GERMANY - Experts claim Hypo Real Estate's (HRE's) possible nationalisation could help boost the German property market.
A bill backed by the German government's finance committee yesterday, to expropriate shareholders of HRE and save the bank, may benefit the property industry by facilitating refinancing terms for other investors and encouraging transactions.
"It seems to be unlikely that the bill will have a negative impact on real estate market as expropriation only applies as a last resort," said Timo Tschammler, managing director of international investment at DTZ.
"The expropriation is only allowed if it is necessary for the stability of the financial market and no other economic or legal solutions are available.
"It may be that investors are able to renegotiate financing at more favourable terms, enabling them to increase liquidity within their investment vehicles. This could free up capital for more real estate transactions and to continually enable the stabilisation of the markets," he added.
The German government said it hopes that by fully nationalising the bank and expropriating the shares, it will see share prices begin to rise and help guarantee the bank's future.
"Taking conservative decisions will reduce anxiety in the market, enabling investors to regain faith in the bank and the sector," said Tschammler.
HRE has had to consolidate its business model and will focus primarily on domestic mortgage lending, and offer lower loan-to-value ratios of 60-65%.
Legal tension has surrounded the possible nationalisation of HRE, as the German Constitution (Grundgesetz) does not allow for expropriation.
Claus Grossman, partner of law firm Reed Smith in Munich, said: "Legally, the fact that the nationalisation act is aimed solely at HRE is not unproblematic. However, in this critical economic situation, legal intricacies have to give room to the overall national interest."
Grossman dismissed fears that Germany will be seen as a less attractive investment choice for real estate investors.
"I can see no serious risk to Germany's reputation as a free and liberal market place that warrants investment in property: the steps taken by other "free and liberal" market places such as the US and the UK go well beyond what we are now seeing happen to the factually - and probably even legally - bankrupt HRE," he said.
Tschammler warned there could be large repercussions if HRE were to fail, as the bank has €100bn of unsecured liabilities.
"These mainly comprise of social security and pension schemes, as well as the Church, so the failure of the bank would have ramifications extending way beyond the banking system," he said.
HRE, which has a balance sheet of €400bn, will be re-privatised by the government once the firm becomes self-sustainable again.
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