Europe real estate

parthenonMany people believe that investing in property is a certain moneymaking option, but historical experience has often been opposite in recent years.

European real estate markets might have been doing fairly well in the past, but the recent economic crisis has left them in limbo. Most European real estate markets are being chosen for their safe haven potential rather than growth.

The specialized, non-core investments are gaining the attention of investors as effective alternatives to the traditional property types. According to the annual forecast released by Urban Land Institute and PwC, the prospect for any considerable turnaround this year depends on the effects of the recent regulatory measures on banks’ willingness to generate commercial property loans.

A survey of about 600 well-renowned commercial property professionals was conducted across Europe this year, and it shows that 2012 is the year with negative trends in the market. Furthermore, the report predicted that the property financing will be the major problem this year, as the banks are busy tackling macro-economic issues and regulatory problems.

Deleveraging will most probably not free up capital for new/fresh property lending. In its place, debt is most likely to become expensive and short-term. Consequently, the requirement to find an effective alternative source of funding will become extremely important for investors.

The instability of real estate market in Europe is affecting the debt and equity providers in a negative way. Moreover, the sovereign debt crisis is likely to show wide-reaching impact on the market. The real estate transaction activities have decreased since the start of this year, in part because the accrued sovereign debt crisis. The high level of uncertainty generated this year has resulted in considerably feeble real estate fundamentals. The reluctance of investors to face probable income risks has also increased.

If European policy makers muddle through the sovereign debt crisis persistently, huge differences are expected between the underperforming markets (particularly Spain) and the flexible core markets (particularly Germany). Defensive assets having secure income streams are most likely to remain highly priced. On the other hand, secondary assets that are debt dependent would be under performing this year.

However, if the policy markers deploy a strong policy response, they could most effectively prevent the euro zone to break up. It will also reduce the uncertainty that has caused problems in the current real estate market. Under such circumstances, the investment markets are also going to respond positively.

European REITs are also likely to take advantage from the significant bounce in the European equity market. A stronger policy response can also ensure stronger performance of European direct real estate as compared to the current climate.

Core European markets might be preferred by investors, but the opportunities for well planned, value added strategies are greater. Assets without the potential of income growth are under performing currently, because investors are no longer willing to pay for defensive qualities. Careful portfolio positioning is required presently for negotiating the current uncertain environment.

Although significant profit is hard to find in the European core markets, numerous investors are witnessed to be willing to continue valuing the defensive qualities of lower-risk real estate.