Investor demand rose most dramatically in Hungary.
Not surprisingly, the Republic of Ireland, Spain and Italy expect the highest number of foreclosures, while Brazil, Malaysia and Russia expect the lowest.
Property professionals in Russia foresee a continued decline in the level of distressed property, albeit at a slower pace than previously expected. This, together with a positive swing in investor demand, will likely stabilize distressed property prices in the country over the course of the coming quarter. Germany remains a strong performer as well, with supply of distressed properties expected to rise at a slower pace from July to September compared to the second quarter.
Interestingly, the survey also highlights a surge in worldwide demand for distressed properties. Over 80% of the countries surveyed reported increased levels of interest from specialist funds from April to June. Investor demand rose most dramatically in Hungary, while RICS members also reported noticeable shifts in Italy and Poland, where demand is now back to positive. Asian commercial property markets also echo this global trend, as demand outstrips expected supply in Japan, China, Singapore and Hong Kong.
However, while demand for distressed properties is broadly increasing, expected supply still exceeds demand in 11 of the 25 countries covered by the survey.
Commenting on the survey, Simon Rubinsohn, RICS Chief Economist said: “The dramatic rise in investor appetite for distressed assets may be reflecting a measure of confidence in the outlook for the real estate sector despite the volatile economic context. However, it needs to be borne in mind that the results still show generally negative numbers, especially for those markets where the economic pain is most intense. This is particularly true in the Republic of Ireland, Spain, Portugal and Italy, where debt concerns continue to grow.”
The expected supply of distressed property in Q3 looks set to far outweigh investor demand as supply continues to increase (at an even faster rate) and investor demand contracted slightly this quarter. This is despite the Bank of England’s stance on keeping interest rates at just 0.5%. The current uncertainty regarding the economic picture should mean the Monetary Policy Committee continues to sit on the policy sidelines for some time to come giving some breathing space for the property sector.
Property professionals in France expect to see distressed property coming to market at a faster rate in Q3 than in previous quarters. This, in conjunction with the fact that, according to the survey, investor demand continues to rise at a broadly steady pace suggests that supply will likely outstrip demand in the coming quarter.
Respondents in Germany registered only a small rise in the pace of investor demand this quarter. However, agents still expect the supply of distressed property coming to market to increase next quarter albeit at a slower pace than previously as the net balance eased from +24 in Q1 to +15 for Q2. The net balance reading suggests that demand from specialist funds will outstrip expected supply of distressed property in the coming quarter.
Property professionals in Russia anticipate a continued decline in the level of distressed property for Q3, albeit at a slower pace than seen previously. In contrast, agents report a full-scale positive swing in investor demand as net balance scores moved from –11 in Q1 to +17 in Q2. It therefore looks likely that distressed property prices in this country will stabilize over the course of the coming quarter.
Spain witnessed a rather strong surge in investor demand this quarter, moving from a Q1 net balance score of +24 to +56. Portugal saw an even stronger surge in the rate of demand, however, as net balance scores moved from +4 in Q1 to +53. Both Spain and Portugal are in the top five in terms of expected levels of distressed property supply for Q3 2011, however, with net balance scores of +70 and +60, respectively.
Not surprisingly, therefore, property professionals in both countries report that expected Q3 supply will outstrip current levels of demand by specialist funds, which could add to the existing downward pressure on prices.
Investor demand fell in Brazil this quarter, from a net balance of 0 in Q1 to one of -23. Looking ahead, agents expect the supply of distressed property to fall dramatically in the coming quarter as well, in contrast to last quarter’s expectations for increased listings. That said, the real estate market still remains firm with capital values generally thought likely to rise further over the coming months.
Levels of distressed property coming to market in China are still expected to decline in Q3 2011, although somewhat less so than the previous quarter, with net balance scores moving from -34 to -20. Levels of demand by specialist funds, while still positive, also moderated in Q2.
Looking ahead, however, demand for distressed property is still expected to far outstrip supply in this country which is consistent with the projection for further price gains in the commercial market.
According to the survey, demand for foreclosed property in India looks set to surpass expected levels of supply in Q3 with demand from specialist funds appearing to rise dramatically in Q2 (the net balance climbed from +23 to +51, quarter over quarter). Meanwhile, the pace of supply is anticipated to rise only slightly.