Debate on a Sustainable Value - Or: What makes the Real Estate Market in Germany less volatile?

Jörg Quentin, pbb Deutsche Pfandbriefbank

Global real estate markets are sometimes subject to considerable fluctuations. At the same time, real estate properties are very capital-intensive. Combined, these two elements can stoke economic crises or even trigger them when properties are – as is often the case – reported in the balance sheet or valued as loan collateral at their market value. This is something that the Bank of England, too, has noticed. One way out is to calculate a sustainable value when valuing real estate. This has been practiced in Germany for well over 100 years with the concept known today as the mortgage lending value (Beleihungswert). This article describes the four minimum requirements that an “international mortgage lending value” would have to meet in order to cushion the impact of exaggerations in the market, with the negative consequences they bring for the economy as a whole.