Capital Value | October 2014

Research
A Shared Value production

The interest of German banks in

financing Dutch residential real estate

More budget available in the years ahead

Stable rents and attractive returns main reasons to increase budgets

Large volumes preferred

Preference for apartments at prime locations

Average LTV ratio for prime locations 68%

Introduction
When asked about
current activities,
40% of the German
banks surveyed
indicated they were
already active in
financing Dutch
property.

Every year, Capital Value conducts research into the interest of national and international
investors in Dutch residential real estate. Results show that interest on the part of
both national and international investors in investing in Dutch residential real estate
has grown. The number of transactions on the Dutch residential market is therefore
expected to increase. This development has also been noticed by financial institutions in
Germany, the United Kingdom and the United States. In order to learn more about the
growing interest of financiers, and more specifically the German lenders, Capital Value
carried out a survey amongst 40 of the largest internationally active lenders in Germany.
These respondents were asked about their willingness to finance residential investments
in the Netherlands. This report presents the results of this survey, which was carried out
from March to October 2014.

Market developments
The year 2014 has already been an historical one. For the first time, at least three
residential transactions with international buyers have already been completed. Patrizia
acquired a portfolio of the Dutch housing association Vestia (578 million euros), Round
Hill Capital acquired a portfolio of the CBRE Dutch Residential fund (180 million euros)
and BNP Paribas REIM Germany acquired a portfolio of Amvest (40 million euros).
The growing interest shown by German banks and other international financiers
confirms that the international capital market is naturally sensitive to cyclical trends.
International banks significantly scaled back their financing activities during the financial
crisis. Now that the residential investment market is picking up and the available capital
is increasing, these parties are beginning to return to the Dutch market.
When asked about current activities on the Dutch real estate market, 40% of the
German banks surveyed indicated they were already active in financing Dutch
property. Traditionally, financing offices is the core activity of German banks, followed
by residential real estate and retail. In 2007, before the financial crisis, the share of
office finance was even larger but the overall depreciation of the office market caused a
spread of the finance activities to other real estate sectors.

The German banking sector

A total of 1,838 credit institutions are active in the German banking sector (ECB, 2014). Approximately
32% of all credit institutions in the European Union are situated in Germany, according to the European
Central Bank. These German banks have a share of 7,620 billion euros of assets. In total, the German
banking sector accounts for 24.7% of total assets held by banks in the European Union (ECB, 2014). The
bank capital to assets ratio (the ratio of the amount of reserves to the total assets) for the German banking
sector as a whole has risen since 2009 from 4.8% to 5.5% in 2013. Germanys banking system can be
divided into three so called pillars; 1) privately-owned commercial banks, 2) public sector banks and 3)
cooperative banks. Banks are attributed to one of these pillars on the basis of ownership and business
orientation (IMF, 2011).

2 | Research | The interest of German banks in financing Dutch residential real estate

Capital Value

Budget strategy
When asked about their budget strategy for residential lending for the coming years,
50% of the respondents said that a larger budget will be made available for residential
lending in the Netherlands (Figure 1). Stability in rents and favourable returns were
cited as the main reasons for the increase in available budget. Stiffer competition and
increased availability of funds on the German financial market also play an important
role. Only 12% of the respondents said that they would cut their budget for residential
lending in the Netherlands.
Respondents were also asked to give minimum and maximum ticket sizes for residential
lending. On average, the banks apply a minimum ticket size of between 15 and 20
million euros per loan. As a result, German banks almost exclusively accommodate
institutional investors and high-net-worth private investors who are interested in
acquiring larger portfolios. A small group of German banks is willing to grant smaller
loans, mainly to newcomers on the Dutch residential market. Respondents found it
harder to give a maximum ticket size for their loans. They indicated on average that the
upper limit for loans was up to 100 million euros. Again, there are some exceptions of
banks that want to finance even larger loans of up to 200 million euros.

