Hello,
As every month, we bring you the hottest real estate news from around the world.
Enjoyable reading,
Ilan Leibovitch, Adv., and the office team
Fitch upgrades Greece's credit rating
The rating agency Fitch raised Greece's credit rating to BB+ at the end of January, welcome news for Greece, as the upgrade reflects improved fiscal results, reduced risks in the banking sector, structural strengths, as well as the country's macro outlook and reform momentum. Fitch also addressed the effects of inflation, stable financing costs, the external balance, the upcoming elections and more.
According to Fitch's explanation of the upgrade, Greece is expected to produce “better deficit and debt outcomes and forecasts in 2022-2024, thanks to stronger nominal growth, budget overperformance and a favorable debt-service structure”.
Fitch also forecasts “a further reduction of the general government deficit to 1.8% of GDP in 2024 from 3.8% in 2022, partly due to the phasing out of temporary support measures”.
“This implies an improvement in the primary balance of 2.5%, to a surplus of 0.9% in 2024 (and a balanced position in 2023),” Fitch added.
They also pointed to other positive economic indicators. “In 2022 Greece enjoyed a very strong snowball effect given nominal growth of decades and only a moderate rise in average interest costs, which led to an estimated record reduction of 24.5 percentage points in the general government debt ratio to 170%.”
However, the outlook for Greece's debt ratio remains high. In 2024 the debt ratio is expected to be 160.6%, which is more than three times the Fitch “BB” median. Nevertheless, Fitch notes that “mitigating factors such as low debt-service costs, very long maturities (close to 20 years) and significant liquid cash reserves (around 15% of GDP) reduce public financial risks”.
Greek Minister of Development and Investments: “Israelis are the number one real estate investors here”
In an interview with Globes, Greece's Minister of Development and Investments, Adonis Georgiadis, describes the reforms in the country's economy, which grew by 8% in 2021 and is expected to end 2022 with growth of about 6%, but for 2023 growth of only about 1.5% is expected. According to him, international companies such as Pfizer, which set up a research and development center in Thessaloniki in 2020, are drawn to Greece thanks to its location, political stability and skilled workers at competitive pay, and the Elevate Greece program is intended to expand the country's technology ecosystem. The article also notes the challenges - unemployment of about 12%, a high debt-to-GDP ratio and low labor productivity - and quotes the minister saying that Israelis are currently the main real estate investors in Greece.
Source: Globes, Hila Weissberg, 15.01.2023
Decline in second-hand apartment prices in Budapest
The price of second-hand apartments in Budapest fell at the end of last year, according to a report by the real estate agency Otthon Centrum. According to its data, apartment prices fell by 3.5% in the fourth quarter of last year compared with the previous three months.
In the last three months, the average price of second-hand apartments in Budapest was 963,000 HUF (2,435 euro) per sq.m. District V in Pest remains the most expensive, with an average price per sq.m. of 1.2 million HUF (3,035 euro).
The only districts that deviated from this were III and IX, where prices fell by 4%, and District VIII, where prices per sq.m. fell by 8%, while District XIII recorded a significant price rise of 16%.
In District I on the more expensive Buda side of Budapest, prices fell by 8%, while in Districts IV, V and XII prices fell by more than 10%. However, the last three districts had the highest price rises in the third quarter of last year.
Buyers are uncertain because of high interest rates on loans and rising energy prices. The rise in interest rates is a sensitive issue for the real estate market, since in some places the share of buyers purchasing properties with loans reached 50%.
Regarding the market for newly built apartments, the agency noted that annual price rises of 20-30 percent were measured. These prices are not expected to fall, since construction and financing will not become cheaper, and further price rises are expected. This will reduce the number of transactions.
According to the real estate agency Duna House, there was a 46% decline in January 2023 in the number of second-hand apartment transactions in Budapest compared with January 2022.
Inflation in Bulgaria in 2022 - 16.9%
The Bulgarian National Statistical Institute published that the inflation rate in 2022 totaled 16.9% after a rise of 0.9% in December 2022. In 2021 inflation in Bulgaria totaled 15.35.
Romania's construction sector continues to grow
The short-term indicators of Romania's construction sector look especially impressive, with double-digit annual growth rates often shown - but the data overestimate the actual added value created by the sector, while partly reflecting the rise in construction material prices.
The output of Romania's construction industry, reflected in the construction works index, shows exceptional growth: 29% in January-September compared with the corresponding period in 2019 and 16% over the year. Growth rates were even higher in October and November, when they averaged 34% versus 2019 and 26% YoY, according to calculations based on the latest data published by INS (the Romanian National Institute of Statistics).
However, the added value generated by the construction sector was more modest: 11% compared with 2019.
