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ePaper created 2014-04-15, 13:56:41 | version 1.30.00
Management report 45 that spreads will narrow further in view of the level they have reached in the interim. Covered bonds benefit from their No- Bail-In-Status – non-participation of creditors if the issuer de- faults – in comparison to the status of Senior Unsecured Bonds in the event of an issuer being forced into liquidation. Further- more, the decision of the supervisory authority defining how Covered Bonds should be accounted for in calculating the Liquid- ity Coverage Ratio is also likely to have had an influence on the development of spreads. Due a reduction in assets and adjusted business strategies, we anticipate that German issuers will again float a significantly lower volume of securities in 2014. Property and Property Financing Markets The German property market will also develop favourably in 2014. This outlook is based, in particular, on good financing conditions coupled with continuing low interest rates, a stable labour market and the lack of attractive investment alternatives. This is why prices for residential property are expected to rise further and faster than the rate of inflation. Experts, however, anticipate that the pace of rising prices will slow slightly. De- mand for houses and condominiums will be particularly strong in major cities and prosperous regions as not enough housing is being built despite the rising number of building permits. Rents will also rise significantly in these regions, with experts anticipating increases of 5 percent in major cities. In contrast, demographic development is the primary reason why higher purchase prices and rents are not expected to be seen in eco- nomically weaker regions. The risk of a property bubble occurring across Germany remains limited due the unchanging conservative financing structures in the residential property sector. However, local overheating cannot be ruled out. Furthermore, a substantial increase in in- terest rates, which would raise financing costs and dampen buy- er intentions, is not very likely. In this environment competition will remain high in the prop- erty financing market. We do not, however, expect price-based competition to heat up further as a floor appears to have formed for lending margins for some time now. According to estimates prepared by BVR volumes of business in the German residential property financing market will only grow slightly by 1.6 percent and be mainly driven by loans to build new housing and to mod- ernise property. Rental properties are increasingly attracting the attention of property investors in many other European residential property markets. This applies particularly in those regions where demand for space exceeds supply and the where the current overall de- mographic and infrastructural conditions, and outlook are fa- vourable. These regions include locations in the major centres of the UK, France, the Randstad region in the Netherlands, as well as numerous metropolitan areas in Northern Europe. It is expected that prices will continue to rise in the Swiss resi- dential property market, even though they will slacken a bit, especially for single-family houses and condominiums. As in- terest rates are also anticipated to remain low in Switzerland, it may be expected that the volume of mortgage loans will con- tinue to grow. The Swiss National Bank will respond to this sit- uation by taking additional measures to curb the growth of mortgage loans in the property market and enhance its stability. “The German property market will continue to develop favourably. This outlook is supported by generally positive conditions.” The recovery seen in the American residential property market will continue. Investments in housing construction are again ex- pected to increase significantly. Strong demand seen for con- struction of rental properties is also expected to continue over the mid-term. However, there is a risk that construction in this market segment may exceed demand and lead to excess capaci- ties due to the high level of investments currently taking place to build new apartment buildings because of very high current demand. The outlook for the German commercial property market is good and investor interest should remain high. Demand will continue to be primarily focused on core properties, although the supply