Sharp slump in German financing sentiment, margins hit new low

The quarterly barometer issued by the Stuttgart-headquartered financing consultant BF.direkt on German real estate financing sentiment showed a sharp downturn in a number of its key indicators for its Q1 2017 survey – a clear sign that many respondents are scaling back their optimistic market assessments.

The survey is carried out every quarter by market researchers BulwienGesa for BF.direkt, who interview 120 individuals across a range of different bank types, but who are directly responsible for lending to real estate companies.

In a nutshell, the latest barometer readings tell us the following: The proportion of respondents who consider the current situation on the financing market to be progressive has fallen sharply. 47% of those surveyed were optimistic in Q4 2016, while this figure has fallen to just 22% in Q1 2017.

CEO of BF.direkt Francisco Fedele commented: "We mainly attribute this less optimistic outlook to the increased uncertainty on the market. We believe this is due to the interest rate hikes in the USA and the lack of clarity concerning the economic policy impact of the Donald Trump presidency."

Steffen Sebastian, Professor for Real Estate Finance at the University of Regensburg and scientific adviser for the BF.Quarterly Barometer, added: "Even though the ECB is continuing to pursue its highly expansionary monetary policy, we have been observing a slow but steady rise in long-term interest rates in Germany since October 2016. In addition to reflecting the growing uncertainty, this underlines the fact that monetary policy is important, but by no means the only factor when it comes to interest-related operations."

The barometer score was also negatively impacted by the fall in financier margins compared with the previous quarter. Margins for the financing of both development projects and existing properties are now close to their lowest level for the past two years. The average margin for development projects (across all usage types) declined from 194 basis points in the previous quarter to 181 basis points, while the margin for existing properties fell from 140 to 135 basis points.

"We see the sustained strong competition between financiers as the main reason for the falling margins," commented Manuel Köppel, CFO of BF.direkt AG.