In fact, the clear results of the construction works index were partly inflated by input prices, that is, by the cost of construction materials: the construction materials price index (the input price for the construction industry) rose by 55% compared with 2019. By comparison, overall construction works prices (the price of the gross output produced by the construction sector) rose by only 33% compared with 2019.
These are high growth rates, which are still slower than the jump seen in the price of construction materials - which therefore make up a more and more important share of the total value of gross construction output. This trend accelerated recently owing to the rise in energy prices, but to some extent it will strengthen over the long term because energy prices are not expected to return to the levels before Covid and the war in Ukraine.
The rise in the overall construction works index, which reflects the volume of gross output, is therefore driven in part by the relatively high price of inputs - and to a lesser extent by the volume of activity of the added value created.
Despite this, the construction sector remains especially strong, although its growth rates (in added-value terms) cannot match those of high-growth industries.
The added value created by IT&C jumped by 22% last year. That is growth four times that of the 11% higher added value created by the construction sector in 2022 compared with 2019.
At the same time, the total gross added value created by Romania's economy rose by only 10.5% in January-September compared with the corresponding period in 2019, the same rate as the construction sector. Agriculture, financial services and even industry appeared well below the average.
The volume of income-producing real estate investment in Central and Eastern Europe returned to growth in 2022
According to data from the real estate consultancy Cushman & Wakefield Echinox, the total amount invested in income-producing real estate assets - offices, retail, logistics and industrial space, and hospitality - in Central and Eastern Europe returned to growth last year, a positive development driven mainly by activity recorded in Romania and Slovakia. Romania enjoyed an increase of almost 40% in investment volume, thereby moving to 3rd place in the region (after Poland and the Czech Republic) in this respect in 2022.
The total transaction volume at the regional level reached almost 10.7 billion euro in 2022, growth of 6.6% compared with 2021, while the market had previously seen a contraction of 4.3% in 2021 compared with 2020. Almost all countries in the region reported growth in 2022, except the Czech Republic, which experienced a second consecutive year of decline.
Poland thus recorded growth of 2.2%, while investment volume in Slovakia was 45.9% higher than the year before in 2022, with Hungary recording only a marginal rise of 0.4%.
In Romania, although the number of transactions completed last year was slightly lower than in 2021 (51 versus 54), the total investment volume reached a historic high of almost 1.3 billion euro, of which two thirds (944 million euro) were signed in the second half of the year. In total 12 properties were the subject of two large sales of office and retail portfolios.
By property type, the highest number of transactions was in office buildings - about 43% of all properties (22), followed by retail properties (12). In addition, 7 industrial and logistics properties changed hands.
The average price per property also rose in 2022, reaching 25 million euro compared with 17 million euro in 2021. In addition, the average sale price of office buildings rose by 4.6% to 2,266 euro per sq.m., while the average price for retail properties stood at about 1,310 euro per sq.m. compared with 973 euro per sq.m. in 2021, in a context in which a significant number of distressed properties were sold. By contrast, industrial properties recorded a decline to 405 euro per sq.m. compared with 503 euro per sq.m. in 2021, a fact determined by the absence of transactions involving prime properties.
The largest transactions in Romania by volume concerned the sale of CA Immo's Romanian office portfolio (6 buildings with a total of 165,000 sq.m.) to Dedeman and the disposal by Prime Kapital of 60% of its shares in 6 retail parks (132,000 sq.m. GLA) to MAS Real Estate. S Immo's acquisition of the Expo Business Park office project from Portland Trust was the third transaction to cross the 100 million euro mark. These three transactions account for more than half of the total volume recorded in 2022 in Romania.
Prime yields saw an upward movement in all sectors owing to higher financing costs, in line with the trend recorded across the Central and Eastern Europe region, as the office and retail sectors recorded a jump of 25 basis points, with an increase of 15 basis points for industrial & logistics properties, respectively. Although rising interest rates will continue to put pressure on exit yields, Romania remains an attractive market, since the gap relative to local benchmarks and to other Central and Eastern European markets, such as the Czech Republic, Poland or Hungary, is still relatively high overall. Market segments (generally in the range of 100 - 250 basis points).
The war in Ukraine and European Union funding helped poor Romania make a leap forward
According to the article, Romania's economy is expected to grow faster in 2023 than its Eastern European neighbors: the International Monetary Fund forecasts growth of 3.1% and the European Commission 1.8%, compared with 0.7% in Poland. Romania's GDP per capita (in purchasing power terms) reached 74% of the European Union average in 2021, up 21 percentage points since 2010, and the country has already drawn more than 6 billion euro in grants and loans from the Union. Foreign direct investment reached 9.39 billion euro in January-October, partly thanks to companies that moved activity from Russia and Ukraine, but the article also notes obstacles, including the current account deficit, population aging and bureaucracy.
