Bull & Bear 02/18 Real Estate Market by EBS.Invest Research

Dear Readers, It gives us immense pleasure to unveil the first edition of Bull & Bear for the year 2018. Our last newsletter was well received among the audience and received critical praise from executives. Several BULL&BEAR members successfully used the newsletter to prove their capabilities and skill sets to companies from financial industry, gaining access to exciting and challenging summer internships. Moreover, the last BULL&BEAR publication caused a leading German Bank to invite Head of Research Johan ten Doornkaat Koolman to speak about “Bitcoin & Co.” at an exclusive customer event in March. The last months the Student Analysts of EBS Invest Student Capital UG (Haftungsbeschränkt) pitched potential investments for the fund. Several ETFs and stocks from all kinds of branches and countries were presented to the other members, who then had to decide whether the pitched investment opportunities convinced them. The prevailing candidates will be further investigated, having the chance to be picked for the fund’s portfolio. On the 6th of February a delegation of the EBS Invest ressort was able to visit Main Incubator, extending already present knowledge regarding Industry 4.0 and Distributed Ledger Technology. Max Opoczynski summarized our experience with this exciting event in his article “Review: Main Incubator Workshop”. We express our grateful thanks to Steffen Wagner, Matthias Lais and Paul Kammerer. While the last newsletter focused on the Cryptocurrency landscape, this newsletter will shed light on the Real Estate environment. Chinese Investors’ impact on the German Real Estate market seems to increase significantly, as they are investing decisive sums and maybe inflating the growing Housing Bubble. However, this just represents the tip of an iceberg. The complete picture regarding Chinese investments into German Real Estate will be depicted in “What Attracts Chinese Real Estate Investors to Germany?”, while “How to: Inflate a Housing Bubble” tries to answer the question whether the Real Estate Market may be a bubble. Furthermore, the last edition’s topic “Cryptocurrencies” is ought to be linked to this edition’s topic “Real Estate Market” in “Backing Crypto-Tokens with Real Estate”. As we continue the trend of international collaboration, we would like to extend our most sincere gratitude towards Ms. Annisa Qurratu’Ain for designing our cover page again and Mr. Felix Tholen for contributing his photography skills. Annisa is currently pursuing her undergraduate degree in Design

Communications from Paramadina University in Indonesia while Felix is a second semester undergraduate student at EBS University of Business & Law. Moreover, BULL&BEAR collaborates with the EBS Real Estate Congress for the first time. As this edition’s and the congress’ topic are obviously overlapping, mutual support seemed more than appropriate. The 19th EBS Real Estate Congress will take place on 20th of April in 2018 and tickets are available for reservation on http://ebs-immobilienkongress.de/. Finally, our gratefulness goes out to the astonishing team of researchers and authors. Having diligent and competent students spending their free time on computing informative investment articles is what makes BULL&BEAR as successful as it is! We once again would like to thank EBS University for providing us with the necessary educational environment. On top of that we would like to express special thankfulness to the Heads of Marketing (Alexander Rauh, Theo Goldsmith), Head of IT (Norajr Hakopov), Carolin Trost (Marketing Department Member) and Pascal Jäger (Real Estate Congress Representative) for crafting a new and effective strategy to distribute our newsletter.

Johan ten Doornkaat Gautam Kumar Head of Research at EBS.Invest e.V. Chief Responsibility for Bull&Bear View LinkedIn Profile

Head of Research at EBS.Invest e.V. Layout/ Composition, Editorial Supervision & Chief Responsibility for Bull&Bear View LinkedIn Profile

DISCLAIMER: EBS INVEST AND BULL & BEAR ARE NOT AFFILIATED WITH ANY COMPANYS OR SECURITIES MENTIONED. FURHTERMORE, OUR ARTICLES SHOULD BE UNDERSTOOD AS FOOD FOR THOUGHT, NOT AS FINANCIAL/ LEGAL/ TAXATION ADVICE. WE DO NOT RECOMMEND SELLING OR BUYING ANY INVESTMENT MENTIONED AND DO NOT TAKE ANY LEGAL RESPONSIBILITY FOR CONCLUSIONS YOU MAY DERIVE FROM OPINIONS DISPLAYED IN BULL & BEAR. FINALLY, WE EMPHASIZE THAT BULL & BEAR AND EBS INVEST ARE NOT RESPONSIBLE FOR THE CONTENT OF PROVIDED WEBLINKS. THE FOLLOWING APPLIES: YOU CLICK ON YOUR OWN RISK.

Content I.

Review: Main Incubator Workshop Max (2nd from right) recaps our visit in the Main Incubator office in Frankfurt, reporting on Industry 4.0 and Blockchain in Banking.

