European real estate is in turmoil

Bankruptcy of the major Austrian company Cigna He no longer leaves any doubt about the major problems facing the European real estate market. The size of the company, its broad presence in many countries and the significant exposure of many of the banks that lent to it, must have convinced even the most skeptical of the state in which many of its sectors were.

Its victims Cigna And there were many, the businessman himself, who financed for years, the leadership of the Swiss bank Julius Baer Who saw the exit door, the contractors who built its great towers in Hamburg, and those who worked on this project. And these days, as we learned from the international press, the “final credits” for this case are beginning to decline, as the proceedings for the sale of some of its most famous properties in Austria begin. But that is not the case Austriathe Germany And the Switzerland Countries already affected by European problems Real estate.

As we have seen in the past, Sweden was one of the first countries to see property values ​​fall and companies in this sector struggle to service their debt, as prices began to fall in 2022. Difficulties have also emerged elsewhere, such as in the UK. Recent news that the large corporation Blackstone has decided to freeze the sale of a large office building in the area Canary Wharf In the London This lack of interest shows us that the problems are not limited to the territory of the European Union.

Disturbances in the real estate market are also very important outside our continent. China and the United States are hotbeds of serious problems, the effects and consequences of which are spreading globally. As for China, there is not much more to say, as the reckless development of the real estate sector and the exposure to large loans of the largest companies in the sector have been the subject of global discussion since early 2022.

Her example Evergrande It is certainly the most famous and typical, as it is a company with very large debt loads and wide-ranging activities. Its slow death, like that of many of its competitors, clearly shows that we are far from a recovery in the Chinese real estate market, and the country's leadership does not currently seem able to take decisive steps that would restore the Chinese real estate market. A climate of confidence in this purchase.

At the same time, this difficult situation began to be “exported” to the West, where many properties belonging to Chinese companies began to be put up for sale in an attempt to raise money to satisfy their creditors. At the moment, we are not talking about very large movements, and the value of real estate in Western countries being forcibly sold by Chinese companies is in the range of a few billion dollars.

In the United States, the main problem is in the commercial real estate market used by retail companies and in the real estate market used as offices. In a very recent article of his Bloomberg We see that the size of this market is approx 20 trillion dollars.

The major changes in the behavior of the consuming public and the way business managers operate that have come as a result of the pandemic have created very big problems in these markets, in addition to, of course, rising interest rates. What IAEA columnists point to is the fact that, a few months ago, they started buying and selling at reasonable prices. Less than her From the “theoretical” value of properties.

The international agency indicates discounts of up to 40% compared to the prices that were in effect a few years ago. If this trend is generalized, there will certainly be major consequences for the banks that provided loans to build or purchase these properties, as they will have to reduce in their books the value of the loans they granted.

Obviously, this will cause significant damage to their financial results. If we believe him John Foley From Reuters, this crisis will cause major problems for a large number of banks. We've already gotten the first part of her adventures New York Community Bank (NYCB NYSE)whose stock lost more than 50% of its value in a few days after the bank made large provisions for potential losses on loans it made to real estate developers.

Since lenders to US companies include many European banks, it is logical to say that this crisis is likely to gradually spread to Europe and make the situation in the European real estate market worse.

Not only because of the disruptions it would cause in the European banking sector but also because of the decline in commercial real estate prices in Europe. United States of America This is very likely to impact European price quotes, and that will clearly trend lower.

In light of the current situation, we have to be prepared for things to deteriorate in the European real estate market. The sector faces major problems in any case, and it is almost impossible to leave “imported” shocks unaffected. The question that arises is whether this will reach our country, at a time when our real estate market is going through a period of significant growth and strong returns for investors.

Overall, there is enough evidence to suggest that there is no cause for major concern. In most regions, the Greek real estate market is not in the same position as the European market.

The growth of the residential real estate sector is largely dependent on a significant shortage of available homes, which means it is difficult to suddenly see demand fall sharply and prices fall dramatically. Demand for tourism-related properties is also unlikely to decline significantly, except perhaps in some areas where prices have reached levels that are beginning to worry potential buyers.

There are also no major concerns for the real estate sector used for storage space and the logistics sector, not only because demand depends on the construction of important infrastructure projects that support this activity, but also because this particular market is one of the few markets that does not face problems at the international level.

Article written by Bloomberg of last Wednesday, a reference to a related investment by Blackstone (BX NYSE) in the UK, confirms this assessment. Regarding the sector with the most international problems, that of commercial real estate for office and retail use, the fact is that there are many investments underway and even more in the planning stage.

But the fact that there is a relative lack of office space that meets modern standards, and that many of the retail spaces that do exist are quite old, leads us to believe that, for now at least, it is too early to be seriously concerned. .

It is a fact that concerns about the state of the real estate sector in Europe are well founded and that we have already seen several examples of the problems that exist. It is also very likely that we will see the situation getting worse.

But on the other hand, its characteristics Greek real estate market The current picture of the balance of supply and demand makes us believe that there is no reason for serious concern about the spread of this crisis in our country as well. Provided, of course, that we do not soon witness a serious crisis in the European banking system.