The fourth ZIA Finance Day took place in Berlin recently, a get-together of leading heads in the real estate industry under the auspices of the industry's leading lobby organisation, the Zentraler Immobilien Ausschuss, or the German Property Federation. Dr. Andreas Mattner, the ZIA president, left delegates under no illusions that a functioning financial market was essential for the ongoing health of the real estate industry, but "all indicators are pointing to stormy times ahead."
While there is little danger that capital for the industry will dry up, the nearly 300 delegates heard, accessing finance for more tightly calculated projects could well become more difficult. Further financial regulation was also inevitable, despite politicians paying lip service to moderation and more transparency.
Dr. Mattner highlighted how cheap money had driven the high level of activity in recent years, enabling projects - including many that might have ben only marginally profitable - to get financed and built. Rising interest rates and particularly the surge in building materials prices are putting the industry under tremendous pressure right now.
Sascha Klaus, the CEO of financier Berlin Hyp agreed with other speakers that the level of risk among many developers were now so that German banks were increasingly looking to share the risk with other lenders, including mezzanine or cross-border partners. However, he pointed out that rising interest rates do have positive aspects for banks on the valuation side, as "in part, credit risk has not been priced correctly in recent years."
Christian Schmid, real estate board member at Frankfurt-based lender Helaba, agreed that an imminent credit crunch was unlikely, but individual projects would be much more closely scrutinised. Appeals for more state support for the real estate industry, in the form of KfW Bank subsidies, were partly justified, he said, but the much bigger issue is that politicians resolve the fundamental conflict between the increasing regulation of rents on the one hand, and imposing ever-stricter ecological and energy efficiency requirements on the other.
However, any loosening of the regulations looks unlikely. Referring to climate change requirements, Philipp Steinberg, head of the economic policy department at the Federal Ministry of Economics and Climate Protection (BMWK), said "We will be tightening the standards even further."
He said he did not imagine that Germany would go as far as the Netherlands, where the operating licence of climate-damaging properties can be withdrawn. While this was just his personal view, Steinberg vowed a transparent process for all adjustments in regulation. "Part of the truth is that we didn't really get it right with KfW funding," he admitted, in reference to the premature withdrawal of one of its funding programmes in January this year.
In a keynote speech, Florian Toncar (FDP), parliamentary state secretary at the Federal Ministry of Finance, gave an overview of a range of real estate-related financial market regulation currently under discussion - and it was a long list. Toncar expects important impulses in terms of financial stability from the Sustainable Finance Advisory Council of the new federal government, for which the appointment process is currently underway, with almost 240 individuals and about 50 organisations having applied. In the end, Toncar said, the goal must be to avoid multiple standards from overlapping regulations. "Standards must be meaningful and manageable," he stressed. Financiers and developers will have their work cut out just staying abreast of the coming new regulations, we can already see.
