09/12/2008 - Against the global trend: The German real estate market is stable
The financial crisis started in the United States and has long spread out to Europe. Spain was affected particularly hard - end of July, Martinsa-Fadesa, one of the biggest Spanish Real Estate Corporations, filed for insolvency. Even in Ireland and in the UK prices for real estate are falling. The German real estate market instead is stable.
Reasons are manifold. There are some fundamental differences between real estate markets in Germany and in the US. “In Germany, loans are given out following strict criteria”, Markus Bolder, CEO of Servicing Advisors, explains. “One of the reasons is to protect the borrowers. Without sufficient collateral, economic downfall comes quickly in case of financial shortfalls.” In the US, there are fewer regulations for granting a loan. Owner-occupied homes are financed with loans with a flexible interest rate – in spite of a low financial standing of the borrowers and lack of equity.
The crisis on the Spanish real estate market was predictable: Regardless of the actual demand, condominiums were built over years – in one year more than in Germany, France and the UK together. The Spanish consider houses and condominiums to be a safe investment. About 80 % of the population lives in an owned home. However, real estate supply exceeded the demand by far. According to the Spanish daily newspaper “La Vanguardia” as of July 20, 2008, the seven major real estate corporations of the country now suffer from debts of approx. 27.6 bn Euro with a stock exchange value of only 8.6 bn Euro. Banks are not granting any more loans: The boom in construction is finished.
The fact that nine out of ten mortgage loans have a variable interest rate contributed to the cumulation of the crisis as well. Borrowers had to accept increasing interest rates. This is a significant difference to the German real estate market where there is a long-term financing: Fixed interest rates for up to 15 or 20 years guarantee an even payback of the loan. Unexpected changes or increases of the interest rate are therefore not possible – a good piece of economic stability for the borrower.
The value retention of the German real estate market compared to the presented foreign markets is a strong reason for investors to continuously classify Germany to be an attractive location.
