Fears of bubble rise as property investment volumes hit record
01-26-2015
Kate Allen, Property Correspondent
A woman walks past a new residential property development in London REUTERS/Neil Hall ©Reuters
British finance minister George Osborne said on Thursday that new measures to boost home ownership did not risk causing a repeat of the housing bubble that helped usher in the country's financial slump five years ago. On Wednesday, he announced plans to guarantee 130 billion pounds of mortgages from 2014 for three years, allowing banks to provide more loans to people without big deposits. The government also committed 3.5 billion pounds ($5.3 billion) over three years to shared equity loans for new-build homes worth less than 600,000 pounds, allowing buyers to purchase them with a 5 percent deposit.
Investors’ fears of a property market bubble are rising as a search for yield pushes record volumes of cash into real estate assets round the world.
An annual survey of European investors’ intentions found that for the first time since the financial crisis property investors were becoming concerned that a bubble might be developing.
Nearly two-thirds of those surveyed by think-tank the Urban Land Institute and adviser PwC said that “core” assets — high-quality, well-let buildings in cities such as London, Paris and Milan — were overpriced in “almost all markets”.
Sovereign wealth funds, pension funds and Asian insurers were the leading influences on this pricing spiral, the survey found.
Simon Hardwick, a partner at PwC and one of the report’s authors, said the European property market was “awash with capital” and there was “increasing concern about the resulting risks”.
Globally, commercial real estate volumes hit a record in the final quarter of 2014, figures released by property adviser Jones Lang LaSalle showed last week.
Total deal volumes across the globe hit $218bn, with $700bn spent over the course of the full year — up 18 per cent on 2013. Arthur de Haast, a lead director at JLL, said the Americas and Europe were the “driving forces” of the investment trend, with the US and UK economic recoveries playing a key role. European deal volumes rose 21 per cent to $267bn for the year, JLL found.
The soaring demand for European real estate assets — particularly for big-ticket deals — far outpaces the volume of assets on sale, the PwC/ULI survey found.
As a result the prices of the safest “core” assets were rising sharply, the report said. But this growth in value far outpaces occupier demand, which the report found was gradually improving, but “fragile”.
In a search for cheaper assets, investors were turning to riskier markets such as the eurozone periphery. As a result, cities such as Dublin, Madrid and Athens were among the most popular locations in which investors were searching for deals, according to the investors, advisers, developers and lenders surveyed by PwC and ULI.
Lisette Van Doorn, ULI European chief executive, said “there has been a progressive movement up the risk curve”.
One banker surveyed said: “What’s really driving all this activity is the availability of capital rather than the underlying fundamentals. It just comes down to people needing to deploy capital.”
Lenders are also coming back into the market, with UK debt finance for property deals at the highest levels since 2007, according to figures published late last year by academics from De Montfort University.
Nearly three-quarters of the 500 industry participants interviewed by PwC and ULI said they expected to see even more cash flowing into the European property market during the course of this year. One investor quoted by the survey said it was “time to take less risk”.
“The more we go up the risk curve, the more we go through the cycle and therefore every day you are one day closer to the next market downturn,” he said.
Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.