Slight decline in willingness to finance
Press release dated 26 October 2015
- BF.Quartalsbarometer reaches -0.41 points in Q4 (previous quarter: 1.23)
- Sentiment remains balanced
- Continued margin pressure accompanies higher liquidity costs
Stuttgart, 26 October 2015. BF.Quartalsbarometer for Q4 2015 showed that the sentiment among market participants remains balanced but that higher liquidity costs and a deterioration in the margins of portfolio financing led to an ongoing decline in the sentiment of roughly one-fifth of those interviewed. This trend barometer, which monitors financing practices for commercial real estate and was published for the second time by BF.direkt AG, an independent specialist for real estate financing strategies, dropped for the second consecutive time to a level of just -0.41 points (Q3: 1.23). As a result, the BF.Quartalsbarometer has entered slightly negative territory for the first time since early 2013. Overall, however, the experts interviewed regarding the barometer's level were still of the opinion that there is a "balanced market".
The results from an analysis by bulwiengesa AG, an independent analysis company in the real estate sector who conducts the interviews and evaluations for BF.Quartalsbarometers, show that roughly 75 percent of market participants are experiencing flat liquidity costs (refinancing costs). At the same time there is a continuation in the trend for "newly rising liquidity costs". This value, which shows an increase of 5.6 pp to 18.9 percent, is a new record high. Only 2.7 percent of those interviewed experienced declining liquidity costs.
The current BF.Quartalsbarometer shows that the average margin for portfolio financing in Q4 2015 has declined. Moreover, the trend of falling margins (currently by two basis points) for project financing, which has been visible since the analysis in the fourth quarter of 2014, has also continued.
Furthermore, the lack of room for further price appreciation in prime locations is increasing market participants’ willingness to invest in other locations and risk classes. "In terms of price development, we believe that there are still opportunities, particularly outside German metropolitan areas, for market participants with solid regional expertise. The willingness to provide financing on the part of financial institutions continues to be strong," commented Mr. Fedele, CEO of BF.direkt AG.
This was also the theme addressed in the survey for the current trend barometer – Can investors in Germany still buy real estate at risk-adequate prices? Roughly 51.5 percent of those questioned answered "no" reasoning that yields are no longer sufficient to warrant the assumed risk. There is a high willingness to pay exorbitant prices due to investment pressure, among others. However, these excessive prices can only be financed in the existing low interest rate environment.
Nearly half of those interviewed (48.5 percent) still consider the current purchase prices to be risk-adequate. Most of the experts, however, restricted their comments to real estate outside of the usual metropolitan areas and B, C or D locations.
"What is interesting in this context is the change in decision-making processes within bank organisations. The credit approval process at these institutions is increasingly being transferred to risk departments, by some 15 percentage points. In this environment, market participants who put more emphasis on quality than risk with their investments can hope for a warm reception from financiers", explained Prof. Dr. Steffen Sebastian, who holds the chair for real estate financing at the IREBS International Real Estate Business School of the Regensburg University and is an academic advisor to the BF.Quartalsbarometer.
With regard to the demand pertaining to alternative financing providers, the value in Q4 2015 rose slightly in comparison to the previous quarter. Whereas in Q3, nearly 38 percent of those interviewed expected strong demand for additional types of financing, in Q4 that figure rose to 40 percent. "Currently we can detect a certain trend in demand particularly for the most important type of alternative financing – mezzanine and equity-like financing. We expect this trend to be continued in the upcoming quarters", added Mr. Fedele.
The BF.Quartalsbarometer, issued by BF.direkt AG, an independent specialist for financing strategies, is an analysis tool published four times per year that was established in the financing market in 2012 and shows participants' willingness to finance commercial real estate in Germany. The accompanying analysis also includes comments on new business, asset classes, expiry dates for loans and margins. The panel comprises 140 experts from lending institutions that, in addition to traditional financiers such as mortgage banks, specialist banks, public-sector and cooperative institutions and private banks, also includes newer types of financing providers such as provident funds/pension funds, insurance companies, real estate private equity and credit funds. Interviews and scientific evaluations are conducted by the analysis company bulwiengesa. www.quartalsbarometer.de
BF.direkt AG is a leading, independent specialist for the financing of residential and commercial real estate projects. www.bf-direkt.de
bulwiengesa is one of the largest, independent analysis companies for real estate within Continental Europe. www.bulwiengesa.de
The current report of BF.Quartalsbarometer is available for download immediately at www.quartalsbarometer.de as well as www.bf-direkt.de.
Tel: +49 711 22 55 44 136
Mail: m.koeppel @ bf-direkt.de
Tel: +49 511 47 40 23 10
Headquartered in Stuttgart - AG Stuttgart, HRB 20834; member of the Board of Directors: Francesco Fedele
Chairman of the Supervisory Board: Dr Peter Maser, attorney-at law