Property Sector worldwide in critical condition


Trillions of properties worldwide acquired or refinanced after this point in early 2004 have lost value since the transaction. Many of these properties, typically leveraged 70%–80%, would face significant refinancing hurdles due to liquidity crunch even if prices held firm. Few lenders now are willing to advance more than 50%–70% of the current value.

Large amount of properties is at great risk, if not already wiped out since properties acquired or refinanced in 2006–2008 have seen price declines of at least 25% or more. This includes office, industrial, apartment and retail properties of different size, with hotels, land, other property types adding billions to the total.

Property sales so far in 2009 equates to just few percent of volume achieved at the peak in the first half of 2007, according analysts from Real Estate Capital Analytics. While sales volume this year barely registers on the graph, the jump in activity in June is clearly visible and may be an early signal that buyers are returning, lured by lower prices.

Prices for office, industrial, retail and apartment properties locally have dropped between 25% and 60% from the peak in summer 2008. Prices continued to drop rapidly and recorded further  decline in Q2 of 2009.

The volume of distressed properties has more than doubled so far in 2009. Significant number of office, industrial, retail, and apartment properties have fallen or will fall into default or bankruptcy. Troubled hotels and other commercial property types add to the grim picture of the real estate sector worldwide.

Few percent of the distressed situations that have emerged have been resolved, as lenders lack risk appetite  or liquidity.  Loans originated from 2007 onwards are seeing the highest levels of default, although loans dating from 2004–2006 are also problematic and are likely to remain so as they reach maturity over the next years.


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