Barometer score rises slightly in Q2 2017 from 0.11 to 0.49. Sentiment of real estate financiers signals a balanced market. Risk and quality awareness increases in importance for financiers. More than 50 per cent of respondents finance existing properties in the field of student micro-apartments/student housing.
Sentiment among German real estate financiers are improving slightly. Around one-third of the banks surveyed consider the market to be more progressive. The BF.Quarterly Barometer has thus moved sideways with a slight upward tendency and increased from 0.11 to 0.49. A positive barometer score indicates a high propensity for banks to provide financing and a good supply of credit to the real estate industry, while a negative barometer score signifies the opposite. When the barometer is close to zero, as is currently the case, this suggests a balanced market.
An important trend in this quarter is that the proportion of respondents who consider the current situation on the financing market to be more progressive has increased to one-third (+10.6 percentage points).
Another key result is that “the risk or quality awareness of respondents has increased,” explains Manuel Köppel, CFO of BF.direkt AG. This is demonstrated by the question about priorities in new business. Maximising income and returns is declining in significance (-2.2 percentage points), while minimising risk is gaining weight (+1.0 percentage points). “The increased risk awareness is also reflected in lending decisions. The new business department plays a significant role in only 4.5 per cent of lending decisions. In contrast, the risk department gets its way on a quarter of lending decisions (+2.1 percentage points),” Köppel continues.
The banks’ selective financing is also demonstrated by the response to the question as to why loans have not been granted. Around 60 per cent of all respondents indicated that financing was not provided because project risks were too high, the borrower had a poor track record or the borrower’s equity share was too low.
Other findings of the Quarterly Barometer include the fact that, in existing financing, margins have fallen (from 135 to 131 basis points), while LTVs (loan-to-values) have increased to 71.3 per cent (+1.2 percentage points). In the financing of development projects, margins have risen slightly to 185 basis points (previous quarter: 181 basis points) and the average loan-to-cost (LTC) has climbed to 73.2 per cent (+0.4 percentage points).
There was no great shift in usage types in the financing of existing properties. Around 96 per cent finance both office and residential properties. The largest change was seen in the niche usage type micro-apartments / student housing. While only around 46 per cent financed properties of this type in Q1 2017, it was already 52 per cent in Q2 2017. Manuel Köppel says that “the greater financing of niche usage types is the banks’ reaction to the intense competition. We have been observing increases activity in specialist segments such as micro-apartments / student housing for some time.”
BF.direkt AG, the specialist for real estate project financing, publishes the BF.Quarterly Barometer as prepared by bulwiengesa AG every quarter. The index offers a detailed insight into the sentiment and business climate among real estate financiers in Germany. The quarterly barometer is calculated as the composite of various individual scores.
The BF.Quarterly Barometer surveys more than 120 experts, most of whom are directly responsible for lending to real estate companies. The panel comprises representatives of different banks and other financiers.
The BF.Quarterly Barometer score is a composite of various components of the survey. The components analysed include the respondents’ assessment of changes in financing conditions, new business development, the volume of loan tranches newly granted, the risk propensity for lending by asset class, LTV/LTC scores, margin development, the relevance of alternative financing options and the development of liquidity costs.
The full Quarterly Barometer for Q2 2017 can be downloaded in German from the following link: https://www.bf-direkt.de/unternehmen/quartalsbarometer/