To builders and developers must prepare for difficult times across Europe. According to S&P, a number of external factors threaten to affect new construction in the next 12 to 18 months. The raise of interest rategiven inflation And two energy costs due to the Russian-Ukrainian conflict, could have consequences for the European real estate sector.
Interest rates and inflation, how they affect the housing market
According to S&P, current conditions could decline sales volume. The market is largely dependent on real estate loans (70% of housing units built are financed by Mortgages in Europe), which are influenced by interest rate and banking conditions.
Uncertainty can cause families to postpone the purchase of new homesthe rise in real estate prices, linked to inflation, as well as the rise in the cost of living, not being accompanied by an increase in Real wages. Portugal, for example, has the largest gap between property prices and wages OECDhousing costs exceeding labor income by 47.1% in the first quarter of 2022.
In addition, the conflict between Russia and Ukraine, as well as global supply chain issues, are driving up costs and shortages for construction companies, delaying and likely making projects more expensive.
Property prices in Europe
To maintain profit margins, according to S&P, cost optimization plans and solid liquidity reserves. Furthermore, among the price support factors is a problem of stock of new houses. In Portugal, for example, the demand for real estate assets relative to supply has housing costsin general in the country, in recent years.
European real estate forecasts
These are then the main Trends identified by S&P for the coming months for new construction:
- Rising interest rates and weakening purchasing power should reduce the looking for new accommodation in Europe, a market based mainly on mortgages, although government incentives can play a role in recovery.
- Moreover, the increase Of building costsenergy costs (accounting for 5-10% of price increases), labor shortages, land shortages and supply chain issues continue to hamper housing delivery.
- croissants environmental and safety requirements stimulate demand for new constructions, but also represent Additional costs and technical challenges for builders.
- It is therefore expected that in the last quarter of the year, European property developers will already start to suffer a growing pressure on revenue and margins, as it is difficult to pass on rising costs to end customers.
- Most of the impact won’t be felt until 2023. However, most S&P-rated European property developers are expected to overcome the obstacles and keeping credit metrics in line with annual ratings, thanks to strong balance sheets and good levels of liquidity.