Growth in distressed property* listings eased back in more than 85% of countries surveyed according to a global report by RICS research published yesterday (August 5, 2010).
In the second quarter, 13 out of the 25 countries surveyed reported an increase in distressed sales, an improvement on the 17 countries reporting three months earlier. The largest growth in distressed sales was reported in Portugal, followed by US and Republic of Ireland. However, the pace of increase moderated across the majority of markets with only three countries reporting that distress in the market is increasing at a faster pace than last quarter - Portugal, Spain and Germany.
By way of contrast, eight countries reported a decline in the number of distressed properties coming to market compared to three months earlier. The pace of decline was greatest in Brazil, Russia, India and Hong Kong. Interestingly, surveyors in Japan indicate a modest turnaround, where the net balance fell from +19 to -6. Other countries showing marginal declines were Canada, Australia and China.
Real estate professionals expect the number of distressed properties coming onto the market in the third quarter of 2010 to increase further in 14 of the 25 countries surveyed (down from 18 in the previous quarter). Respondents in Portugal and the Republic of Ireland expect to see the fastest growth in activity followed by US, Spain and Scandinavia. However, there is positive news from Brazil, China, Hong Kong, Canada and India where agents expect distressed sales to continue to decline.
RICS members work on both sides of any distressed property transaction. Consequently, the survey asked surveyors whether the level of interest from specialist funds in distressed properties was increasing. Levels of interest rose across 11 out of 25 countries down from 20 in the previous quarter.
Commenting, Oliver Gilmartin, RICS senior economist said: "Growth in distressed listings eased back globally outside of Portugal, Spain and Germany in the second quarter. That said, distressed listings are still rising albeit at a slower pace in much of the rest of Europe and the US. A clear divide appears to be opening up between these markets and the rest of the world.
Looking ahead, despite the 'supposedly successful' European bank stress tests, worries over the health of the European banking system will continue to linger, propelling banks to manage down their problem loan books. Indeed, changing international regulations are likely to start raising the cost of capital of holding commercial property on bank's balance sheets, which could be the trigger for increased listings in the coming year."
*A distressed property is defined as a property that is under a foreclosure order or is advertised for sale by its mortgagee. Distressed property usually fetches a price that is below its market value.