Figure 1: Budget strategy of

German banks for the Dutch
residential market.
Source: Capital Value 2014

12%

50%
38%

Phasing out

13%

Staying active

38%

Increase of budget

50%

Product preferences
Of the banks surveyed, 83% had a strong product preference for portfolios consisting
mainly of apartments. For the most part (80%), the respondents were moderately
interested in single-family dwellings (Figure 2).

Figure 2: Product preferences. Source: Capital Value 2014

100%

80%

Of the banks surveyed,

83% had a strong
product preference for
portolios consisting of
apartments.

60%

40%

20%

0%

Strong interest

Modest interest

Single-family dwellings

No interest
Apartments

The preference for apartments over single-family dwellings can be explained by the
fact that unlike the Dutch rented housing market, the German rented housing market
consists mainly of apartments. German banks therefore have a much greater knowledge
of this type of product. Another reason is the most commonly used finance system
for real estate lending by German banks, a Pfandbrief (see text in box). The issue of

a Pfandbrief is subject to strict regulations to ensure security for the lender. One of
these regulations is the frequent appraisal of the portfolio, which is easier for apartment
portfolios under these regulations.
The banks indicated a preference for either newly-built properties, or recently-built
properties (no more than five years old). The reasons for this preference relate to the
sustainable nature of the investment and the associated relatively low maintenance
costs.
German banks prefer to finance residential investments at prime locations such as the
Randstad conurbation or other urban areas that have a tight or growing rental market.
German banks financing preferences are therefore in keeping with international
investors preferences. The same has also been demonstrated by recent transactions
that have involved German financiers and where the buyer was an international party.

On average, a
German bank would
be willing to provide
a maximum loan-tovalue ratio of 68% of
the investment (prime
locations).

Pfandbriefe
The mortgage Pfandbrief (plural: Pfandbriefe) is an instrument which is most frequently used by German
banks to finance real estate investments. The mortgage Pfandbrief has to consist of loans which are
secured by interest gained from real estate investments such as land charges and mortgages. In this way,
the issuer of a loan is guaranteed payment of the debt. The mortgage lending value and the mortgage
lending limit of mortgage Pfandbriefe are regulated by the Beleihungswertermittlungsverordnung
(BelWertV). In determining the mortgage lending value, only the long-term sustainable features of a
property are taken into account. This value cannot exceed the market value. Speculative elements must not
be taken into consideration. One of the pillars of the safety of the Mortgage Pfandbrief is the fact that only a
maximum of 60% of a propertys mortgage lending value may serve as cover (mortgage lending limit) (VDP,
2014). In 2013, German Pfandbrief banks had 8,426 million euros of outstanding loans in the Netherlands
(newly granted loans in 2013 accounted for 1,571 million euros of this amount) which represents 7.3%
of all mortgage Pfandbriefe outside of Germany. The Netherlands holds the fourth position in terms of
international markets with the most outstanding mortgage Pfandbriefe, after the United Kingdom (19.7%),
France (19.3%) and the United States (15.7%).

Lending terms

Figure 4: Average DSCR for new

loans. Source: Capital Value 2014

When asked about the lending terms, 63% of the German banks indicated that they
were willing to provide loans with a maximum lending period of 6 to 8 years, while 25%
of the respondents said they applied maximum lending periods of 4 to 6 years. When
asked about the loan-to-value (LTV) ratio, German banks said they were almost always
willing to finance more than 50% of the overall investment. On average, a German bank
would be willing to provide a maximum loan-to-value ratio of 68% of the investment for
properties at prime locations. The LTV ratio for secondary locations is much lower with
an average maximum LTV ratio of 60% (Figure 3, see next page).
The vast majority of the banks surveyed require a DSCR (Debt Service Coverage Ratio)
of between 1.0 and 1.25 (Figure 4). None of the banks require a DSCR higher than
1.75. These low DSCRs apply predominantly to new loans for prime locations. The
required DSCRs for secondary locations are generally higher. The results with regard to

Capital Value

17%

50%
33%

1.0 - 1.25

50%

1.25 - 1.5

33%

1.5 - 1.75

17%

Research | The interest of German banks in financing Dutch residential real estate | 4

Figure 3: Maximum loan-to-value ratio for prime and secondary locations.

