German real estate financing
in times of the Coronavirus pandemic-COVID-19.

A stocktaking-analysis

Berlin, 23.03.2020 by Peter Kleinwächter

None of us have ever experienced an economic crisis to such levels as we are seeing today, caused not by a weakening economy or bank excesses as in 2008 / 2009, but by a global pandemic COVID-19. Even the author of these lines is confronted with this for the first time in his 30-year career. Due to his close contacts with players in the real estate market and the financing institutions, especially in the last 14 days, he is able to give a first status description.

Existing real estate​

Due to the high degree of infection by the Covid-19 and subsequently the mandatory requirement of social distancing, this hinders the usual process in the acquisition of property purchasing, in particular the existing property market, for the foreseeable future. What we would consider to be a standard process in the procedure i.e viewing several properties whilst we make our final purchase decision, is now impossible. It is hard to imagine that online inspections and videos of the properties will lead to a similar motivation to buy, compared to a personal visit. What is missing are the impressions that people gain from direct contact with the property and its surroundings. In this segment, a slowdown is likely to be expected until unrestricted mobility is restored.

Newly built properties

On the contrary, unlike existing properties, many new construction projects are still in the planning stage. Since there is nothing to view, the decision to buy will depend on the location, the demographics, the apartment layout and the price of the property, as has been the case to date. You do not have to meet anybody personally. Here it is important for the buyer to clarify how far the construction has progressed and how solvent is the developer. If the developer has a so-called developer financing from his bank, the completion of the project is usually secured. A lawyer specialising in real estate, will undertake a legal review of your purchase contract on your behalf. It is also important to mention for investors, that newly built properties are excluded from the rent cap. You can demand the market-driven rent for a high-quality newly built flat.

The banks

There are two types of banks operating in Germany. At so-called commercial banks or universal banks such as Deutsche Bank, Commerzbank, Sparkassen and Volksbanken, in addition to real estate financing, they manage the ongoing day to day banking transactions and services for both business and private customers. In the event of Covid-19, financial difficulties are already visible in both sectors. This is putting a strain on the banking industry as they try to manage the situation and organize the state aid being offered and the logistics of distribution. This process needs more staff, staff which would usually be employed in different sectors of the banking industry. Additionally with the impact of ‘home office’, inevitably one must expect long waiting periods, of one month or more, until a loan commitment is received. Then there are lenders, banks and so-called non-banks, which have primarily private customers, only a small percentage of business customers. The impact of the Covid-19 will effect business here, and there will be delays, but to a lesser degree. These lenders include, for example, ING, PSD banks, MLP Bank, building societies, insurance companies and pension funds.

Should I wait until after the crisis to buy a property?

This is a question that is probably asked by everyone who wants to make this big economic decision. If you need financing to purchase, consider the following question: How secure is my job and income? Because unlike in some countries, the instrument “Mortgage Payment Holiday” does not exist in Germany, and was established for the first time on the 25th of March 2020. If you are sure that you can pay your loan installments during and after the crisis, the current crisis also opens up opportunities. Many investors are currently focusing on tangible assets such as gold and real estate. The prices for these forms of investment may become more expensive in the future.

If you like to discuss your project with us, please don’t hesitate to get in touch with us.