BF.Quartalsbarometer Q3 2022: Sentiment among Real Estate Lenders Hits Rock Bottom

• More than 80 percent of the lenders rate financing terms as restrictive
• Assessment of new lendings has dimmed
• Loan-to-value ratios continue to decline
• Margins remain significantly above their pre-corona level

Stuttgart, 23 August 2022 – Sentiment among German real estate lenders has continued to deteriorate during the third quarter of 2022: The latest barometer score plunged from -12.01 points in the previous quarter down to -16.91 points at the last count. This latest score undercuts even the all-time lowest score of -15.24 points, which was measured during the second quarter of 2020. Foremost among the many factors that sent the sentiment index on its downward trend is that 82 percent of the poll respondents reported that financing conditions have become more restrictive. This is up from 68 percent who said as much during the second quarter.

Manuel Köppel, CFO of BF.direkt AG, commented: “The further dip of the Barometer score caught us by surprise because the interest rate development did not continue to tighten since the second quarter. But economic worries seem to figure more prominently now, for example due to the worsening energy crisis. The situation is compounded by factors that began to downgrade the parameters as early as the second quarter, such as the increase in construction costs and the high inflation.”

In their assessment of new lendings, the respondents followed the trend of the previous quarter. A decline in new lendings is now reported by 37 percent of the interviewed experts (+22 percentage points) while only 22 percent registered an increase (-7.6 percentage points). The question as to who in a given company has the final say in loan decisions prompted answers that differ significantly from those of the previous quarter. In the eyes of 43 percent of the experts, loan decisions are influenced mainly by risk departments (+19 percentage points). All of the respondents agree that the decision is no longer solely up to the new-lendings department (-15 percantage points). 57 percent of the respondents believe that the recommendations of the risk department and the new-lendings department carry equal weight.

Professor Dr. Steffen Sebastian, tenured chair of real estate financing at the International Real Estate Business School (IREBS) of the University of Regensburg, and scientific advisor of the BF.Quartalsbarometer, commented: “Risk aversion runs like a thread through the survey panel. The trend in loan-to-value ratios speaks a clear language. The average loan-to-value ratio for standing properties is now down to 63 percent, while the loan-to-cost ratios of property developments is at 67 percent.” Köppel added: “The good news is that the financing market as such continues to function properly. Banks and alternative lenders are definitely willing to provide financing but like to keep an eye on risk and take a more selective approach.”

Compared to the fourth quarter of 2019, the last one unaffected by the coronavirus crisis, margins have gone up considerably, from 127 to 172 basis points for portfolio financing, and from 201 up to 291 basis points for project development financing. While the margins for project development financing arrangements increased slightly quarter over quarter, they declined by 19 basis points in portfolio financing.

About the Methodology

The BF.Quartalsbarometer is compiled on behalf of BF.direkt AG, a specialist for real estate finance, by analytics firm bulwiengesa AG. The index provides a comprehensive picture of the sentiment and business climate among real estate lenders in Germany.

For the survey underlying the BF.Quartalsbarometer, a total of about 110 experts are polled four times a year, most of whom are directly responsible for granting loans to real estate companies. The panel is staffed with representatives of diverse banks and other types of financiers. The BF.Quartalsbarometer score is compiled from diverse questionnaire components: the assessment of changes in the terms of financing, the trend in new lendings, the amount of loan tranches granted, the risk tolerance of lenders by asset class, the level of LTV/LTC ratios, the development of margins, the importance of alternative funding options, and the trend in liquidity costs.

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