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The Association of German Pfandbrief Banks (VdP) has declared the property downturn over, citing rising residential prices, steady loan growth, and renewed investor appetite for covered bonds. But still, the message from the group’s annual press conference this month was unambiguous: the market’s fragile momentum is being choked by regulatory overreach and a chronic absence of political clarity.
Residential property prices rose 2.1% in Q4 2024, marking the third consecutive quarter of gains. Commercial property, which has spent more than two years in retreat, posted a modest 0.5% uptick. VdP President Gero Bergmann described the data as evidence of a “trend reversal” in housing and stabilisation in commercial assets. The association expects a slight rise in residential prices through 2025, with commercial values likely to hold flat.
Financing volumes reflected the turn. Total property loan commitments rose 8.5% last year to €121.1 billion, with residential lending leading the recovery at €74.9 billion—up nearly 15% on the year. Commercial loan volumes, by contrast, were virtually unchanged. Despite subdued transactional activity overall, Bergmann noted that “investors have rediscovered the property market,” with improving yields bringing asset prices closer to institutional return targets.
Pfandbrief issuance also remained robust. While total issuance fell from €65.7 billion in 2023 to €57.3 billion in 2024, it still exceeded expectations, and the first two months of 2025 have already showed a 30% year-on-year rise to €22.2 billion. Notably, investors are again demanding long-dated Pfandbriefe—an indicator of regained confidence in the long-term resilience of the instrument. Green and social Pfandbriefe saw a sharp increase in outstanding volume, reaching €30.5 billion by year-end, although the availability of eligible cover assets is now limiting further growth.
Sector being strangled by regulations and red tape
Yet both Bergmann and VdP Managing Director Jens Tolckmitt stressed that the sector’s recovery is being throttled by regulatory pressure and bureaucratic inertia. “A regulatory moratorium is overdue,” Tolckmitt said. He called for an open-ended review of the sectoral systemic risk buffer on residential property loans, which the VdP views as outdated given the market’s recent stability and an industry-wide housing loan default rate of just 0.02%.
Tolckmitt also criticised the EU’s unaltered implementation of Basel IV capital requirements, particularly the so-called output floor, which he warned creates unjustified burdens for low-risk real estate financing. With the UK, US, and Canada now softening or postponing implementation, Europe risks placing its institutions at a structural disadvantage. The VdP is calling for the output floor to be frozen at 50%, arguing that a rigid approach threatens to suppress lending for both residential development and sustainability-driven retrofits.
The association repeated its long-standing support for targeted state guarantees to stimulate new housing construction, particularly where high financing costs make projects commercially unviable. A temporary 80% state guarantee on loans for affordable housing would, according to the VdP, support new supply without exposing the state to material default risk. On the demand side, it is calling for reduced or flexible real estate transfer taxes for owner-occupiers, especially first-time buyers— arguing this could ease pressure on the rental market.
Bergmann and Tolckmitt both emphasised that effective housing policy requires clearer governance. The VdP is again pushing for a truly independent Federal Building Ministry, equipped with real authority and not squeezed between environmental and finance portfolios. Without it, they argue, administrative reforms will remain piecemeal and too slow to address the widening housing supply gap.
Green rules misaligned with real-world investment
Sustainable finance regulation also came under scrutiny. Tolckmitt noted that EU-level rules currently risk undermining rather than enabling the green transformation. The VdP supports the “worst-first” principle of the revised EPBD directive, which prioritises the renovation of inefficient stock. But it warned that current EU taxonomy thresholds are too strict and misaligned with national definitions of nearly-zero-energy buildings. The association argues that compliance requirements should be tied to realistic energy-saving pathways, and that the Do-No-Significant-Harm (DNSH) criteria be pared back to avoid obstructing viable investment.
Despite the return of price growth, the association is not forecasting a full market recovery in 2025. Turbulence stemming from new US trade tariffs, uncertainty over the German coalition’s fiscal agenda, and the ever-expanding compliance burden continue to weigh on the sector. Bergmann acknowledged that “Germany’s foreseeable new debt could slow down the current recovery momentum,” but insisted it would not derail it.
What emerges from the VdP’s latest commentary is a mix of guarded confidence and growing frustration. The instruments for recovery—capital market appetite, stable asset values, and modest price tailwinds—are all present. But without a clearer political mandate, a functioning regulatory reset, and serious structural reforms to housing policy, the sector risks falling back into paralysis just as stability is within reach.