BF.Quarterly Barometer Q3 2018: Sentiment among German real estate financiers remains gloomy
Sentiment among German real estate financiers continues to remain gloomy. The BF.Quarterly Barometer has stagnated in the third quarter of 2018 at -0.92 points (a gain of 0.06 points on the previous quarter). As a result, the barometer score is hovering just above the all-time low from the previous quarter.
One of the main factors is the level of competition on the financing market, which continues to be high, as reflected in the LTVs and LTCs, as well as the margins. The LTVs for portfolio properties have risen to 71.5 per cent (+0.9 percentage points), while LTCs for project developments have stagnated at a high level of 73.8 per cent (+0.2 percentage points). However, financial backers are finding it increasingly difficult to be compensated accordingly for these risks. Average margins for portfolios have dropped by 11 basis points to 131 basis points, and the average margins for project developments have fallen by 4 basis points to 202.
Manuel Köppel, CFO of BF.direkt AG, said that “given the scarcity of properties, there are hardly any properties to finance right now, especially with regard to the portfolio. Due to the high competitive pressure, capital is practically being thrown at the handful of good proper-ties out there, to put it dramatically. Right now, customers can dictate the terms and conditions. This applies only to high-quality properties, mind you. We are not seeing any uncontrolled risk-taking concerning properties of lesser quality.” Another sign of the intense competition: around one quarter of the banks surveyed indicated that a financing contract failed to materialize because a competitor offered better conditions.
New business down to a trickle for financiers
The lack of properties will likely persist over the medium term, according to the participants of the survey. The financiers’ assessment of new business development – a key early indicator – remains pessimistic for the third quarter of 2018. Only around one third (32.3 per cent) of the banks surveyed indicated an increase in new business (a decrease of 6.5 percentage points from the previous quarter), marking a new all-time BF.Quarterly Barometer low. At the same time, the percentage of those surveyed who rated the development of new business as on the decline was relatively high at 25.8 per cent.
Another factor negatively impacting the barometer score is the rising refinancing costs that banks face.
“The reasons for this are difficult to assess from an outside position. One cause could be that some of the banks have been rated as riskier,” said Steffen Sebas-tian, chair of real estate finance at IREBS and professional advisor to BF.Quarterly Barometer.
Micro-apartments in demand for project financing, hotels for portfolio financing
When it comes to financing project developments, micro-apartments have recorded the highest growth among all segments with a rise of 1.6 percentage points. In terms of financing for portfolio properties, the core office, residential and retail segments were down slightly, while hotels recorded the highest growth with a gain of 2.8 percentage points.
High demand for alternative financing
The high demand for alternative financing instruments continues to increase and has reached a new all-time high. For example, 53 per cent (+7.2 percentage points) of the banks surveyed are seeing stronger demand for alternative forms of financing. With a share of 34.7 per cent (+3.0 percentage points), mezzanine capital is in greatest demand. Forward deals have recorded the highest growth with an increase of 6.6 percentage points to 16.3 percent.
The BF.Quarterly Barometer surveys more than 120 experts, most of whom are directly re-sponsible for lending to real estate companies. The panel comprises representatives of dif-ferent banks and other financiers.
