Indeed, real estate development, investment and lending to the sector have taken a beating due to the pandemic's effects on the global economy, but, according to the results of the latest edition of KPMG’s Property Lending Barometer (PLB), an annual study by the global audit and advisory firm which measures banks’ lending sentiments in CEE property markets, property lending has gained increased importance for banks in 2021, as on the one hand real estate loan portfolios are deteriorating, and, on the other, market conditions continue to gradually improve. Moreover, the tougher times mean that lending institutions within the region are able to pick and choose what types of developments and investments to grant loans to under stricter terms and conditions.

This year’s edition of KPMG's survey included over 40 participating lending institutions in 11 CEE markets which provided their responses to questions about their level of impaired loans, real estate’s importance as part of a bank’s lending strategy and their loan size averages and preferences, among others. For this 12th edition of the PLB, KPMG collected data via online questionnaires and through in-depth interviews with bank representatives in May and June of 2021.

In addition to providing detailed information on lending sentiment and the CEE property markets as a whole, the 2021 edition of our Barometer also includes individual country profiles providing insights for each of the markets surveyed, as well as a section dedicated to surveying developers to find out how they are able to secure financing for projects at a time of unprecedented uncertainty.

COVID continues to exert influence on property markets
Property transactions in CEE totalled EUR 4.9 billion for H1 2021, with 80% of that coming from three countries in the region: over half attributable to Poland (53%), followed by the Czech Republic and Hungary, at 18% and 13%, respectively. Slovakia, Romania and Hungary continued to grow for H1, while Bulgaria and the Czech Republic saw the steepest drops in investment activity, year on year.

Once again, in 2021, KPMG’s survey was conducted in never-before-seen times for the global economy, given the continued effects of the global health crisis. According to the PLB survey participants, not only is the global pandemic continuing to affect property lending, but in the responses to a survey question in which participants were asked to rank the most important aspects affecting bank lending to real estate it has also overtaken local macroeconomic conditions, as exerting the greatest influence upon how lending to real estate projects takes place, for example determining what sorts of property developments are likely/unlikely to receive funding.

Bank representatives also revealed that although sustainability is currently a hot topic among real estate professionals and one which is mentioned frequently at industry events focusing on the future of the real estate industry, it is still not a key factor when considering the financing of a real estate asset.

Residential asset class overtakes industrial/logistics sector
Meanwhile, according to survey respondents, the residential asset class has become the most attractive one for a majority of the region's banks over a year after the breakout of the COVID-19 pandemic, overtaking the industrial/logistics sector, which, in the throes of the pandemic overtook the office asset class in 2020.

Head of KPMG’s Real Estate practice in CEE, Andrea Sartori, who initiated the Barometer, explains that even though property development in Europe is steeped in an uncertain environment due to the continuing effects of the global health crisis, most banks in the region that participated in the survey have increased their focus on lending to real estate compared to last year. Ultimately, this translates into banks looking for more “sure things” when it comes to what they're willing to finance.

He comments: “Compared to last year's results, not only are we seeing a continued openness to finance income-generating projects, but more banks within the CEE region are willing to fund new developments; unsurprisingly, and consistently with past surveys, the former typically receives more favourable terms than the latter – which shows the importance of eliminating development and market entry risk.”

Another big change seen in this year's survey, according to Andrea Sartori, is the emergence of the residential sector as the most popular asset class in a number of countries, with industrial/logistics coming in 2nd place, according to the bank representatives who responded to KPMG's survey.

“This is perhaps no surprise,” he says, “as it's obviously a consequence of the pandemic on how people are doing business – in both our region and around the world: either completely from home or going into offices on an irregular basis. That's not only been a shock to the office sector, but has meant that residential is in focus, overall, for societies themselves – all of our homes are now dual purpose: serving both home and work life.”

Last year, Mr Sartori notes, logistics got a huge boost (and was at the top of last year's PLB) from lockdown times during the pandemic when consumers were having every product imaginable delivered to their homes rather than visiting shopping malls. What still has to be assessed is whether or not certain recent trends, such as working from home and replacing physical shopping with online shopping, at least partially, will become regular habits of people living in CEE.

As a special addendum to this year's survey, developers from seven countries in the CEE region shared their perspectives on real estate financing in these challenging times. In terms of how they select from two banks offering similar financing conditions, the developers indicated that for them the speed of the process is the most important criterion.

In addition to such interesting findings, KPMG's Property Lending Barometer also includes detailed information on respondents’ indicated loan-to-cost and loan-to-value ratio expectations, their pre-let and debt service coverage expectations as well as hoped for interest premiums.

Property and bank lending sentiment in Romania
As for recent developments in real estate and property lending in Romania, Ori Efraim, Partner at KPMG in Romania, comments: “Anticipating the post-COVID recovery, the real estate market in Romania gained fresh ground fueled by optimism and an overall improvement of the economy. Leading the advance, the logistics and industrial market maintained its growth rate, whilst a growing appetite for premium residential encouraged a significant advance on the market. Looking forward, investors have regained the confidence lost in 2020 and could restart projects paused during the pandemic, stimulating an upward trend for the Romanian real estate market.”

Moreover, Ionuț Măstăcăneanu, Director in KPMG in Romania’s Tax Department, adds: “In Romania, the trend amongst lenders is somewhat in line with last year’s, while one-third of the respondent banks even increased their focus to some extent on real estate lending compared to the previous year. Just as last year, banks are open to financing both new developments and income generating properties, with a slight preference for the latter. Predictions for the future were optimistic, as the vast majority of those surveyed believe the whole banking sector’s real estate loan portfolio will increase or significantly increase in the next 12-18 months”.

Daniel Pană, Tax Partner, KPMG in Romania, adds: ”Looking at the broader context of the real estate market in the CEE region, Romania is amongst the few countries experiencing growth in the first half of 2021, as compared to the same period of 2020, including in office sector prime yields. It will be very interesting to see if Romania will keep up these positive trends on the medium term or if it would eventually align to the trends prevailing in CEE”.

Stay up to date with what matters to you

Gain access to personalized content based on your interests by signing up today

Connect with us