Borrowers 'dictating' terms for German real estate

Sentiment amongst German real estate financiers remains gloomy, according to real estate project financing specialist BF.direkt, with borrowers able to virtually 'dictate' loan terms.

'Given the scarcity of properties, there are hardly any properties to finance right now,' commented Manuel Köppel, chief financial officer of BF.direkt, which produced the Q3 2018 financing barometer.

Year-on-year, the barometer stagnated at -0.92 points (+0.06 points on the previous quarter), placing it just above an all-time low.

'Due to the high competitive pressure, capital is practically being thrown at the handful of good properties 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,' Köppel added.

Loan-to-value (LTV) rates for portfolio properties have risen to 71.5% (+0.9 percentage points), while loan-to-cost (LTC) prices for project developments have stagnated at a high level of 73.8% (+0.2 percentage points).

Falling margins
However, financial backers are finding it increasingly difficult to be compensated accordingly for these risks, the survey showed. Average margins for portfolios have dropped by 11 basis points to 131 basis points (bps), and the average margins for project developments have fallen by 4 bps to 202.

Elsewhere in the report, around one quarter of the banks surveyed indicated that a financing contract failed to materialise because a competitor offered better conditions.

The lack of properties will likely persist over the medium term, according to the participants of the survey, while rising refinancing costs for banks are also having a negative effect.

Overall, the high demand for alternative financing instruments continues to increase according to 53% of the banks surveyed, with mezzanine capital in greatest demand at 34.7%, a 3% increase year-on-year.

Forward financing deals recorded the highest growth with an increase of 6.6 percentage points to 16.3%.


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