Margins in German real estate finance sink to all-time low

Sentiment among German real estate financiers has improved moderately, but remains somewhat subdued overall, according to the BF.Quarterly Barometer, which increased by 0.49 points to -0.43 points in the fourth quarter. Despite the slight recovery in the barometer score, financiers are suffering from the effects of extremely low margins, which have impacted financing for existing properties as well as project development. Margins on financing for existing properties have been falling for years, hitting their lowest levels ever in Q4 2018. Between Q4 2013 and Q4 2018, they fell by 62.8 basis points to 122. In the same period, average margins for project development financing fell by 45 basis points to 198 points in Q4 2018.

“Interbank competition continues to be very strong, particularly with regard to financing for existing properties, which involve less risk than project development financing. That also shows that Germany is ‘overbanked.’ It is becoming increasingly difficult for banks to make money on real estate loans. There is ever greater pressure on banks to become more efficient,” said Steffen Sebastian, chair of real estate finance at IREBS and academic adviser to the BF.Quarterly Barometer.