Investor survey: Germany and Poland seen as winners of the debt crisis (EUR)

The debt crisis in Europe is turning into a stress test for European property markets – and forcing investors to recalibrate their investment strategies. Germany in particular should benefit from increased risk aversion. Investors have greater confidence in Germany's resilience to the impact of the euro crisis on the domestic property market than any other country.

That is the conclusion of the latest investment climate study conducted by Union Investment, which surveyed 167 property investors in Germany, France and the UK. The survey showed that one in every two investors (49 %) is convinced that the German property market will actually emerge stronger from the current cycle. Just 3 % of European investment professionals believe that the euro crisis will result in a significant weakening of the German market. The popular consensus is that only a few other countries will likewise survive the "debt crisis stress test". 38 % of those surveyed believe that the Polish market will come out stronger, with lower figures recorded for Turkey (31 %), Sweden (29 %) and Switzerland (25 %).

In contrast, the survey showed a broad spread of expectations with regard to property markets in France, the UK and the Netherlands. Equal numbers of investors believe these markets will be strengthened or experience further weakening in the current cycle. When it comes to the countries on the southern periphery – particularly Portugal and Spain, with investors regarding the latter as the riskiest market over the next two to three years – investors believe the debt crisis will hit local investment markets particularly hard. "The growing divide between stable markets in northern Europe and the weaker countries in the south is being further exacerbated by the debt crisis. But the uncertainty is also weighing down markets that are currently still in good health," says Olaf Janssen, head of property research at Union Investment Real Estate GmbH, Hamburg.

Investors face the need for more capital
When asked about the medium to long-term impact of the debt crisis, a clear majority (78 %) of investors expect a "long period of uncertainty in all European property markets". In this context, 90 % are expecting a "stronger focus of investment on stable markets in northern Europe" and – correspondingly – a "growing north-south divide". An equally emphatic majority (88 %) anticipate higher "capital requirements for investors". Respondents in France demonstrated above-average belief in the risk of a "new credit crunch" (86 %, compared to 72 % overall) and "rising taxes" (100 %, as against 77 % across all respondents). Meanwhile, a total of 68 % of those surveyed feel that the demand for "opportunistic investment" will rise in the course of the debt crisis, with just 39 % believing a "Europe-wide recession" is a likely scenario.

"Even if parts of the European property market remain partially unaffected by the turbulence, significantly lower investor expectations will lead to a reduced volume of transactions in Europe in 2012 compared to the previous year," says Janssen. This view is shared by the majority of the participants in the survey: 57 % of investors expect a "decline in cross-border property transactions in Europe" as a short to medium-term consequence of the debt crisis. While it is hardly surprising that investors are expected to focus increasingly on core products (87 % agreement), the results of the survey do not indicate that any usage category will be a particular beneficiary of the euro crisis. Only 31 % of the surveyed investors expect "increasing demand for retail properties" as a result of the debt crisis.

Reduced expectations trigger fall in climate index
As the survey shows, the property investment climate in the three major European economies deteriorated to different extents over the last six months. Union Investment's Investment Climate Index dropped in all three regions, with the reaction in France being particularly noticeable, down 7.7 points since the last survey in summer 2011. In the UK (-5.3 points)

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