There have been many different elements to the ongoing worldwide real estate downturn such as currency problems, economic downturns, budget deficits and difficult employment markets to name but a few. One issue which has had a major impact on the worldwide real estate market is the number of governments which were forced to create “bad banks” to take on the troubled real estate portfolios of struggling banks. This effectively allowed commercial banks to reduce their bad debt situation, attempt to re-organise their assets and rebuild their balance sheets. However, it left many governments with an array of difficult real estate portfolios which they were finding difficult to sell.
There have been indications over the last few months that we may be reaching the bottom of the worldwide real estate downturn with investors now showing interest in so-called “bad banks”. There has been speculation that Spanish banks and Irish banks are on the verge of disposing of their troubled real estate portfolios although we may see write-downs as high as 75% if speculation about the Irish disposal programme is correct. So, what does this mean?
Overhang of troubled property portfolios
The simple fact is that if you knew there was billions of euros worth of troubled real estate portfolios hanging over a particular market, would you be in a rush to buy? There has been constant speculation that the Spanish government was looking to encourage the sale of troubled assets at “any price” although there has recently been a significant spike in real estate interest from international investors. This may well allow the so-called “troubled books” to be sold rather more smoothly than if they were dumped on the market with little appetite from investors.
Quote from PropertyForum.com : “At this moment in time even the most sensible of investors are struggling to obtain finance for many property projects around the world. It is sometimes easy to forget that these are investors who have slowly but surely built up their assets, never over-extended themselves on the financial….”
It will be interesting to see how worldwide real estate prices perform in the short to medium term because everybody knows that these troubled assets are on the verge of being sold, so, do you wait until the deals are done or do you gamble that real estate prices will recover as we approach the endgame for these troubled assets. There is still the issue of economic troubles in places such as Europe to contend with so while there may be a short-term bounce in real estate prices there are potentially other problems which could hold back any significant recovery in the short to medium term.
Investors showing more interest
As we touched on above, there is no doubt that worldwide real estate investors are now taking more of an interest in countries such as Spain, Ireland, etc. We have the might of Chinese investors impacting all of the major real estate market such as London, Australia, Europe, etc as well as domestic investors waking up to the potential long-term benefits of real estate investment. The situation we have gone through over the last five or six years is something which nobody alive today has experienced before and therefore nobody really knows whether we are approaching endgame. However, if investor sentiment is anything to go by then the signs for the real estate market in the short to medium term are more positive than they have been for some time.