Source: TheMarker, 22.01.2023
13 billion dollars - the direct losses of businesses in Ukraine as a result of the war
A study conducted by the Kyiv School of Economics (KSE) shows that, owing to the Russian invasion, at least 109 large and medium-sized Ukrainian enterprises suffered direct losses, estimated at a total of 13 billion dollars. At the same time, total indirect losses reach 33.1 billion dollars. According to estimates made by KSE analysts, 24.9 billion dollars will be required to rebuild enterprises.
The Illich Mariupol metallurgical plant, Azovstal, Nibulon and Motor Sich were among the largest enterprises that suffered direct losses as a result of the Russian aggression in 2022.
According to industry professionals, 19 large and medium-sized private and state enterprises (17%) were completely destroyed, while another 90 (83%) were partially damaged.
As reported, as of December 2022, Ukrainian infrastructure had suffered war-related direct losses of 137.8 billion dollars.
As a result of the war, more than 20% of Ukraine's population has become poor. The unemployment rate now stands at 24.5% of the able-bodied population, and in 2023 it may fall to 20-21 percent. According to the International Monetary Fund (IMF) forecast, real wages fell by 27% in 2022 and by 2.5% in 2023. A high unemployment rate and lower real income affect the level of consumer demand and slow the economy's recovery.
Estimates of real gross domestic product (GDP) losses this year range from 31.5% to 40%. In a macroeconomic context, the fall in output is linked to a decline in domestic demand, a decline in physical capital and the labor force, disruption of internal economic ties and of foreign trade logistics. In 2023, a cessation of hostilities, partial restoration of infrastructure and adaptation to martial law conditions may be factors in a gradual recovery of economic activity. Real GDP growth rates could range from 1% to 4.5%.
The pace of inflation accelerated from 10% in 2021 to 30% in 2022. The main drivers of the inflationary surge were the limit on domestic supply due to the war, the destruction of raw material/energy supply chains and a shift to more expensive substitutes. The devaluation of the Hryvnia exchange rate and the rise in the cost of imported goods, shocks to world-market prices of food and energy products. Most forecasts say the inflationary wave will subside in 2023, although inflation rates will remain high - about 22%.
In 2022 exports of goods and services fell by 40%, which worsened Ukraine's balance of payments. However, the receipt of international grants and remittances from migrants helped stabilize the current account. On the other hand, the outflow of foreign capital since the start of fighting determined the formation of the financial account deficit. According to the 2022 results, the total balance of payments is expected to be negative, reaching 5 billion dollars.
Gross foreign exchange market reserves at the end of 2022 will total 25-26 billion dollars and will be at an acceptable level. Next year the reserves may shrink by several billion dollars, but such a reduction will not be critical to external stability. In 2023, receiving international aid of 37-39 billion dollars to support the budget will help stabilize the forex situation. It is therefore not worth expecting sharp jumps in the Hryvnia rate next year.
Large-scale destruction and a decline in economic activity have objectively affected budget revenues. Consolidated budget revenues, without international grants, fell in 2022 by more than 20%. At the same time, real defense spending grew almost sixfold, and spending on public order and security twofold. In general, real spending during the year rose by almost a third.
According to the IMF's estimate, as a result of the different trends in revenues and expenditures, the budget deficit reached an enormous sum - 20.5% of GDP. However, in 2023 the figure is expected to fall to 9-10 percent of GDP. The government plans to abandon monetary financing of the budget deficit in 2023 and to cover it solely through external loans and commercial loans on the domestic market.
To support business during the war, the government introduced lower tax rates, allowed tax deferral and a shift to a preferential system with a 2% sales tax, and eased administrative requirements.
However, in 2023 the growing need for budget funds to rebuild, to overcome the consequences of the war and to finance social support programs (the army, their families, displaced persons, people with disabilities) will lead the government to abandon the tax relief. In particular, it is planned to cancel the freeze on conducting tax audits, to return the pre-war regime to 2% taxpayers and to prevent abuse of the simplified tax system by large businesses.
The first stage of the US housing price collapse has begun, and the next stages are much scarier
The article describes the slowdown in the US housing market: the interest rate on a 30-year fixed mortgage rose from about 2.6% in August 2021 to more than 7% in October 2022, the number of new mortgages in the third quarter of 2022 fell by 47% compared with the corresponding quarter a year earlier, and the volume of transactions in November 2022 was 35.4% lower than in November 2021. According to the article, the standstill in transactions also hurts the construction industry and commercial real estate, where many loans will have to be renewed at a higher interest rate. The writer estimates that the Federal Reserve's interest rate policy will determine the direction of the US real estate market over the next two years.
Source: Globes, Hanan Steinhart, 21.01.2023
Accurate as of the issue date. Laws, tax rates and procedures change; check the current position before any decision.
Translated from the Hebrew original. עברית