Germany to see lower volumes of distressed property loans – study

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The extent to which German banks are currently preferring to extend their non-performing loans rather than get rid of them has risen noticeably over the past year, while fewser banks are expanding their new business in the market, concludes the latest “Survey on the State of Real Estate Financing and on the Distressed Real Estate Debt Situation in Germany”.

The survey is conducted by the research centre “Distressed Real Estate Debt”, which is jointly operated by Corestate Capital AG and the Real Estate Management Institute (REMI) of the European Business School (EBS) in Wiesbaden.

REFIRE has been tracking the survey since its inception three years ago, and it has proved a useful barometer in assessing current financing sentiment in the German real estate market from the perspective of the banks. Its latest reading is based upon responses from 60 CEO's CFO's and managing directors from 32 commercial real estate financing institutions, while the banks participating in the poll have total assets of about €2.56 trilion, or 72% of all the assets of German commercial real estate financiers.

The shift in parameters such as gearing ratio, debt maturities and financing volumes certainly suggest that banks currently prefer to extend their loans rather than dispose of them.  

According to Ralph Winter, founder of Corestate Capital, who has always taken a personal interest in the research findings of the research centre, 'The present opportune interest rate is certainly one reason for the low number of distressed real estate portfolios currently on the market. Banks are provided with an abundance of capital since the European Central Bank announced its bond-buying programme. Therefore, the pressure on banks to sell their non-performing loans has decreased."

"Nonetheless, distressed real estate assets will continue to be put on the market and their state can only be improved by a professional approach to real estate management, allowing for a stabilisation and repositioning of such portfolios."

Professor Nico Rottke, the head of EBS's Real Estate Management Institute said of the latest results from the annual poll, "This just shows how significantly the sentiment in the market can change within one year."

He added that the survey results show how much the financing landscape is still undergoing structural change. "Banks continue to implement regulatory measures and impose higher capital requirements or scale back their activities completely", he said.