European property firms raising more capital
While there is some concern that property markets such as London are pushing to far too quickly, French bank Société Générale has confirmed that property companies are still raising significant capital in the convertible bond market. Of the €1.5 billion raised so far in 2014, nearly 60% is related to European property companies with investors looking to take advantage of the current environment. This prompts a number of questions about the European property market especially bearing in mind the likes of Spain and Portugal are still struggling to gain any real momentum.
Why is the current environment so attractive?
In simple terms, worldwide interest rates are still at historically low levels and European wide interest rates are unlikely to move ahead in the short to medium term. As a consequence, minimal money market rates are pushing more and more investors towards property were not only is there potential for capital growth but also rental income. Even though the Bank of England has suggested that UK base rates could rise in the short-term, this is unlikely to be a major problem across the rest of Europe with economies still struggling to recover.
It is likely that investors will re-evaluate the situation as and when European wide interest rates begin to rise but at this moment in time this is some way off.
Bombed out property markets
In the eyes of some investors, bombed out Spanish and Portuguese property markets for example have the potential for long-term recovery and significant capital growth. Therefore, when you bear in mind the rental income available at the moment, many investors are willing to invest their capital in the longer term because in effect rental income will for many cover ongoing finance costs. The fact that inflation is relatively low also makes property rental income and potential capital growth very attractive for many people.
Quote from PropertyForum.com : “While Spanish real estate has been very much in the news over the last couple of years, with very few friends and very little interest, it seems the situation is changing. A number of reports over the last few days are suggesting that while approaching 100,000 UK expats” abandoned their Mediterranean dream” last year it seems that the tide is now turning.”
It may be five years away, 10 years away or even 20 years away but at some point the European real estate market will recover. Economies will come together, Europe as a whole will push forward although there are still some uncertainties such as the future political make-up of Europe and even the currency. These factors will be clarified and cleared up in due course and we may look back in years to come and wonder why we were not more positive on European real estate in the longer term?
Property hotspots
At this moment in time the UK property market is proving to be a particularly strong magnet for overseas investors, with enormous interest in London, although this will switch and change in due course. The very different economic performance across Europe will ensure that different property markets recover and deflate at different times therefore allowing savvy investors the opportunity to jump aboard property hotspots and bailout of those which have perhaps moved ahead of themselves.
Conclusion
It is interesting to see that the vast majority of income raised by convertible bonds is associated with European property companies. Indeed figures from Société Générale confirm that almost 60% of the €1.5 billion raised so far in 2014 is for property investment purposes. It will be interesting to see how European real estate markets recover in the short, medium and longer term and indeed what impact the eventual increase in European wide base rates will have on the property market.