Turkey
© 2018 KPMG Central and Eastern Europe Ltd., a limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.