The spate of property deals that have recently fallen through in the German market amply shows that the financial crisis is 'anything but over'. That is the conclusion of real estate consultant Dr. Rainer Zitelmann in the latest edition of the German Real Estate News.

The spate of property deals that have recently fallen through in the German market amply shows that the financial crisis is 'anything but over'. That is the conclusion of real estate consultant Dr. Rainer Zitelmann in the latest edition of the German Real Estate News.

As reported recently in PropertyEU, Karlheinz Weimar, Hesse's minister of finance, stopped the sale of state-owned real estate for EUR 400 mln. 'Naturally, the subprime crisis had an immediate impact on the quotes for the current Hessian real estate portfolio,' he said in a bid to explain the cancellation. 'A sale at any price though is out of the question.' A further sale of 200 buildings belonging to the Allianz Group for EUR 2 bn is currently in danger of toppling, and in Switzerland, the country's biggest-ever real estate sale of the Jelmoli real estate portfolio for over EUR 2 bn has been called off.

Zitelmann says that just because the financial crisis has disappeared from the headlines for two or three weeks does not mean it's over. The dollar continues to deteriorate rapidly, while gold and oil prices soar. Which leaves the ECB with a dilemma. While the exploding money supply (up by almost 11% in September) combined with the accelerating inflation, would normally suggest that interest rates be raised, this could drive up the euro even further against the dollar - which would have deeply negative repercussions for the European economy. So what does this imply for the real estate market? Zitelmann points to the large number of German banks that have closed their books in regard to major real estate financings before the end of the year and says it could become impossible to secure large deals.

The price of gold has hit record highs almost daily for weeks, demonstrating that market participants dread further inflation risks. However, according to Zitelmann, this could actually benefit the property market in the medium term. In addition to gold, real estate could become a safety anchor for investors who are afraid the inflation rate might accelerate further.

Zitelmann further warns that the uncertainties on the financial markets and the fears of inflation could flood real estate markets with new capital, while further drops in interest rates could bring about yet new cash floods that would cause real estate markets, among others, to heat up again.