Sentiment among German real estate financiers is deteriorating and their assessment of new lending business is subdued, according to the latest survey by financing consultants BF.direkt.
In the first quarter of 2018, the BF.Quarterly Barometer prepared for BF.direkt by market research firm Bulwiengesa fell from 0.6 points to 0.23 points. The barometer is a composite of various individual scores and covers 120 experts.
Compared to the previous quarter, fewer banks (24.4%; down 14.4 percentage points) con-sider the situation on the commercial property finance market to be progressive. ‘The more cautious assessment of development is typical for the start of the year,’ said Francesco Fedele, CEO of BF.direkt. ‘This is due to particular uncertainties for the banks with regard to the future development of markets and interest rates. We observed comparable assessments at the start of 2016 and 2017,’ he noted.
The assessment of new business is also subdued. More than half of the respondents (54%; up 5.5 percentage points) indicated that new business is generally stagnating at present – a record level in the history of the BF.Quarterly Barometer.
In line with this, the average credit volume for new business is getting smaller. Financings with a volume of less than €10 mln are increasing and now take a 29.7% share of the total, up 6.8 percentage points. This switch to smaller volumes reflects a shortage of properties on the market, BF.direkt said.
LTVs still high
In addition, banks are still entering into high-risk financing. Both loan-to-values (LTV) for existing properties (down 0.5 percentage points) and loan-to-costs (LTC) for project develop-ments (down 1 percentage point) posted minimal decreases. As such, the average LTV of 71.5% and LTC of 73.5% are still close to the previous quarter’s highs.
In terms of the type of assets being financed, the survey shows a slight shift towards niche products, both for existing properties and developments. Among existing properties, micro-apartments (up 1.4 percentage points) and hotel properties (up 1.3 percentage points) are seeing a particular increase in financing. For project developments, the strongest growth is in the logistics segment (up 1.6 percentage points). ‘We have been observing this trend towards niches for several quarters. This development seems to be continuing in the new year, too,’ said Manuel Köppel, CFO of BF.direkt.
Among the different forms of alternative financing, mezzanine capital is still the most commonly used at 46.2 (up 7.3 percentage points). It is followed in second place by forms of equity finance such as private equity and joint ventures at 26.9% (up 10.2 percentage points).
The BF.Quarterly Barometer is a composite of various individual scores offering an insight into the sentiment and business climate among property finance providers in Germany.
