Friday, 4 September 2009

Cautious optimism for German property

Property reports 04.09.09:

Europe’s largest economy may have officially emerged from recession, but its property market is not getting carried away

Germany’s real estate sector is still coming to terms with the global financial crisis.

For one, the banks still have to wrestle with toxic legacy assets, and the government’s plans for a ‘bad bank’ have yet to be implemented.

The government also needs to continue to support Hypo Real Estate and Commerzbank. The market is awaiting a revival of Hypo, recently renamed as Deutsche Pfandbriefbank, following its nationalisation in March.

Keep it covered

But with increased issues in recent months of pfandbriefs – the covered bonds that give German banks low-cost funding – there is optimism that some liquidity will return to the market. In the second quarter of 2009, there were €35.8bn (£31bn) of issues. Although this represented a fall of 27% on the same period last year, it was a 91% increase on the first quarter of 2009, when only €18.75bn (£16bn) of bonds were issued. This has given confidence to banks such as Eurohypo, which is actively streamlining its activities.

Germany’s open-ended funds, one of the linchpins of the country’s real estate market, have also been making quiet progress.

Following a disastrous period last November, in which many barred redemptions to protect their liquidity, funds such as SEB’s Immoinvest and DEGI’s International have reopened, and others have started to take advantage of the low prices in global property investment markets.

In July, Deka ventured into Australia to purchase the 430,560 sq ft (40,000 sq m) office building at 15 William Street in Melbourne and the 236,808 sq ft (22,000 sq m) Australian Tax Office building in Perth for a combined €150m (£129m) for its ImmobilienGlobal fund.

In the same month, AXA’s Immoselect fund bought the 420,000 sq ft (39,018 sq m) Antegnate mall in the northern Italian city of Bergamo for more than €150m (£129m).

As Germans go to the polls on 27 September, they will be comforted by the fact that their economy is over the worst. This news will also provide some glimmers of hope for Angela Merkel, who looks set to be returned as chancellor.

That, in turn, may lead to more proactive government measures to assist a recovery in German real estate.


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