Ireland and Spain, the two countries synonymous with Europe’s property crash, have become lands of opportunity for real estate investors, says delegates at the MIPIM property conference in Cannes, France.
Though most investors are targeting the best areas of Frankfurt, London and Paris to shield cash from the euro zone sovereign debt crisis, Ireland and Spain have dealt with their problems to such an extent they are attracting investors over other debt-laden countries like Greece, Italy and Portugal.
“The Irish economy is at an interesting point in time to buy good assets after taking tough economic decisions early on,” said Pierre Cherki, global head of RREEF, the property investment arm of Deutsche Bank that has about €43-billion ($56.5-billion) assets under management.
RREEF sent a team to Ireland in recent weeks to assess the market. “They reported back that it was an intriguing country. Twelve months ago they made the same trip and said it was too early,” Mr. Cherki said aboard a 144-foot luxury yacht in the Cote d’Azur resort on the southern French coast.
Ireland probably suffered the heaviest property crash in Europe, with residential prices averaging half their 2007 peak and commercial prices falling 60 per cent.
Since the crash, government austerity measures have led to a drop in Ireland’s borrowing costs and seen the country dodge the recent euro zone downgrades by the Standard & Poor's and Fitch rating agencies.
The property market is further boosted by a recent cut in stamp duty, growing demand for space by companies like Google Inc. and Bank of New York Mellon and the fact construction all but stopped after the crash in 2007, creating a low level of supply that is buoying prices.
“Both Spain and Ireland are interesting investors but Ireland is more attractive as the necessary price drops have taken place,” said Pierre Vaquier, chief executive of Axa Real Estate, which has about €42-billion of assets under management.
“We’re looking at doing deals in Ireland and an awful lot of funds are doing the same,” said Joe Valente, head of research and strategy for the European real estate group at JP Morgan .
Though the country has a small property market versus the likes of Britain and France, a series of sales by the country’s so-called “bad” property bank the National Asset Management Agency had helped draw a line in the sand, Mr. Valente said.
Measures in Spain including changes to commercial lease rules that have previously made it difficult for landlords to increase rents could lead to a “significant amount of capital” flowing into the country over the next two to three years, he said.
Investors should still tread with caution as Europe’s debt crisis plays out, said Christian Ulbrich, chief executive officer for the Europe, Middle East Africa region at global property consultancy Jones Lang LaSalle.
“The problems are still serious even though people have got more used to them. This is not a time to get overexcited,” he said, citing the scarcity of debt as the major brake on the market as banks remain wary of lending to property developers and investors.
About 19,000 delegates attended the annual real estate gathering in Cannes, 1,000 more than last year though down from the peak of 28,000 in 2007, reflecting the muted state of the market following the financial crisis.
This year’s so-called country of honour was Germany, which was attractive for property investors however bad the outcome of Europe’s debt crisis, investors said.
“Germany is a safe bet whatever euro zone scenario plays out,” Mr. Ulbrich said. “If you buy a hotel in Munich and the euro zone holds together then that is okay. If it breaks up, which is the less likely scenario, given the strength of Germany it’s arguably even better.”