Report: Low Rates Drive European Pensions to Property

Low interest rates are driving European pension funds to increasingly shift into property investments – commercial and residential – both directly and through investment funds, according to a report.

One EU regulator, the European Insurance and Occupational Pensions Authority, is keeping a close watch on the trend.

More from Reuters:

Traditionally conservative European insurers and pension funds are turning increasingly to risky property bets on everything from new homes in provincial Britain to car parks at Brussels airport, as they feel the pinch from rock-bottom interest rates.

While much is in the form of equity stakes, they are also providing loans secured against property, moving into territory where banks have retreated since the global financial crisis.

“The banks have taken a couple of steps back and are not providing the same amount of credit,” said Johan Held of AFA, a Swedish insurer which has spent one in seven euros of a 20 billion euro ($22 billion) fund on property. “Many of the insurance companies are stepping in to fill the gap.”

At the moment, property, at least in many northern European cities, offers far better returns than conventional investments such as bonds, where yields have been dismal since central banks flooded the financial system with cheap money to revive their economies.

[…]

In a recent report on financial stability, the European Insurance and Occupational Pensions Authority signalled it is closely watching developments, noting “an increased risk appetite” since 2008 to preserve investment returns.

The report pointed to insurers turning to investments “previously dominated by the banking industry” – mortgages, infrastructure loans and mortgage backed securities.

Click here for a graphic detailing home loans over time in key EU countries.

Photo by  Horia Varlan via Flickr CC License