Finance providers show 'slight decline' in willingness to finance

The German financing trend barometer now managed by Stuttgart-based BF.direkt AG (previously the FAP Barometer) shows a slight decline in the willingness to finance real estate in its latest quarterly reading.

The BF.Quartalsbarometer for Q4 showed sentiment among real estate finance providers remained balanced, but for 20% of providers higher liquidity costs and further deterioration in margins led to a decline in sentiment. This is the second consecutive quarter that the gauge has dropped (from 1.23 in Q3 to -0.41 in Q4), and sees the reading enter slightly negative territory for the first time since 2013.

The quarterly research for the Trend Barometer, which is carried out for BF.direkt by independent market research group BulwienGesa, shows that 75% of market participants are experiencing flat liquidity (refinancing) costs. At the same time there is a continuation in the trend for "newly rising liquidity costs". This value, which has increased from 5.6% to 18.9%, is at a new record high. Only 2.7% of respondents experience declining liquidity costs.

The latest reading confirms that the average margin for portfolio financing in Q4 2015 has declined, along with margins for project financing (down 2bps).

Interestingly, the latest survey included the question "Can investors in Germany still buy real estate at risk-adequate prices?" To this question, 51.5% answered "NO", saying that yields no longer merit the assumed risk. The excessive prices being paid can only be justified by current low interest rates, they respond. 48.5% consider the current prices to be risk-adequate.

Professor Dr. Steffen Sebastian of the IREBS school of Regensburg University and an economic advisor to the BR.Quartalsbarometer, commented on the latest readings: "What is interesting in this context is the change in decision-making processes within bank organisations. The credit approval process at these institutions is increasingly being transferred to risk departments, by some 15 percentage points. In this environment, market participants who put more emphasis on quality than risk with their investments can hope for a warm reception from financiers".

Whereas in Q3, nearly 38% of those interviewed expected strong demand for additional types of financing, in Q4 that figure rose to 40%.

Francesco Fedele, BF.direkt's CEO, commented on this increasing importance of alternative finance providers: "Currently we can detect a certain trend in demand particularly for the most important type of alternative financing – mezzanine and equity-like financing. We expect this trend to be continued in the upcoming quarters".