BF.direkt: German banks remain ‘reticent’ on real estate finance

Lenders expect to increase their lending volumes, but remain cautious about providing property loans, according to the Stuttgart-based advisor.

German real estate debt providers have scaled back their expectations for real estate financing activity due to the covid-19 pandemic, according to a lender sentiment survey published by German real estate finance advisor BF.direkt.

BF.Quarterly Barometer Q1 2021 showed that, although sentiment among the more than 110 German property lenders polled had improved slightly from the previous quarter, it remained in the negative range. The survey’s rolling score increased to -4.86 points in Q1 2021, from a Q4 sentiment score of -8.08 points.

This brightening in sentiment is attributable to a modestly improved assessment of financing conditions, according to the German advisor. However, only 13 percent of the survey’s respondents (+5.5 pp) rate these as more progressive.

Despite this, Manuel Köppel, chief financial officer at BF.direkt, said sentiment on the ground “seems rather glum”.

He said: “To us, the banks continue to display a rather reticent attitude. My impression is that financial institutes have scaled back their expectations and adjusted them to the pandemic situation, so we need to bear this muted outlook in mind when interpreting the latest poll returns.”

Despite lower overall expectations, almost half of respondents said they expect growth in new lending activity. In total, 46.7 percent of the debt providers polled saw signs of growth, increasing from a 19.7 percent in the previous quarter.

Risk aversion is waning

The report also found a softening in lenders’ risk aversion, reflected in the decreasing influence of banks’ risk departments on new lending deals. According to the survey, this influence went down from 29.6 percent in Q4 to around 13 percent in Q1 2021.

However, lenders remain risk averse in certain property sectors, with most remaining particularly cautious about shopping centres and hotel development financing. Just 10.7 percent of the survey’s respondents would be willing to fund hotels, while 21.4 percent were prepared to finance shopping centres or any other physical retail assets.

Average margins have increased significantly since the onset of the pandemic crisis. Margins for standing properties average 146 basis points (150bps in Q4), while for property developments they stand at 231bps, practically unchanged from 234bps in Q4.

The report also noted that loan-to-values have fallen to an average of 66 percent, which represents a 0.7 percentage points decrease from the previous quarter.