Persuaded by bigger margins and weak competition, opportunistic banks are gingerly casing the market for deals but many buyers fear a sustained market recovery is years away.

Patrick Lesur, head of French operations for Eurohypo, is convinced the stricken market will not be back to normal or near-normal levels before 2011 or 2012.

“We haven’t yet touched the bottom of the crisis,” Lesur said. “It could just take one traumatic event to prolong it by six months to a year”, he said, predicting a 25% to 40% price drop on the French commercial real estate market by the end of 2010.

Experts said much-needed debt restructuring of the European property market could take up a decade, but some banks claim they are keen to resume lending activity -- at the right price.

“Today, banks are lending. There is financing for good projects,” said Alain Lemaire, CEO of French state-owned bank Caisses d’Epargne. “The financial shock has been, not digested, but integrated,” he said. Lemaire’s comments echo sentiments from real estate lender Hyporeal, which recently said it has started a “very gradual” comeback, after six months of complete paralysis.

Many investors do not yet believe it, noting the absence of credit is still stifling the market. “There are very few transactions because there is very little financing,” said Christophe Kullman, chairman of French real estate investment company Fonciere des Regions. “The market freeze will go on for some time. The situation is not in the hands of investors but of lenders.”

Others believe the market paralysis is also due to recessionary economic conditions, which are making it harder for buyers and sellers to agree on how far values have sunk.

“Today in France, even if rates have gone up by 100 to 150 basis points, we’re facing a market with forced sellers on one side, and hesitant buyers on the other,” said Philippe Zivkovic, chairman of BNP Paribas Real Estate.

“It is important for financing problems to be worked out, and for price cuts to come into force,” Benoit du Passage, head of Jones Lang LaSalle for southern Europe. “If access to financing is freed up ... that would be very good for the market,” he said.

Morgan Stanley, and Germany’s Allianz among others, are predicting discount purchases in the second half and in 2010, in low-risk markets like London, where there is liquidity and where average prices have plunged more than 37% since the June 2007 peak.

“London has seen the strongest reduction in values since 2008. I’ve seen meetings (at MIPIM) and I’d be surprised if they didn’t come to something,” Mark England, chief executive for BNP Paribas Real Estate unit Atisreal said. (Reuters)