Banks maintain high interest in financing commercial real estate despite economic uncertainty
Surveyed banks are still very much interested in providing financing to commercial real estate, despite current economic precariousness, with 56% of surveyed bankers in the CEE region expecting growth of their real estate credit portfolio in the following year. However, according to KPMG’s Property Landing Barometer survey of 40+ banks from the CEE region, including Serbia, current situation does force banks to increase interest rates and be more selective when approving new loans.
Large investments were poured into the real estate market in the first two quarters of 2022, but a steep drop followed in the second half of the year, with investors now waiting to see how the situation develops.
“Despite the current inflationary environment, the retail real estate sector in Serbia is picking up and reaching the pre-covid level. Office demand is increasing mainly due to the expansion of the IT sector resulting in the very low vacancy rates. Prices in residential real estate continue to go up. In the future development in the real estate sector will be achieved with greater emphases on sustainability and ESG indicators. ESG has gained increasing significance for banks over the years as they need to show their commitment to sustainable business. With the increased attention from regulators and the community, banks in Serbia continue to include and prioritize ESG considerations in their strategy” says Sanja Kočović, Associate Partner at KPMG Serbia.
Czech Republic and Slovakia boasting the lowest interest margins
Just like last year, the lowest interest margins of the region were those of Czech and Slovak banks, despite a slight increase.
In some countries, variable interest rates must be hedged with derivative instruments at a value of over 50% of the total loan volume. All surveyed bankers from Czech Republic, Hungary, Poland, and Croatia confirmed this to be the case, with Poland and Croatia mandating hedged value exceeding 80% of total loan volume. On the other hand, Bulgaria, North Macedonia, and Albania require either very low or zero loan value to be hedged.
The number of loans provided in foreign currency, most often in Euros, continued to grow this year as well, making up over 70% of loans according to most surveyed bankers across the region and in Czech Republic.
Residential real estate maintains popularity
Residential real estate projects remain the most popular according to surveyed bankers, with logistics-related projects following closely behind and being the favourite among Czech bankers.
However, the survey also shows respondents’ increased aspirations to have all categories of commercial real estate represented in the portfolio compared to previous years. Hotels are the only exception, despite gradual recovery of tourism – over 30% of bankers are currently not willing to finance or invest into hotels, with the majority of them based in Czech Republic, Poland, and Slovakia.
Apart from senior loans, the survey also explored other types of financing, like mezzanine loans, that come with much higher interest margins. Still, banks are not keen on providing them, with their reluctance only increasing this year, most notably in Czech, Slovak, and Hungarian banks.
The growing importance of sustainable financing (ESG)
Two thirds of surveyed banks already have an ESG strategy for financing of commercial real estate. Nearly one third of bankers surveyed have seen loans rejected due to failure to meet several different conditions, with ESG criteria being among them. More than half of surveyed bankers confirmed their banks have either created or are working on introducing special products aimed at sustainable financing, allowing them to offer lower interest margins, longer maturity, or lower amortization to projects that meet ESG criteria.
About Property Lending Barometer 2022
Property Lending Barometer is a survey focused on bank financing of commercial real estate projects that has been carried out by KPMG for 13 years now. This year, data was collected in June and July, with 41 banks participating from the Czech Republic, Poland, Hungary, Slovakia, Serbia, Croatia, Bulgaria, Romania, North Macedonia and Albania.
