Are banks facing new challenges in real estate valuation? Given rising interest rates and stricter regulations, accurate valuation is crucial. Discover which aspects banks need to focus on now to manage risks and seize opportunities.
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The topic briefly and concisely
Accurate determination of the mortgage lending value in compliance with the BelWertV is fundamental for the risk management of banks.
Regulatory requirements (MaRisk, CRR III, CSRD) demand comprehensive adjustments in processes and data management.
ESG criteria have become an integral part of modern property valuation and lending.
Real estate valuation is a central process for banks, with direct impacts on balance sheets and risk management. Current market changes, new regulatory requirements, and the increasing influence of ESG criteria require continual adjustment of valuation models and processes. An accurate and forward-looking valuation of property assets is essential to correctly assess credit risks, meet capital requirements, and secure sustainable returns. This article highlights the key aspects that banks must consider today.
Precise loan value assessment as the foundation of lending
The correct determination of the loan value is a critical success factor for banks. This value, which is often set more conservatively than the current market value, serves as security for the loan and directly affects the maximum loan amount. Banks must determine the loan value in accordance with the Loan Value Determination Regulation (BelWertV), especially for properties with a market value of over 400,000 euros. The loan value is typically 20% to 30% below the market value to cushion potential market fluctuations. An accurate assessment protects the bank from losses in case of loan defaults and foreclosure sales. The valuation methodology must be transparent and comprehensible. This not only creates internal security but also strengthens the trust of supervisory authorities.
Meeting Regulatory Requirements: MaRisk, CRR III and ESG Reporting
Banks are facing an increasing number of regulatory requirements. The Minimum Requirements for Risk Management (MaRisk) have been expanded to include aspects of sustainability risks. The Capital Requirements Regulation (CRR III) sets new demands on capital planning and risk weighting, closely monitoring the validity of real estate collateral. From 2025, large credit institutions will also need to report on sustainability aspects in detail according to the Corporate Sustainability Reporting Directive (CSRD). Adhering to these complex guidelines requires robust internal processes and comprehensive data management. A proactive engagement with accurate documentation for credit decisions is therefore essential. Integrating these requirements into daily operations is crucial for compliance and the future viability of the institutions.
ESG factors: Sustainability is becoming the assessment standard
Environmental, Social, and Governance (ESG) criteria are rapidly gaining importance in real estate financing. Banks need to assess the carbon footprint of properties and the sustainability of projects. The EU taxonomy dictates which economic activities are considered sustainable and thus influences lending decisions. Properties with poor energy ratings or low ESG performance could face interest rate surcharges or even loan rejections. Conversely, 'green loans' with interest rate discounts can incentivise energy-efficient renovations, often offering up to a 0.5% interest advantage. Presenting a current energy certificate is already standard practice today and will become increasingly important. For banks, it is crucial to identify financial risks related to ESG at an early stage. Assessing sustainability aspects is no longer optional, but mandatory.
Key ESG aspects for property valuation include:
Energy efficiency and CO2 emissions of the building (e.g., documented by the energy certificate)
Susceptibility to physical climate risks (e.g., floods, storms)
Use of sustainable building materials and conservation of resources
Social aspects such as accessibility and tenant satisfaction
Good corporate governance at the developer or owner level
Compliance with environmental regulations and absence of historical contamination
These factors influence not only the value retention but also the long-term rentability and marketability of the property.
Risk management in focus: Rising interest rates and NPL development
The current market environment, with rising interest rates and inflation, presents banks with significant challenges in risk management. Increasing financing costs and potential devaluation of real estate heighten the risk of loan defaults. An increase in non-performing loans (NPLs) is particularly noticeable in the area of commercial real estate; the German NPL volume rose to 34 billion euros by September 2023. The ratio of distressed commercial real estate loans increased from 2.4% to 3.4% within a year. Banks need to adjust their risk minimisation strategies and closely monitor LTV covenants. Early identification of problem loans and proactive restructuring measures are crucial to limit losses. Supervisory authorities, such as BaFin and the ECB, are intensifying their audits of real estate loan portfolios.
