European property sector facing $50 billion shortfall

While many people believe that the worst of the Euro crisis is now behind us, the fact remains that financial institutions across Europe are still reluctant to lend anywhere near the amount required for short-term debt maturity in the European property market. Experts believe there will be a $50 billion shortfall on European property related debt maturing in 2014 although there are signs that the problem could be resolved fairly quickly.

Even though the vast majority of banks are still reluctant to increase their exposure to the European property market, wider profit margins are now attracting insurers, debt funds and sovereign wealth funds. The latest to join the party is Norway’s sovereign wealth fund which has formed a joint venture with Axa Real Estate Investment Managers.

Will funds be forthcoming?

The joint-venture will supply around $814 million of debt to the European property market which will help to refinance maturing debts next year. While $50 billion does sound like an awful lot of money, the European property market is enormous and it is unlikely that there will be anywhere near this kind of shortfall by the end of the year. Indeed, many experts believe that the wider profit margins now on offer will attract an array of financial powerhouses which should help to smooth over the refinancing situation next year.

Quote from PropertyForum.com : “I read an article that if I buy a home that costs about $200,000 U.S.D. I’ll get automatic Spanish Permanent-Residency which I imagine will lead to Spanish citizenship after a few years even though I’m not European.”

This comes at a time when the European property market is still under pressure, the future of the Euro is not altogether guaranteed and despite significant austerity measures introduced by European governments, government debts are still moving higher.

Bottom fishing

While there is no doubt that the European economy is still in dire straits, there is no doubt that property markets are still struggling it does seem that some investors are now willing to put their toes in the water to bottom fish for long-term property investments. It is also worth noting that governments in Portugal and Spain have introduced immigration opportunities, to those looking to investing in Portuguese and Spanish property, which has gone down very well with international investors.

One issue which is still on the horizon is that of properties acquired by default by many banks across Europe. There have been rumours that Spanish and Portuguese banks in particular are looking to jettison these assets at rock bottom prices which could be one of the reasons why the markets in Spain and Portugal have remained under a cloud. Once these assets have been jettisoned we may well see an improvement in confidence and hopefully a build-up of momentum.

Conclusion

While a $50 billion deficit for European property related refinancing next year makes great financial headlines the fact is that the European property market is enormous and $50 billion is not necessarily a major headache. Indeed the arrangement between the Norwegian sovereign wealth fund and Axa will provide an additional $814 million and that is only one transaction.

Historically refinancing arrangements in the European property market have been transacted on fairly small margins although improved margins due to this rumoured deficit are attracting an array of financial institutions. It will also be interesting to see whether 2014 is indeed a turning point for the European property market with many banks rumoured to be on the verge of jettisoning unwanted assets and large-scale investors sitting on the sidelines waiting for bargains.