II.

How to: Inflate a Housing Bubble Pascal (4th from left), Adrian (5th from left), Felix (3rd from left), Luca (not in the picture) and Johan (1st from right) give an overview on excessive developments regarding the German Real Estate market.

III.

What Attracts Chinese Real Estate Investors to Germany? Max (2nd from right), Dimitri (3rd from right), Benedikt (5th from right) and Jannis (2nd from left) elaborate on the influence of Chinese Investors on the German Real Estate market.

IV.

The Future is Now Kilian (4th from right) presents a brief insight on modern Real Estate technology.

Backing Crypto-Tokens with Real Estate An extensive view on Tokenization in comparison to common Securitization of assets, such as property, is given by Johan (1st from right).

VI.

Debt Capital Market Outlook Finally, Gautam (1st from left) refers on happenings of the Global Debt Capital Market.

Review: Main Incubator Workshop On the 6th of February, we visited a work-

Another main focus of the presentation was

shop in Frankfurt at the Main Incubator of-

the implementation of Internet of things

fice in Frankfurt. Main Incubator is a venture

(Iot) within different everyday products.

capital firm that belongs to Commerzbank

This is part of a “predictive approach”, that

and invests in FinTech start-ups.

firms try to implement in order to attract

Kindly, Steffen Wagner, an EBS Alumni who is currently working at Commerz Real, initiated this exciting opportunity.

more customers. Certain predictive approaches are already implemented, such as fridges being able to order groceries once they need to be refilled. Lais also states that

The workshop started with a presentation

we should be careful of exploitive usage of

by Matthias Lais, the Director and founder

these tools, such as the possibility to offer

of Main Incubator. The main topic of his

higher prices for people in need.

presentation was the fourth industrial revolution, also known as “Industry 4.0”.

Main Incubator currently invests into 12 start-ups. Retresco is one of the companies

One of the main aspects of this revolution

that Main Incubator supports and invested

is a less risky, more productive manufactur-

in. Most people have been in touch with Re-

ing process, that enables more individual

tresco whether they know it or not. It is an

and less standardized production. This is

automatic software that converts facts into

mostly due to the fact, that consumer de-

articles. It is used anywhere from football

mands changed in the same, more individ-

news to highly innovative and renown com-

ualized direction.

panies. It also helps to extract key facts from

Another prediction of his is, that within the next decade, banks have to offer different, more flexible kinds of financing opportunities as the cash flows of their customers

exposés in the Real Estate industry and it is able to write them for salesmen on Real Estate internet platforms if the necessary data is entered.

change.

Manuel Küblbock, Gini GmbH

Between the Towers, Goethe University FFM

The

presentation

was

Paul

thoroughly illuminated within the last pub-

Kammerer, co-founder of Commerzbank’s

lication of BULL&BEAR in Dec 17. You can

DLT/ Blockchain lab and VP Corporate

find the special edition “Cryptocurrencies”

Strategy at Commerzbank. The main topic

on www.ebsinvest.com/newsletter.

was the impact that innovation has on the banking world, especially the invention of Blockchain. He began his presentation by sharing an anecdote of him pitching in front of the Commerzbank board, eventually en-

Furthermore, Kammerer added that Bitcoin actually is not anonym, but pseudonym as every Bitcoin transaction is recorded and can be tracked at a public website.

abling him to establish the Blockchain lab

One problem for banks specifically is, that

for Commerzbank in 2013.

the origin of the money cannot be tracked

Kammerer cleared up the common misconception that there will be one global Blockchain. Most likely, there will be multiple Blockchains, some accessible to the public and some solely company internal. Another

properly, which is an obligation in Germany. the Blockchain technology, consisting of public, consortium and private Blockchains, is extremely important for future cost and risk reduction.

misconception is, that the Blockchain tech-

After these two presentations, we visited

nology has been hacked. But for now, only

the event “between the towers” event at the

the user interfaces used to manage crypto-

Goethe University in Frankfurt. The event

currencies on electronic devices have been

consisted of a keynote speech and multiple

hacked multiple times already.

start up pitches. “Between the towers” was

The current topic of Bitcoin (BTC) was also featured. We learned in detail how Bitcoin transactions work. The term “mining” in relation to Bitcoin has been thrown around

created in order to create innovative ideas, build a FinTech community in Frankfurt, and help promising start ups find venture capital in order to grow.

quite a bit. The BTC subject has been

Written by

Max Opoczynski Author for Bull&Bear at EBS.Invest e.V. View LinkedIn Profile

www.ebsinvest.com contact.ebsinvest@gmail.com

www.linkedin.com/company/10509796/

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www.instagram.com/ebs.invest