Digitalisation and AI: Enhancing Efficiency in Evaluation
Digitalisation offers banks significant potential for increasing efficiency and improving quality in property valuation. Modern software solutions and the use of Artificial Intelligence (AI) can speed up and refine valuation processes. Automated data analyses of large datasets (Big Data) enable more informed market assessments and faster identification of risk factors. Through digital tools, banks can reduce processing times for valuations by up to 30%. Using platforms like Auctoa's ImmoGPT can help quickly achieve initial assessments and optimise the valuation process. Investing in future trends in the valuation sector is essential for banks to remain competitive. The challenge lies in integrating new technologies into existing systems and ensuring data quality and security.
Benefits of digital valuation tools for banks:
Faster turnaround times in report creation, often reduced from days to hours.
Improved data consistency and availability for more precise analyses.
Reduction of manual error sources through automation by up to 15%.
Better comparability of properties through access to broader databases.
More efficient portfolio valuations and stress tests.
Early detection of market trends and risk signals.
These technological advances enable banks to make more informed and faster credit decisions.
Conclusion: Proactive adaptation secures a competitive advantage
Real estate valuation for banks is more complex and dynamic than ever. Continuous adaptation to new market conditions, regulatory requirements, and technological developments is crucial for success. Accurate value assessments, a robust risk management strategy, and the integration of ESG factors are central pillars. Banks that proactively address these aspects and use innovative solutions like those from Auctoa can not only minimize risks but also achieve sustainable competitive advantages. A fast, neutral, and data-driven evaluation is key. Request a non-binding valuation now or chat with our ImmoGPT to optimize your processes.
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Additional useful links
The Statistische Bundesamt provides current data on house prices and building land in Germany.
The Deutsche Bundesbank regularly publishes reports on financial stability, offering key insights into the property market.
The Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR) provides information on current developments in the housing and real estate markets.
The ifo Institute offers press releases and analyses on new housing construction in Europe.
The empirica institute highlights challenges and perspectives for the German housing market.
The Federal Ministry of Finance provides information on the Federal Real Estate Agency.
The ZIA German Property Federation provides publications and studies on the real estate industry.
The German Institute for Economic Research (DIW Berlin) publishes weekly reports with analyses of the property market.
FAQ
What is meant by the Ordinance on the Valuation of Real Estate (BelWertV)?
The BelWertV sets out the methods and rules that banks in Germany must apply when determining the mortgage lending value of real estate securities. It stipulates which procedures are permissible and that the mortgage lending value must not exceed the market value.
What role does BaFin play in the valuation of real estate by banks?
The Federal Financial Supervisory Authority (BaFin) monitors banks’ compliance with regulatory requirements, including MaRisk, which also sets out requirements for the management of sustainability risks and thus affects real estate valuation.
How does CRR III impact real estate financing?
The Capital Requirements Regulation (CRR III) tightens capital requirements for banks. This also impacts real estate financing, as the risk weighting of real estate collateral and the monitoring of its value gain more focus.
Can AI systems like ImmoGPT replace traditional surveyors?
AI systems like ImmoGPT can support traditional appraisers and speed up processes by providing quick initial assessments and data analyses. However, a comprehensive, legally sound evaluation, especially for complex properties, still requires the expertise of qualified experts.
What are the main risks for banks in the current real estate market?
The main risks include rising interest rates, inflation, declining property values (especially for older or non-ESG-compliant properties), an increase in non-performing loans (NPLs), and stricter regulatory requirements.
How can Auctoa support banks in property valuation?
Auctoa offers AI-supported real estate evaluations and strategic consulting. With tools like ImmoGPT, banks can obtain quick, data-driven, and neutral evaluations to optimise their decision-making processes and better manage risks.
