Posted by: Dirk | November 2, 2012

The Dutch real estate bubble goes POP! and Dutch banks face future problems

Apparently, this story is still under the radar. The Dutch domestic lending to invest in property has produced a real estate bubble just like in Ireland or Spain. I wrote about this in April and apparently the information coming in these days seems to vindicate my writings. Here is Property EU:

The production of commercial real estate loans almost halved last year from EUR 12 bn to EUR 6.6 bn, according to research from PropertyNL, the Dutch sister publication of PropertyEU. Compared to 2008, this marks a decline of 70%. At the peak of the market in 2007, lending production reached EUR 27 bn.

Nice doublespeak, I must say: “lending production”. Sounds so industrial and solid, whereas in reality you just give money to speculators mostly buying existing properties. This has nothing to do with production, this is pure rent extraction. Even lending service sounds terrible. Well, we get what we pay for, and these news are provided for free. What do you expect?

Gulf News was one of the few, it seems, to pick up the bad news coming from Bloomberg:

Dutch lenders, with almost €80 billion ($103 billion) in commercial real estate loans on their books, haven’t set aside enough money to cover potential losses, according to the country’s central bank.

Banks have set aside less than 2 per cent of the total, an amount “insufficient to absorb large losses,” the Dutch central bank said in a report. In addition, valuations of the properties backing the loans are often outdated, according to the report.

The office vacancy rate in the Netherlands is 14 per cent, the central bank said, which is among the highest in Europe. Dutch commercial real estate prices have been falling for four years, dropping by about 12 per cent from a September 2008 peak, the bank said. Supply will probably continue to outweigh demand as online retailing rises, office space is used in a more flexible way and the workforce grows more slowly.

And with the fiscal cliff looming in the US, unresolved EMU problems, weak growth in Japan and relaitively modest growth in China, this just adds to a bunch of uncertainties for 2013.

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Responses

  1. So liquid money has been put into illiquid assets which are subject to market fluctuations. Properties meant for housing are generally considered a dull investment and rents are influenced by the market forces.

  2. Interesting. Indeed, housing prices have dropped as a result of the credit crunch in 2008 and the economic downfall that followed; furthermore, it has been in debate for years to liit the possibility to deduct mortgage interest from income tax (mortgage interest relief); the new government has now decided that in new, interest can only be deducted on loans that are to be repaid as an annuity loan. It is a catch 22, it seems: the dropping house prices weaken the banks that were in some cases upheld with lots of tax-paid money, while the banks as a consequence of this are very cautious to provide new mortgage loans.


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