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How to: Inflate a Housing Bubble Inflating a usual soap bubble is fairly easy – if you want to do it in a DIY way, all you need is water, detergent and sugar. You simply mix the three ingredients, insert a straw into the mixture and after taking it out again, you solely need to blow air through the straw. Sadly though, it is not that easy when it comes to housing bubbles. Real Estate price bubbles occur periodically,

around two thirds, were spent on residen-

appearing in the shape of considerable mis-

tial Estate mainly in urban areas. The prices

pricing of property. But experts agree on

per square meter for one and two-family

not being in agreement, when it comes to

houses in the mid-price range increased

determining the development of a current

from 1400€ in 2014 to 1545€ in 2016.

housing bubble, as well as forecasting the moment it will burst, being the decisive point in time when such a bubble fully reveals itself. Nonetheless, this article is sup-

But what are the reasons for this fast and persistent development of Real Estate prices?

posed to give a brief overview on the issue,

As Germany’s GDP has risen by roughly 8%

deriving consequences from the compari-

from 2012 to 2017 the nation’s economy

son of the current market environment and

seems to be flourishing. The growth is esti-

historical data.

mated to aim at top marks, providing the

The excessive rise of Real Estate prices in Germany over the last years makes many

ideal environment for the recent development of the housing market.

people worry. Since the financial crisis in the

In addition, the German Real Estate market

years 2007 and 2008 the German Real Es-

is inflated even further by the high activity

tate market experienced an extraordinary

of international Real Estate investors. More

period of growth. Especially in urban areas

than 59 billion euros were invested in Ger-

we witnessed an enormous rise in prices for

man properties by foreign investors, which

residential properties. The prices of Real Es-

is the tripled amount of external invest-

tate in the biggest cities have risen more

ments in 2010. A possible explanation for

than 60 % since 2010 according to

this development is the attractivity of the

Deutsche Bank AG. The peak of this devel-

German Real Estate market. The large-scale

opment is the current price level in Munich.

investors value the legal security, political

If you want to buy property, you must pay

stability as well as the strong economy and

8500€ per square meter compared to 300-

the dependable tenants in Germany. Fur-

400€ in an average German small town.

ther remarks on that topic will be covered

Although the prices for Real Estate are already at a very high level, buyers have in-

within the detailed report “What attracts Chinese Investors to Germany?”.

creased their expenditures by more than

There is another group acting covertly - the

25% (237.5 Billion in the past year) in the

indirect investors. As trendy investment in-

last two years. According to the prediction

struments, such as ETFs and Crypto-Tokens

of official experts most of these revenues,

have found their way into Real Estate, these

instruments, often held by small and inex-

with cheap money. This enables cheap

perienced private investors, have their

property loans to Real Estate investors

share in the housing market. As they more

which yields much more attractive financing

or less transform illiquid into liquid markets,

of these investments and the investment at whole. In addition to that

Residential Property Price Index YoY % Change, DBB (Feb 2018)

low interest rates led to a reduced return of government bonds and deposit accounts. The low

Real GDP Germany, OECD (Feb 2018)

returns and missing alternatives for investments motivate many investors

Key interest Rates, ECB (Feb 2018)

to buy Real Estate as an allegedly safe investment with a steady return. Due a panic fueled flash crash of the stock mar-

to the lack of alternative

ket could spread onto the Real Estate mar-

investment opportunities, many investors

ket, if investors decide to sell their Tokens

accept very high buying prices and a re-

or other investment vehicles. To read more

duced yield, because they speculate on the

about what Crypto-Tokens could have to

continuous rise of rents and Real Estate

do with Real Estate, read “Backing Crypto-

prices. However, the development of the

Tokens with Real Estate”.

Real Estate market in Germany strongly de-

Another important reason for the increase of prices for such a long period of time is the strong ongoing urbanization in Germany. Many young people leave the rural areas, because the large cities are more at-

pends on the continuation of the expansive monetary policy by the ECB and also on a further positive development of the global economy, which both are not carved in stone.

tractive to them, offering better job oppor-

Interestingly the margin between Real Es-

tunities and the possibility to experience

tate prices and rents tends to widen. Gen-

the urban zeitgeist. High demand for hous-

erally speaking, an acquisition price which

ing space in urban areas causes an extreme

equals 30 years of rent exclusive heating, an

scarcity of residential properties that drives

increasing construction of new buildings

the rapid growth of Real Estate prices.

and high level of lending to private people

Moreover, the increasing number of refu-

are taken as indicators for overheating mar-

gees who have come to Germany lately

kets. This was also the case in recent hous-

could be increasing demand in Germany’s

ing bubbles for example in Spain or the US

biggest cities as well.

