Estateguru has noted that in May 2024, they spoke with Antje Mertig, CEO of Steinberg Real Estate Management GmbH, their partner in Germany, about the recovery process of defaulted loans in the market.
Estateguru is now evaluating the progress made over the past year and to provide an updated overview of the “current state” of German defaults.
At Estateguru, they are committed to ensuring the “best possible” outcomes for their investors by actively funding recovery efforts.
Each month, they claim to allocate “approximately €100,000 of their own capital toward default recoveries, bringing our total contribution to over €1,1 million in 2024.”
Estateguru noted in a blog post that during 2022 and 2023, the German housing market was in a “correction phase.”
Following the interest rate and regulatory shock, many investors “remained on the sidelines.”
Transaction figures “fell sharply.”
Estateguru pointed out that there were major “regional differences.”
In strong economic regions prices were “less impacted compared to more rural areas with a shrinking population in the Eastern part of Germany.”
Estateguru further noted in the blog post that the market “picked up again in 2024; however, only very slowly and not in all regions.”
The first price indices are “pointing upwards, and new lending activity, along with transaction volumes, has likely increased over the past year.”
The big question in the German housing market is “when will the price correction end.”
Antje Mertig added that there is “great heterogeneity between the typically economically strong and less dynamic regions.”
This is likely to increase further in the coming years.
Furthermore, the regulatory uncertainty “that contributed to investor hesitation in 2023 is decreasing.”
The Heating Act is likely to be less strict “than initially assumed because it will ultimately have to be implemented at the local level. In addition, CO2 emissions fell more sharply than expected in 2022 and 2023.”
Consumption savings may well be “an important component in meeting climate targets.”
The rule of generating 65% of heat with “renewable energies could therefore de facto become less important.”
Cost pressure due to higher interest rates and regulation “has awakened the spirit of innovation and entrepreneurship.”
Investors are optimizing their portfolios “in terms of energy consumption, rent increases, tax, and financing.”
This could also be part of the solution and “herald the end of the pricing phase.”
House prices are likely to “grow faster than inflation over the coming years.”
In the past, despite declining household sizes, the “number of people looking for housing remained stable or even increased.”
But a turning point is expected: in many regions, the number of households is projected “to decline, leading to an increase in vacancy rates.”
For property owners in shrinking regions, “falling demand and declining rental income could pose a serious financial risk.”
As a result, they anticipate an “increase in properties being sold below historical market prices and as a result of oversupply.”
As stated in the blog post, significant progress “has been made over the past 12 months.”
Wherever possible, enforcement actions have commenced.
These include:
- Personal enforcement against the debtor
- Initiating and executing forced auctions and receiverships for smaller investments with junior-ranking mortgages
- Filing for insolvency where strategically beneficial, especially for properties with a higher potential sales price and no or small junior mortgages, which would not be paid off during the amicable sales process
- Negotiating agreements with insolvency administrators for the sale and administration of properties
The marketing and sale of recovered properties “have been handled by the Berlin-based broker Asset Genius GmbH, a specialist with extensive experience, particularly in eastern Germany, where many of the financed properties are located.”
Many financed properties have “not progressed in construction over recent years due to a lack of funding and the exhaustion of borrowers’ equity.”
As a result, the condition of some properties “has deteriorated, making it likely that forced sales will result in some losses.”
As explained in the update, the loan recovery process is “progressing at different stages.”
Initially, they attempted to “facilitate private sales with the borrowers. However, when these efforts were unsuccessful within a reasonable timeframe, the loans proceeded to forced sales.”
The update further noted that many borrowers have “remained unresponsive and have not taken legal steps to avoid insolvency or foreclosure.”
In cases where legal representation is involved, “significant delays have occurred due to overburdened courts.”
They blog post added that they expect to “resolve some exposures in 2025, leading to property sales and partial repayments.”:
However, the update clarified that additional repayments beyond the sale price are “unlikely in most cases, as many borrowers operate single-purpose companies with no significant assets.”
Estateguru’s blog post concluded that they anticipate that some recoveries will take place in 2025, “resulting in sales and partial repayments.”
But the exact proportion of the portfolio affected will “depend on the resolution of ongoing enforcement and insolvency proceedings.”