WestImmo presents new Market Report
- Lasting economic growth inconceivable without a stable real estate sector
- Real estate industry needs specialist banks
- Regulation could jeopardise growth
Munich, 4 October 2010 – Lasting economic growth depends on a functioning real estate sector – and that includes the corresponding financing. Real estate financiers are making a significant contribution to the economic upturn and utilising their know-how and experience to meet the very different requirements of the global real estate sector. In Germany alone, the volume of commercial real estate financing reached some 250 billion euros in 2009, making up about one fifth of the total lending of all banking groups to domestic businesses and the self-employed.
These are the results revealed in Market Report no. 16, which Westdeutsche ImmobilienBank (WestImmo) presented in a panel discussion held at Expo Real in Munich on Monday, 4 October. The proposed regulation of the banking sector could nevertheless jeopardise the recovery in Germany. The specialist banks in particular will find their activities restricted by tougher capital requirements.
Peter Knopp, Chairman of the Managing Board of WestImmo, emphasised: “The real estate sector is a key industry for prosperity and employment in Germany. The business model of a real estate bank lives on providing everything that is necessary for the realisation of the requirements of very specific customers with high lending volumes and bringing risk assets onto their balance sheets over the long term. The proposed regulatory requirements cannot fail to have an impact on real estate banks. There is a danger that specialist real estate financiers will no longer be able properly to fulfil their role as a driver of economic development. Politicians must therefore keep a sense of proportion in their proposed banking regulation.”
While the capital markets and hence the refinancing options of banks have improved by comparison with 2008 and 2009, the situation as far as pfandbrief banks are concerned has deteriorated again since the 2nd quarter of 2010. “Real estate banks are reliant on a functioning capital market. We will probably have to get used to the fact, however, that it will not return to the level it had before the crisis”, said Knopp.
What was thus needed, he went on, were new refinancing products that would close refinancing gaps. Real estate financing comprises both collateralised and non-collateralised refinancing resources and equity. As collateralised funding is provided through pfandbriefs, a new product could be aimed at the junior ranking funding segment, rather like ABS. “Real estate and pfandbrief banks have the necessary know-how and the innovativeness to develop such products”, Knopp added.
In principle, measures should be take to restore confidence in the securitisation markets. The securitisation of the future, though, will look somewhat different. It is proposed that banks will not outsource their risk in its entirety, but will instead have to retain a basic cushion of their own securitisation transactions on the balance sheet. It is also likely that there will be fewer securitisation transactions with clear structures in the future. The assets behind them must be transparent and allow precise analysis by investors.
Liquidity has now become a critical market factor. The proposed requirements could put specialist real estate financiers one step ahead in terms of compliance with the minimum standards for holding liquid assets if pfandbriefs are, as has been discussed so far, recognised as liquidity provisioning under the new capital and liquidity rules (Basel III) from 2015.
The institutions that have mastered the crisis well were those with a buy-and-manage approach, in-house risk verification, clearly defined risk viability concepts and the means to balance out economic and real estate cycles by diversification at country and property level. “This, and the many years of experience in commercial real estate financing, are critical advantages and an important foundation for the future of these banks”, Knopp stated.
The following took part in the panel discussion on this subject at Expo Real:
- Dr. Peter Knopp, Chairman of the Managing Board, Westdeutsche ImmobilienBank AG
- Bernhard H. Hansen, Managing Director, Vivico Real Estate GmbH
- Dr. Andreas Mattner, President of the German Property Federation (ZIA) and Managing Director of ECE Projektmanagement G.m.b.H. &Co. KG
- Henning Rasche, President of the Association of German Pfandbrief Banks (vdp) until June 2010
- Prof. Dr. Nico B. Rottke MRICS, Director, Real Estate Management Institute, EBS University for Business and Law
- Harry K. Voigtsberger, Minister for Economic Affairs, Energy, Building, Housing and Transport of the State of North Rhine-Westphalia
Über die WestImmo
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