Europe faces a two-tier property market
The debt crisis and European austerity measures mean that European cities will be divided into property winner and losers
The threat of further shocks from countries such as Italy, Portgual and Spain will hamper recovery of the European property market, according to a new report.
Although London, Munich, Paris and Istanbul are set to be investment hotspots, a combination of new regulation, European austerity, the debt crisis and a weak lending market pose challenges for other cities, says the report by PricewaterhouseCoopers and the Urban Land Institute.
"Winning cities" such as London and Paris will continue to attract property investment, but a two-speed Europe will emerge in its property market. "London and Paris are just big, transparent markets. You can be sure you will find opportunities there if you're looking for assets," said PwC partner John Forbes, one of the report's authors.
On the other hand, there is a "view that in London prime [property] has become overpriced and you can't necessarily make money by following the flow".
Istanbul, adds the report, is attractive for different reasons, such as its young population, while Munich offers stability. By contrast, crisis-hit cities such as Dublin, Lisbon and Athens will only attract high-risk investors looking for bargains.
"Last year, people realised that it was going to be a long, slow haul and that it was going to take a long time to get out at the other side. It is adapt or die you have to find ways of operating and surviving in this new painful economic environment," said Forbes.
With banks unwilling to fund property investments, there are hopes that others, such as insurance companies and pension and sovereign wealth funds, will step in. Bankers say the new regulation, known as Basel III, is making it difficult for banks to be aggressive lenders in real estate. Encouraged by Bank of China's $800m refinancing of a Manhattan office tower last year and the leasing of space by two Chinese! banks i n the City of London, some hope that Chinese banks could become providers of debt. More widespread is the view that insurers, in search of high-yielding assets, will step into the market.
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