European real estate risks crisis, but there are still opportunities for investors

Real estate

Posted by MoneyController on 07.06.2023

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The European property market is at risk of entering a crisis due to the credit crunch, but there are funds and sectors (in countries such as Italy) that still appear to offer opportunities.

The credit crunch hits the property market

The rise in interest rates has had a direct impact on the European property market: although the impact varies from country to country, the credit crunch has generally led to a reduction in the number of mortgages taken out. Fewer mortgages lead to a slowdown and sometimes a fall in house prices. The non-increase or decrease in the value of these assets is then further affected by the effects of inflation.

Growing difficulties for property funds

Many market participants are decidedly pessimistic about real estate and real estate funds: according to a survey by Bank of America Corp, the real estate sector has been the least valued by managers over the past three months. The two biggest problems are the cost of borrowing for property companies and falling house prices. In particular, the ECB noted increasing difficulties for open-ended property funds, particularly in France and Germany.

Property market trends and investment opportunities

Despite this worrying scenario, there are managers who continue to see opportunities and invest in real estate. The website Immobiliare.it, for example, mentions Blackstone's funds: the company's investments range from accommodation, such as hotels, to logistics, from offices to residential property. One could also mention the way in which sustainability affects the property market (just think of the issue of energy efficiency). Here too, however, the market can be very different from country to country: Immobiliare.it, for example, talks about the opportunities in Italy thanks to public funding and building renovation.  

The differences between closed and open-ended property funds

Investors interested in the property market can choose between two macro-types of funds: open-ended property funds and closed-ended property funds. The latter have a fixed redemption date for subscribers and invest exclusively in real estate. Open-ended real estate funds, on the other hand, allow subscribers to redeem their units before the fund closes and also invest in other types of assets such as equities and bonds. The advantages of property funds include the possibility of participating in property investments with small subscription amounts. Disadvantages usually include long duration and liquidity, which is lower than that of other financial assets, given the nature of the assets in which they invest.

Read also:

Real estate crisis: not all European countries are equally at risk

Interest rates dampen demand for mortgages and now inflation could hit real estate too

What is a real estate fund?

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