Interaction and Interdependencies between the Real Estate an Capital Markets

Stefan Rösch

Banks act as a link between the real estate and capital markets. On the one hand, they provide mortgages, but they also need a source of funding as a basis for their lending activities. Alongside their traditional role of transforming volumes, maturities and risk in the deposit business, banks also use their access to the capital market in order to maintain a diversified capital base.
This article begins with a comparison between different sources of funding. It then examines the impact of interest rates and their effect on supply and demand in relation to the real estate market. In turn, this interaction also has an effect on real estate prices. Finally, the article looks at securitised products as an alternative method of financing and at the stabilising influence of the Pfandbrief.