April 20, 2012 / 9:30 AM / 8 years ago

Euro zone strugglers falter in property sell-off

LONDON, April 20 (Reuters) - Debt-laden euro zone countries hoping to sell state-owned property must cut prices and establish more transparent sales programmes to boost the slow trickle of transactions to date, research showed.

While European governments more than doubled real estate sales to 2.3 billion euros ($3 billion) last year to cut debt in the wake of the financial crisis, they were dominated by more robust economies like Germany and the UK, a report by property consultancy CBRE said.

Greece, Portugal, Spain, Italy and Ireland, the five nations most debilitated by the sovereign debt crisis, together accounted for less than one percent of the total, CBRE director of research Richard Holberton said.

“In some cases there may be a need to drop prices” he told Reuters. “In others there is still a basic need for a comprehensive audit to understand what they’ve got and how to get rid of it.”

The urgency to raise funds was underlined this week as Spanish 10-year bond yields rose above 6 percent, r aising concerns about its ability to borrow money at sustainable levels. Italy was forced to relax its budget deficit targets.

Government property disposal programmes have prompted accusations that countries are selling off the family silver and have been opposed by groups such as trade unions.

Greece aims to raise 50 billion euros through privatisations and real estate sales by 2015. Last year, it set up the Hellenic Republic Asset Development Fund to dispose of 70,000 properties including ministeries, tax offices and tracts of beachfront land.

“They haven’t got a cat in hell’s chance of hitting that target,” said David Parker, the Emeritus Professor of Economics at Cranfield University who has advised governments on privatisations.

“There is a real likelihood of price cutting if there is desperation to find buyers who themselves are finding debt financing difficult to arrange.”

A lack of transparency over ownership or planning status has deterred potential buyers of Greek real estate, CBRE said.

In one case, the 1,000-year old Vatopedi Monastery in Greece was accused of trading cheap farmland for prime state-owned real estate in Athens. The deal is estimated to have cost the Greek government 100 million euros and led to the imprisonment of the monastery’s abbot.

“Everything has to be tied down and above board for investors in this climate,” said Chris Bell, managing director of Europe at property consultancy Knight Frank. “The last thing they need is this sort of concern from leftfield.”

In Spain, national and local government bodies have organised public tenders for the sale and leaseback of state-occupied property. But many lots are a mix of good and bad which has put off buyers, Holberton said.

Several property investors, including Pierre Vaquier, chief executive of Axa Real Estate, which has about 42 billion euros of assets under management, told Reuters that prices for all Spanish property need to fall further for sales to come through.

Holberton described Italy’s target of raising 20 to 30 billion euros by selling prisons, theatres and other publicly-owned buildings as ambitious, given that average annual investment in all Italian commercial property was 5.5 billion euros.

Sweden sold the most real estate last year, including a portfolio of rented apartments in the city of Sigtuna for 189 million euros. Germany disposed of more than 440 million euros with the focus also on residential.

In the UK, which accounted for 20 percent of European real estate sales last year, a government-owned property company has been set up to manage and sell off some assets belonging to the Department of Health.

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