Big Problems Remain Jul 2010

Big Problems Remain for Real Estate: Analyst

Published: Tuesday, 13 Jul 2010 | 7:41 AM ET

CNBC Senior News Editor

Despite tentative signs of recovery in the US and global real-estate markets, enormous challenges remain that will test both the housing market and the banks according to Richard Yorke, the UK Managing Director at research group Real Capital Analytics.

"There are something like 180 billion dollars worth of loans which are secured against troubled assets," Yorke told CNBC Tuesday. "Clearly those banks need to try to work out those loans over the next few years, something like two thirds of all loans that are due to mature over the next three years are currently underwater, so clearly that’s a huge tasks for banks."

That is going to affect lending practices and will have a significant impact on general economic growth (video), Yorke said.

"Yes there may be some green shoots of recovery but they are very specific to certain types of property and certain types of location," he said. "Many properties are still underwater. I think commercial property in general is about 42 percent below it s October '07 high."

The property market, like the bond and stock markets has seen a flight to quality, he said.

"Investors are being very selective about what types of property their looking at," h added. "It has to be institutional grade, grade-A prime location. Anything that’s secondary, anything that isn’t quite as good as an institutional grade property is going to struggle in this environment."

The market is giving mixed signals, but there are opportunities for those with cash, he said.

“Clearly there are contradictory signals and messages," he said. "In terms of the residential markets in the US it's not in a healthy sate. Something like $10 billion worth of mortgages defaulted in this year which indicates that there are still significant problems."

“There are potential bargains to be had for cash-rich investors, but the market is generally still pretty moribund," he said. "With other types of assets you will naturally see a flight to quality so better quality assets in a better location where supply and demand dynamics are better, clearly you’ll see a better performance there."