The troubles in the United States commercial property market, which have already hit banks in New York and Japan, moved to Europe this week, elevating fears about broader contagion.
The latest victim was Germany’s Deutsche Pfandbriefbank AG, which saw its bonds slump on concern about its exposure to the sector. It responded by issuing an unscheduled statement Wednesday that it had increased provisions because of the “persistent weakness of the real estate markets.”
Canada’s bank regulator also called commercial real estate loan losses a manageable risk for this country’s biggest banks Tuesday.
For offices in the U.S., where the return to work following the pandemic has been slower and less substantial, the value destruction has been particularly bad. And some predict the full impact might not even be fully priced in yet. Analysts at Green Street said that a further writedown of as much as 15 per cent may be needed this year.
“Appraisal values remain much too high,” they wrote in a note. “Lenders that base their decisions on these appraisals have greater odds of taking impairments” and some could face “strain” as a result.
The plunge in German lenders’ bonds was the latest in a series of warning signals. New York Community Bancorp was cut to junk by Moody’s Investors Service after flagging real estate problems, while Japan’s Aozora Bank recorded its first loss in 15 years due to provisions on loans extended to U.S. commercial properties.
“There are serious concerns in the U.S. CRE market,” said Rabobank credit strategist Paul van der Westhuizen. “It’s a not an issue for larger U.S. and European banks but the smaller property-focused German banks are feeling a bit of pain. Right now it’s more a profitability issue than a solvency issue for them though. They have sufficient capital and are less exposed to the threat of deposit runs than pure retail banks are.”
In its results last week, Deutsche Bank AG recorded provisions for losses in U.S. commercial real estate that were more than four times bigger than a year earlier. It warned that refinancing poses the greatest risk to the struggling sector as asset values suffer.
Elsewhere in Europe, Switzerland’s Julius Baer Group Ltd. said it would write down huge loans to bankrupt property company Signa. While it was a specific issue, it’s added to the broader worries about real estate and how far the issues could spread.
On Tuesday, Morgan Stanley held a call with clients recommending they sell Deutsche PBB’s senior bonds. The notes due in 2027 have tanked over 5 cents since and are now quoted at around 97, according to CBBT data compiled by Bloomberg. Meanwhile, the bank’s AT1 notes slumped 14 cents to 37 between Tuesday and Wednesday.
Deutsche PBB said Wednesday that it has increased loan-loss provisions to €210-215 million for the full year. It said it “remains profitable thanks to its financial strength.”
Concerns over PBB has spread to other banks with exposure to commercial real estate. Aareal Bank AG bonds have lost about 11 points in the last two days and are now quoted at 75 cents on the euro. In November, it reported that the value of US non-performing loans had risen more than fourfold over the previous year.
Germany’s central bank warned last year about the risks surrounding commercial real estate, saying there could be “significant adjustments” that lead to higher defaults and credit losses.
“The outstanding volume of loans granted by the German banking system to the US commercial real estate market is comparatively small, but relatively concentrated at individual banks,” the Bundesbank said.
Germany’s Landesbanks have also felt the pain of their exposure to commercial real estate; in the first half of 2023, the major state banks – Helaba, BayernLB, LBBW and NordLB – posted provisions of about €400 million in total.
If the CRE losses spread to Europe through smaller German banks, that would have an echo of the 2008 global financial crisis. Back then, it was the Landesbanks that got into trouble, when their exposure to subprime mortgages in the U.S. led to billions of euros of writedowns.
“You have to be mindful as you don’t know exactly where the bottom is,” said Raphael Thuin, head of capital markets strategies at Tikehau Capital. “We are aware that there could be more pain to come in commercial real estate.”
— With assistance from Steven Arons, Stephan Kahl, Jeff Black and Helene Durand.
TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.
The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.
The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.
“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.
“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”
The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.
New listings last month totalled 15,328, up 4.3 per cent from a year earlier.
In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.
The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.
“I thought they’d be up for sure, but not necessarily that much,” said Forbes.
“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”
He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.
“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.
“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”
All property types saw more sales in October compared with a year ago throughout the GTA.
Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.
“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.
“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”
This report by The Canadian Press was first published Nov. 6, 2024.
The Canadian Press. All rights reserved.
HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.
Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.
Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.
The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.
Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.
They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.
The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.
This report by The Canadian Press was first published Oct. 24, 2024.
The Canadian Press. All rights reserved.
Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.
Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.
Average residential home price in B.C.: $938,500
Average price in greater Vancouver (2024 year to date): $1,304,438
Average price in greater Victoria (2024 year to date): $979,103
Average price in the Okanagan (2024 year to date): $748,015
Average two-bedroom purpose-built rental in Vancouver: $2,181
Average two-bedroom purpose-built rental in Victoria: $1,839
Average two-bedroom purpose-built rental in Canada: $1,359
Rental vacancy rate in Vancouver: 0.9 per cent
How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent
This report by The Canadian Press was first published Oct. 17, 2024.
The Canadian Press. All rights reserved.
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