EXPO REAL focus topic of the first day of the trade fair: Overall Economy

No interest, no worries or rather: The end of low interest rates?

International tensions provoke new political and economic scenarios. In addition, there is uncertainty whether the low-interest phase will still last for long. What are the impacts of the changed situation on economy in general and the real estate industry in particular? The first day of the trade fair addressed said question by two panels under the comprising topic “Overall Economy“ at the EXPO REAL FORUM: “The end of low interest rates?“ and “No interest, no worries“.

 

Two lessons in economy

To come straight to the point: Both panels quickly turned into two lessons in economy thanks to top-class speakers. In the morning, Prof. Clemens Fuest, Head of the ifo institute and “one of the most renowned economists of Germany“, as moderator Thorsten Riecke of the Handelsblatt introduced his keynote speaker, started off the panel. Fuest posed three theories: According to the ifo business climate index – a survey among businesses – the economic situation in Germany is positive, even though “not a boom yet“. Currently, it cannot be called a “bubble“ or “overheating“. Different to the USA in 2007/8, when the real estate bubble burst there, real estate prices rather turned back to normal and even an increase in private debt cannot be figured out in Germany. Many reasons for the low-interest phase can, however, be determined, which cannot only be blamed to the politics of Draghi, head of the ECB. It rather reflects real-economic problems and developments: decline of labor productivity, demographic developments, decline of the oil price. Furthermore Fuest foresees a very weak interest rate development – an increase may be expected in the standard rates, but not in the real rates.

Panel hosting three insiders of the real estate industry

The moderator used said theory to open the following panel with three “insiders of the real estate industry“, as Riecke introduced them: Doris Pittlinger (Invesco Real Estate), Dr. Lutz Aengevelt (Aengevelt Immobilien) and Matthias Meyer (Deutsche Asset Management International). In the beginning, Pittlinger emphazised that there is no uniform solution applied across Europe but that in contrast, the low-interest phase is handled differently in each country. Germany protects its consumers correctly. Meyer sees a residual risk in the situation but expects a gentle development towards stability. Fuest points out that it is not the duty of a Central Bank – such as the ECB – to guarantee consumers and economy a “minimum interest“ but to maintain price stability. Pittlinger picks up on said argument and – probably as sort of an “advocatus diaboli“ – strikes a blow for the head of the ECB: He would ensure that in Southern Europe, a strong or quick rise in interest rates would cause upheavals in state and private budgets. Aengevelt in contrast alleges: “We in the real estate industry could imagine a higher interest rate and could afford said higher interest rate“. Pittlinger emphazises again that countries such as Italy or Spain could actually not afford the currently weak Euro. What else will be the cure for an imminent collapse of the economic development in Germany as well as Europe? Fuest says: We’ll have to back on education – but he also indicates that in “the winner takes it all“ economies, the positive effect of “advantage due to education“ will be diminished by many people’s longing for the best product. According to him, politics alone cannot compensate for income differentials and should therefore not promise people too much, he warns, also bearing in mind the coalition negotiations taking place in Berlin.

Rehabilitation from the drug called low-interest rates – or more intense european integration?

Meyer came up with an external point of view: The world (of international financial investors) would expect Europe to show more uniformity – thanks to the newly elected President of France, Macron, this hope would be well underway. In the end, Aengevelt rubs salt in the wound by stating: “We have become used to the drug called low-interest rates – my deep regrets to each finance minister after Mr. Schäuble, who is to detox us thereof.“ Fuest grabs the opportunity and imposes two priority goals for a new German financial minister: 1. To improve on the situation in the Euro area, not to disimprove. 2. A tax reform which will moderatly relieve the companies to 25% – ideally by abolition oft he trade tax, which will, however, remain a dream. Pillinger pleads for a European fiscal union, i.e. “a really united Europe“. But she as well asks herself, whether that is realistic. It would be sure, however: “We do need more intense integration“.

Looking forward to “Jamaica“ and sympathy for Draghi

That’s how the first panel ends, only to be resumed two hours later by another round as illustrious as the one before, dealing with the topic “Without rate or reason?“, this time moderated by Philipp Otto, editor-in-chief at “Immobilien & Finanzierung“. On the podium: Dr. Edgar Zoller (BayernLB), Dr. Gertrud R. Traud (Helaba Landesbank Hessen-Thüringen), Thomas Landschreiber (Corestate Capital Group) and Prof. Tobias Just (IREBS Immobilienakademie). Due to topical reasons, all participants were asked for their statement concerning “Jamaica“ and the coalition formation after the parliamentary elections in Berlin, respectively. Mrs. Traud is “incredibly looking forward to Jamaica“, which according to her anticipation will be very likely and of which she hopes for „a finally structured politics again“ after the deadlock of the grand coalition. Prof. Just also “approves“ Jamaica and hopes for a “less controversial consensus“ than during the grand coalition. For Landschreiber, a potential participation of the FDP as a government partner allows “reason to hope for less regulation but for stable conditions on the long term“. But back to the actual topic (low-interest) rates – and thus back to the ECB and its head Draghi. And again it is the woman on the podium striking a blow for him and speaking out against general “ECB bashing“: Draghi is actually not responsible for his attitude: as an Italian and representative of the older generation he would “rather be socialized that way – he is a relict of a school of thought which is horribly scared of a weakening economy and that inflation will not be high enough“. Due to historic and economic theoretical reasons, people here in Germany are in contrast afraid of an inflation that might be too high. Thus, two worlds collide or economic schools of thought, respectively.

The “sweet spot“ will come to an end

Prof. Just brings Germany and the real estate sector back into focus. According to him, we’re currently posed in a “sweet spot“, i.e. an ideal situation. Just: “We’ve never had that since decades!“ On the second glance, however, some drawbacks show up, because: „“A sweet spot is latently instable“, as to the professor. In order to escape that situation, we would have to face higher interest rates. To be honest, we would already be having an inflation – not in the classic cart but upon all assets. Zoller sees an overliquidity but not a bubble, at most overheatings – in comparison to the crisis of 2007/8, work is effected more conservatively than speculatively. It would be a fact that building should be fostered from a sociopolitical point of view. As to Gertrud Traud it is a typical German attitude not to be able to enjoy the currently very positive situation of the “sweet spot“ for the industry but to rather speaking it ill. The upswing in our country “is, however, not to be accredited to Draghi“. And even if the situation would, in relative terms, worsen, it would not imply “that it has to turn bad“. Zoller as well doesn’t expect “a massive market collapse even if the framework conditions change“. The second panel ends with that modestly positive forecast.

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