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Banks More Disposed to Lend for Real Estate

Hungarian banks are increasingly favorably disposed to providing finance for real estate developments and acquisitions, with the loan to value ratio rising, reflecting confidence in the Hungarian markets, according to research from KPMG.  

Campona shopping center, purchased by investors and planned to be redeveloped.

Office development is the most favored sector, which bucks the trend in CEE and wider Europe, where residential development is the prime target for lenders. In Hungary, office is followed by residential project financing, then industrial, and then retail.   

In general, European banks are well disposed in their lending policies to all the classic property market sectors – retail, logistics, residential, office and hotel. Lending conditions on offer for Hungary are increasingly favorable as has been the trend for other European countries.

KPMG’s “Property Lending Barometer 2017”, its eighth annual survey, is based on interviews with representatives from around 100 European banks in 17 European countries, including Hungary, Austria, Croatia, Czech Republic, Germany, Poland, Romania, Serbia, Slovakia, and the United Kingdom, conducted in May.

“The positive tendency of increased lending activity in Europe is likely to continue as [it has] in 2017, supported by eased lending conditions and sustained demand across all loan categories,” said Andrea Sartori, head of CEE real estate at KPMG.

The survey concludes that, in comparison to only three years ago, the real estate sector in Hungary “has significantly strengthened and banks are therefore more willing to finance market players.”

Although average annual GDP growth of 3.07% is forecast for Hungary for 2017-2019, according to the Economist Intelligence Unit, a steep drop in construction activity was mainly responsible for the slowdown in economic activity in 2016.

Accelerate Sharply

“GDP is expected to accelerate sharply by 3.6% in 2017, as increased consumer spending and more EU-funded construction projects – backed by government spending – will help support economic activity. Unemployment dropped to a historic low of 5.1% in 2016, the fifth lowest within the EU, and is anticipated to further decrease to 4.4% in 2017.”

However, similarly to other CEE countries, Hungary suffers from a labor shortage in many sections and professions due to emigration to Western Europe, which has been driving up wages and making it difficult to recruit.

Hungarian banks are more open to both new developments and income generating projects, with a slight preference towards the latter according to Sartori. “In comparing the total volume of real estate loans during the last 12-15 months, there are marginally more income generating projects financed by banks than new development projects,” he said.

Despite the more favorable lending conditions for Hungary, it still lags behind Czech Republic and Poland with regard to commercial property investment acquisitions. CEE investment transaction volume (excluding Russia) saw an investment transaction volume of EUR 5.6 billion, which is less than 5% of the aggregate European volume.

However, the region is continuing to attract investors, reflected by a 10% year-on-year rise compared to the same period of last year. This year, Czech Republic has been the top investment target with EUR 2 bln in deals concluded in H1, followed by Poland with EUR 1.6 bln. Hungary came third with circa EUR 750 million. The major transaction was the Hungarian component of the purchase of the CBRE GI retail fund by CPI with a volume of circa EUR 180 mln.

Banks surveyed by KPMG see non-local commercial banks as their biggest competitors, followed by private equity/debt funds and insurer/pension funds. Average loans were in the EUR 16 mln-23 mln range, while the preferred volume by lenders was EUR 18-25 million.

All Hungarian respondents to the survey foresee an increase in the size of their real estate loan portfolios.