Source: Capital Value 2014

80% of the German

banks indicated that
the number of loans
will increase in the
coming years.

35%
30%
25%
20%
15%
10%
5%
0%
40-50%

50-60%

Prime locations

60-70%

70-80%

>80%

LTV

Secondary locations

the Debt Service Coverage Ratios for new loans (DSCR) once again show that German
banks consider the Dutch residential investment market to be a stable market with a
relatively low default risk and attractive returns.

Important external factors

Figure 5: External factors
determining lending terms.
Source: Capital Value 2014

0%

20%

40%

60%

80%

Location
Occupancy level
Rent levels
Demographical developments
Inflation
Uncertainty about law and
regulation
Expected GDP growth rate

100%

When asked which external factors are important for stipulating the terms of the
loan for a residential investment, all the respondents mentioned that the location of
the investment is the most important factor, followed by occupancy and rent levels.
Uncertainty about legislation and regulations and expected growth in GDP were
deemed to be the least important external factors for determining the terms of the
loan (Figure5). Some of the German banks surveyed pointed out that the track record
and the clients relationship with the bank is also an important factor for determining
the terms of a loan. The lending terms for new clients are often less favourable in
comparison to the lending terms for existing clients.

Future outlook
When asked about the expectations for the near future, 80% of the German banks
indicated that the number of loans for Dutch residential real estate will increase in the
coming years. None of the banks expect a decrease in loans. The expected increase
is a direct result of the increase in demand for loans by investors. However, it does not
mean that it will be easier for investors to get a loan. The banks surveyed indicated
that the overall lending terms would remain the same. The LTV (loan-to-value) ratio is
not expected to change and the majority of banks expect that interest rates will remain
stable. All of the respondents expected the average DSCR to remain stable, as the
levels are already low. Half of the banks surveyed did not expect the average volume
of a loan to change, while the other half expected an increase in volume (Figure 6).
This expectation is based on recent developments on the market as a number of large
residential portfolios have recently become available. Recent examples are the Vestia
and WIF (Wooninvesteringsfonds) portfolio.

5 | Research | The interest of German banks in financing Dutch residential real estate

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Figure 6: Future of lending parameters (I). Source: Capital Value 2014

Stable rents and

attractive returns
are cited as the main
reasons for German
banks to increase
their budgets in the
coming years.

The average LTV ratio will:

The number of granted loans will:

The average size of granted loans will:

0%

10% 20% 30% 40% 50% 60% 70% 80%

Decrease

Remain unchanged

Increase

Conclusions
The Dutch residential investment market is on the move. Both the supply of available residential portfolios and the interest
among residential investors are growing. These developments will boost the demand for loans by residential investors. Stable
rents and attractive returns are cited as the main reasons for German banks to increase their budget in the coming years. In
addition, the higher demand for financing of Dutch residential portfolios and the increased competition and available capital on
the German finance market play an important part. In the last several years, Dutch banks have already increased their activities
on the Dutch residential market. With the increased interest from German, as well as British and American financiers, the
financing market in the Netherlands is becoming increasingly more diverse. In addition to the increase in available capital, the
greater diversity is expected to lead to lower interest rates in the coming years.

More information
If you have any questions about this report, please do not hesitate to contact Capital Value. Capital Value is a leading expert
and market leader in residential property investments in the Netherlands. We advise both institutional and private investors on
the acquisition and sale of residential property portfolios in the Netherlands. 2014 Capital Value. All rights reserved.
Disclaimer
The results and views presented in this publication are based on data and information which Capital Value regarded as reliable and which were included in our analyses and
forecasts only after careful consideration. Neither Capital Value, nor those involved in this survey, can be held liable for any inaccuracies present in this publication. The views,
forecasts and analyses purely represent our own view and may be altered without prior notification. The use of text and/or figures is permitted provided the source is clearly stated.

Capital Value B.V. Maliebaan 85 3581 CG Utrecht, The Netherlands T +31 (0)30 72 71 700 E info@capitalvalue.nl www.capitalvalue.nl