RICS Global Distressed Property Monitor Q2 2011

 

RICS Global Distressed Property Monitor is a quarterly report that reveals trends in 25 commercial property markets across the globe. A distressed property is defined as a property that is under a foreclosure order or is advertised for sale by its mortgagee. Distressed property usually fetches a price that is below its market value. An increased rate of distressed properties entering a country’s market can be seen as a negative economic indicator while a decrease may signal recovery.
 
 
Key points:
 
  • Global demand for distressed property rises dramatically in Q2 2011.
 
  • Over 80 percent of the countries surveyed reported heightened levels of interest from specialist funds in Q2 with three-quarters of these reporting even greater levels of demand than last quarter. Indeed, in over half of the countries covered, the net balance figure for Q2 demand for distressed property outstrips the comparative number for Q3 expected supply, most noticeably in Japan, China, Singapore and Hong Kong.
 
  • Investor demand rose most dramatically in Japan and Hungary this quarter, where net balance scores moved from +6 to +68 and +3 to +64 quarter over quarter, respectively. In Italy, Poland and Russia agents reported noticeable shifts in sentiment with demand swinging from negative into positive territory.
 
  • The survey does, however, suggest that the supply of distressed property continues to outstrip demand in some countries, most noticeably in the Republic of Ireland, Italy and the UK.
 

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  • Property professionals in the majority of countries surveyed expect the level of available distressed property to rise in Q3 2011. Not surprisingly, the Republic of Ireland, Spain and Italy have the highest readings for the levels of foreclosure, while Brazil, Malaysia and Russia have the lowest. Interestingly, agents in South Africa report a dramatic shift in sentiment and now expect a substantial rise in distressed property for Q3, in contrast to the negative net balance score posted in Q1 2011.
 
Commenting on the survey RICS Chief Economist Simon Rubinsohn said:
“It is interesting to see agents reporting such a dramatic rise in investor appetite for distressed assets, quarter over quarter. To some extent, this may be seen as an encouraging development reflecting a measure of confidence in the outlook for the real estate sector despite the softer tone to the macro news flow. However, it needs to be borne in mind that the results are very country specific with generally negative numbers coming from those markets where the economic pain is most intense.“  
 
Selected world regional highlights
 
UK
The expected supply of distressed property in Q3 looks set to far outweigh investor demand as supply continues to increase (at an even faster rate) and investor demand contracted slightly this quarter. This is despite the Bank of England’s stance on keeping interest rates at just 0.5 percent. The current uncertainty regarding the economic picture should mean the Monetary Policy Committee continues to sit on the policy sidelines for some time to come giving some breathing space for the property sector.
China
Levels of distressed property coming to market in China are still expected to decline in Q3 2011, although somewhat less so than the previous quarter, with net balance scores moving from -34 to -20. Levels of demand by specialist funds, while still positive, also moderated in Q2. Looking ahead, however, demand for distressed property is still expected to far outstrip supply in this country which is consistent with the projection for further price gains in the commercial market.
 
France
Property professionals in France expect to see distressed property coming to market at a faster rate in Q3 than in previous quarters. This, in conjunction with the fact that, according to the survey, investor demand continues to rise at a broadly steady pace suggests that supply will likely outstrip demand in the coming quarter.
 
Germany
Respondents in Germany registered only a small rise in the pace of investor demand this quarter. However, agents still expect the supply of distressed property coming to market to increase next quarter albeit at a slower pace than previously as the net balance eased from +24 in Q1 to +15 for Q2. The net balance reading suggests that demand from specialist funds will outstrip expected supply of distressed property in the coming quarter.
 
India
According to the survey, demand for foreclosed property in India looks set to surpass expected levels of supply in Q3 with demand from specialist funds appearing to rise dramatically in Q2 (the net balance climbed from +23 to +51, quarter over quarter). Meanwhile, the pace of supply is anticipated to rise only slightly.
 
Russia
Property professionals in Russia anticipate a continued decline in the level of distressed property for Q3, albeit at a slower pace than in seen previously. In contrast, agents report a full-scale positive swing in investor demand as net balance scores moved from –11 in Q1 to +17 in Q2. It therefore looks likely that distressed property prices in this country will stabilise over the course of the coming quarter.
 
Iberia
Spain witnessed a rather strong surge in investor demand this quarter, moving from a Q1 net balance score of +24 to +56. Portugal saw an even stronger surge in the rate of demand, however, as net balance scores moved from +4 in Q1 to +53. Both Spain and Portugal are in the top five in terms of expected levels of distressed property supply for Q3 2011, however, with net balance scores of +70 and +60, respectively. Not surprisingly, therefore, property professionals in both countries report that expected Q3 supply will outstrip current levels of demand by specialist funds, which could add to the existing downward pressure on prices.
 
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