Low level of demand for real estate financing persists
Berlin, May 22, 2023
- vdp member institutions provide real estate loans totalling EUR 25.6 billion in the first quarter of 2023
New real estate financing provided by the institutions which together make up the Association of German Pfandbrief Banks (vdp) totalled EUR 25.6 billion in the first quarter of 2023. Compared with the fourth quarter of 2022 (EUR 24.8 billion) this represents a slight increase of 3.2%. However, demand for real estate financing remains fundamentally low from a longer-term perspective.
The real estate market had already lost all of its momentum in the course of 2022 due to changes in the framework conditions, such as the war in Ukraine and rising inflation and interest rates. Consequently, this was also reflected in the financing business. Compared with the first quarter of 2022, which saw a record result of EUR 49.0 billion due, in part, to customers bringing their borrowing forward in anticipation of rising interest rates, real estate financing was down by 47.8% at the end of the first three months of 2023.
“As before, demand for real estate financing is currently determined by the general restraint of participants in the property market. The adjustment of price expectations of buyers and sellers, a process that is still ongoing, is leading to low numbers of transactions and therefore to a low level of new business for property finance providers,” Jens Tolckmitt, vdp Chief Executive, pointed out.
Aggregate demand from customers of the vdp member banks for residential mortgage loans amounted to EUR 16.3 billion in the first quarter of this year. Viewed against the fourth quarter of 2022 (EUR 17.0 billion) this represents a fall of 4.2%. Of this total, the financing of single- and two-family houses (44%) and multi-family houses (36%) accounted for the largest shares in the first quarter of 2023. The other new business in residential real estate financing in the first three months of 2023 was for condominiums (15%) and other property categories such as building land (5%). Compared with the first quarter of last year (EUR 32.1 billion), new business in residential real estate financing was down by 49.2%.
In the first three months of this year, commercial real estate financing came to EUR 9.3 billion, which was 19.2% above the volume for the fourth quarter of 2022 (EUR 7.8 billion). Of this, office properties accounted for EUR 4.8 billion or 52% of the total financing volume for the commercial property class. The financing of retail properties made up a share of EUR 2.3 billion or 25%. Compared with the first quarter of 2022 (EUR 16.9 billion), the volume of commercial real estate financing was down by 45% in the first three months of the current year.
As at March 31, the portfolio of loans granted came to EUR 998.3 billion. This was up from EUR 994.3 billion as at year-end 2022.
The framework conditions in place since last year are making the acquisition of home ownership and investment by institutional investors in residential or commercial properties more difficult. The price increases of the past decade in the German property market combined with steeply rising financing costs have led to a significant decline in home ownership affordability. What is more, the yield requirements for real estate investments have gone up as other asset classes such as bonds have become more attractive in relative terms.
“As long as the current phase of uncertainty over the further development of prices and interest rates persists, demand for financing is also likely to remain restrained,” Tolckmitt commented.