EUROPEAN investors have identified the shortage of debt finance and the impact of rising interest rates and inflation as the greatest constraints to a recovery in the property market this year.

The research among 350 investors by the CB Richard Ellis Group showed that 20 per cent of them were concerned about these issues and particularly the prospect that interest rate increases from the current ultra-low level were coming closer. Over the past few months there has been a sharp increase in medium term interest rates.

In Germany, the 10-year government bond yield has increased from a low of 2.15 per cent in August last to around 3.15 per cent now. This is increasing the cost of capital to banks and thus the rates at which those lenders who are still active are prepared to lend. The research also shows that investors now favour Germany and Central and Eastern Europe as the most attractive markets in which to purchase real estate in 2011.