Tag Archives: banking
Italian commercial real estate investment going from strength to strength
Investment in Italy’s commercial real estate markets is going from strength to strength with the first half of 2016 seeing over €3.4 billion of sales, up 35% on the same period last year. The latest investment analysis report from international real estate advsor Savills says that favourable market conditions are fuelling supply in the Italian market through fund liquidations or equity fund investors who are taking advantage of the point in the market’s cycle to dispose of some of the most liquid assets in their portfolios. It says that it is significant that cross border investment into Italy accounted for more than half of the total investment volume in the first six months of 2016, and close to 65% of all deals. Savills has recorded that international funds are increasingly dominating the market, with 80% of foreign capital coming from Europe. ‘Our analysis suggests Italy is at an earlier stage in the cycle compared to Europe’s primary markets in France, Germany and the UK, therefore international investors are still identifying the potential for capital growth and better returns from core Italian product,’ said Eri Mitsosterigiou, director of research, Savills Europe.. ‘We believe that investment demand for the remainder of the year will continue to be driven by European investors, however we also envisage domestic investors to up their buying activity,’ Mitsosterigiou added. According to Savills, investment into the office sector in Italy this year accounted for circa 46% of all activity, over 40% ahead of the first half of 2015. The retail sector represented 26% of the total investment volume, also a yoy 40% hike. The report points out that the high streets of Milan, Rome and Florence are dominating the retail investment market and the first six months of this year saw around €505 million invested, an increase of circa 80% compared to the previous year. ‘Italy is a country with above average household disposable income and strong tourist flows in some of its biggest cities. The resilient characteristics of high street retail, with stable or rising rents, low vacancy and high demand is attracting investors,’ said Marco Montosi, head of Investment, Savills Italy. Savills also recorded that the first half of 2016 saw a notable increase in investment into alternative commercial real estate sectors including hospitality. Almost 22%, some €761 million, of the total volume can be attributed to investment into the alternatives sector, markedly within healthcare. Also of note is that the vast majority of the transactions so far in 2016 were on a single asset basis, whilst portfolio transactions accounted for 21% of the total, down from 35% in the first half of 2015. Looking at the next 12 months, Savills believes that the supply of commercial real estate is set to increase as funds will take advantage of the improving market conditions, particularly the ones that purchased in the low point of the cycle in 2011/2012. ‘Prime locations of major Italian cities… Continue reading
Mortgage lenders concerned about impact of banking reforms on UK housing market
First time buyers and housing associations in the UK could bear the brunt of banking reforms which affect credit risk, it is claimed. Proposals from the Basel Committee on Banking Supervision to revise its standardised approach for credit risk could adversely affect parts of the UK housing market, according to the Intermediary Mortgage Lenders Association (IMLA). The Basel framework ensures that banks, building societies and other deposit taking institutions have sufficient capital for the underlying risks they bear. While supporting this objective, the IMLA has raised significant concerns over some proposed revisions in the latest Basel consultation, which it argues are not justified by differences in risk and could limit access to mortgage finance in key areas of the UK housing market. In particular, one of the most serious impacts could be on lending to UK housing associations. By preventing lenders from taking into account borrowers’ financial strength, the Basel proposals could see loans to many housing associations redefined and subject to much higher capital requirements, despite the exemplary payment track record and their government regulated status. The same proposals mean the regulatory cost of buy to let lending could far outweigh the risks involved, as they do not accommodate the fact that many buy to let borrowers are substantially more financially secure than the average owner occupier. IMLA also strongly disagrees with proposals which could distort mortgage pricing and push up the cost of higher loan to value (LTV) mortgages, which are relied on by many first time buyers to become home owners. Doing so could incentivise them to seek out unsecured ‘top up’ loans to fund their house purchases with a lower LTV mortgage, which would be potentially harmful to their finances. The IMLA’s consultation response highlights how aspects of the Basel proposals could create a ‘bizarre’ situation where unsecured lending can be given a lower risk weighting than secured lending to the same borrower. It could also penalise lenders that have adopted conservative lending standards and create an artificial incentive to lenders to remortgage or ‘churn’ customers, creating outcomes that would not be deemed good for either the customer or the lender. ‘It is vital to have the right checks and balances in place so lenders can provide mortgage finance where there is a legitimate need while maintaining a stable UK housing market,’ said Peter Williams, IMLA executive director. ‘The Basel consultation sets out with the important aim of ensuring capital requirements are appropriate to the underlying risk, but we are concerned that the current proposals will not meet this goal,’ he explained. ‘Government and industry need to work together to bring greater balance to the UK housing market. This includes ironing out the technical details of the Basel proposals to defend consumer interests across all housing tenures,’ he added. Continue reading
Maligned banking practice could help rebalance UK mortgage market, study suggests
Securitisation, where investors buy pools of debt from banks as secured assets, has enabled mortgage lenders in the UK to offer an increased number of lower risk, long term fixed rate mortgages, it is claimed. Securitisation was originally intended to free up funding for banks, allowing them to sell packages of mortgage loans and lend out the proceeds to more customers. Those loans could then be sold on, and the cycle could start again. The process was also intended to reduce risks for banks by spreading the ownership of mortgages and other loans among other investors but it came under scrutiny during the global economic downturn and used less frequently as a result. However, a new study of long term market trends by Dr Alla Koblyakova and Professor Michael White, of Nottingham Trent University’s Real Estate Economics and Investment Research Group, has found that 78% of mortgages sold as securities over a nine year period were held in longer term fixed rate contracts. ‘This is an important finding as it shows that securitisation not only increases liquidity in the market but has the potential to shift consumer mortgage choices toward long-term fixed rate mortgage debt,’ said Koblyakova. ‘In a market like the United Kingdom’s, where around 80% of residential mortgage debt is held in higher risk variable rate or short term fixed rate contracts, this is a very welcome finding,’ he claimed. ‘A high level of variable debt is seen as a source of economic instability. Policymakers may wish, therefore, to consider the potentially beneficial role that securitisation can play in helping balance the UK mortgage market,’ he added. According to the study variable rate and short term fixed rate mortgages are more risky for borrowers as they leave them more vulnerable to financial shocks, such as interest rate increases. By contrast, longer term fixed rate deals protect borrowers from such increases, but leave lenders more exposed to these risks. Koblyakova believes lenders may be more inclined to offer longer term fixed rate mortgages to borrowers when these mortgages are sold on as securities because this reduces the lenders’ exposure to risk. The study also found that variable rate mortgages were more profitable for lenders than long term fixed rate mortgages by as much as 1.6%. For every 1% of profit a mortgage lender makes from a variable rate mortgage, the market share of variable rate mortgages increases by 18%. This is despite the data also suggesting that consumers prefer to take out longer term fixed rate products. ‘According to this data, larger profit margins for variable rate mortgage products positively influences demand. These findings are very important, and should stand as a call for action for policymakers, as they show that UK households may be faced with greater payment shocks because of the strategies of lenders,’ Koblyakova concluded. White pointed out that the regulation… Continue reading
