There has been a dramatic rise in the number of countries in which real estate professionals are reporting greater interest in distressed properties, according to a global report by RICS research published today (22 November 2010). It also revealed that expectations for increased distressed property sales in the coming months are highest in the Republic of Ireland, US and Spain.
The RICS Global Distressed Property Monitor is a quarterly report that reveals trends in 25 commercial property markets across the globe. 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. An increased rate of distressed properties entering a country's market can be seen as a negative economic indicator while a decrease may signal recovery.
The survey asked respondents whether the level of interest from specialist funds in distressed properties was increasing. They indicated that twenty countries experienced increased interest in distressed properties in the third quarter, compared to 11 in the second quarter. Growth in interest from specialist funds was highest in the Republic of Ireland and Spain although respondents have reported a pick up in interest across most markets with only Russia apparently seeing an easing of specialist fund interest.
In terms of activity in the third quarter, there was a slight decrease in countries showing an increase in distressed properties coming onto the market from 13 in the second quarter to 12 in the current quarter. In addition, overall distressed listings fell or grew at a slower pace during this quarter across most markets, with the exception of New Zealand, Italy, Spain, the UAE and Czech Republic.
Despite the slight decrease in the third quarter, respondents expect the number of distressed properties coming onto the market in the fourth quarter of 2010 to increase across 16 of the 25 countries surveyed an increase of two countries over the last quarter. Professionals expect the Republic of Ireland, US, UK, Spain, Portugal and Hungary to show the biggest increases in distressed listings over the next quarter. Conversely, there is much more positive news from Hong Kong with a large decrease of 53% expected next quarter compared with last quarter's expectation of a 17% drop for the third quarter. Significantly decreases are also expected for Russia, South Africa, Brazil and Germany the latter experiencing the most notable turnaround in sentiment since last quarter.
Commenting, Oliver Gilmartin, RICS senior economist said: "With the commercial property market recovery faltering across several countries in the third quarter there is an expectation that banks might be becoming less lenient in extending terms for real estate loans. Renewed falls in rental values may also be making banks more nervous as to the size of their property loan books.
"Significantly, specialist investors appear to be showing increasing interest in distressed property listings. However, ultimately banks hold the keys as to how the market for distressed property listings will evolve in the coming year."