in the early 2000’s. In July 2017 Postbank

One of the most important factors is the monetary policy by the European Central Bank (ECB). The current policy of low interest rates by the ECB is flooding the market

published its housing atlas, stating that in 23 of 294 German districts the years of rent needed to amortize the purchase expenses exceed 30 years, even reaching 60,9 years in Nordfriesland. Additionally, the number of

building permits in Germany increased by

property tax in Germany due to this very

roughly 31% from 2010 to 2016, coming

fact. It has not been changed since 1964

close to pre-crisis times. Meanwhile, mort-

and according to the Federal Finance Court

gage lending to private households in Ger-

also violates the clause of equality within

many reached a new all-time high, sitting

the constitution. They now discuss to re-

roughly 20% above lending back in 2007.

form the property tax within five processes,

On this first glance, it seems like the criteria

so that there is no longer an assessed value

for this assumption are met, indicating the

within the price calculation of tax.

existence of a housing bubble.

Experts think that the new reform will in-

These indicators remind concerned people

clude different criteria which will be respon-

of similar situations in Spain or Ireland

sible for the amount of tax, such as building

which also emerged before the Euro-crises.

year, building costs, current worth of the

The low interest rates, the good economic

building as well as worth of the property.

situation and the willingness of banks to deal in credits on the mortgage market have also been major incentives for many people to buy Real Estate, boosting the prices in astonishing heights.

massive financial burden for both, Real Estate owners and tenants. Some speculators think that the property tax for Real Estate owners, on average, will be 30 times higher

Potential Impact of the Property Tax Reform

than it is right now, sometimes the calcula-

Another factor which could have a consid-

tions even go up to 50 times. As a result of

erable effect on the Real Estate market is the currently discussed reform of the Ger-

that most likely rental prices will increase, since property tax can be transferred to the

man â&#x20AC;&#x153;Grundsteuerâ&#x20AC;? (property tax). Since the

tenant via ancillary costs.

current assessment basis for the property

After all, the tax reform does also have two

tax consists of values which were partly fixed in 1964 for many buildings, they are massively undervalued, resulting in a correspondingly low tax payment. The Federal Constitutional Court criticized the existing

Felix Heyd

If the reform passes, many people fear a

sides. Because the proposed change is supposed to include the current value of property prices, the property tax would especially rise in affluent living areas. On the other hand, for people who live in impover-

Adrian Scheffler

Pascal JĂ¤ger

ished areas with low Real Estate prices, the

of the overall Real Estate price level. How-

property tax should stay the same or even

ever, it is not the increase in prices itself but

decrease.

the fact that the development of Real Estate

However, due to the already mentioned housing price developments, there will most likely be close to no areas in Germany where property tax would stay the same or even decrease.

prices has disconnected with other important factors of the Real Estate market. Since 2010 the prices for properties increased faster than the rent, the general level of prices and also faster than the income of private households. Further key

Finally, the legitimate question on this re-

points such as the dependency of stable

form’s impact on housing prices pushes its

GDP Growth, ongoing urbanization and

way to the fore. The answer is a clear “yes

most strikingly the continuation of the ECB

and no”, as it depends on price elasticity of

monetary policy, reveals the rather fragile

tenants and investors. In the end, it remains

foundation the German housing market is

uncertain whether the tax reform would

based on.

have no, little or significant influence on housing prices.

To put it in a nutshell the German Real Estate market is under very high pressure and

Are we going to face a new housing bubble?

When we talk about a possible housing bubble the development of prices is omnipresent and it is true that one of the most important indicators for a Real Estate bubble in Germany is the tremendous increase

price adjustments become more and more likely. As a final recommendation, since DIY inflation of housing bubbles seems to remain a challenging issue, it might be recommended to stay with soap bubbles for now.

Written by Pascal Jäger

Felix Heyd

Author for Bull&Bear

at EBS.Invest e.V. Head of Event at EBS Real Estate Congress View LinkedIn Profile

Adrian Scheffler

at EBS.Invest e.V. Head of Corporate Relations at EBS Real Estate Congress View LinkedIn Profile

Johan ten Doornkaat Head of Research

Author for Bull&Bear

at EBS.Invest e.V.

Layout/ Composition,

View LinkedIn Profile

Editorial Supervision & Chief Responsibility for Bull&Bear View LinkedIn Profile

With the help of Luca Wombacher Author for Bull&Bear at EBS.Invest e.V. View LinkedIn Profile

www.ebs-immobilienkongress.de 20th of April 2018

Bricks and Mortar Going Digital How could the necessary infrastructure for crosslinked and digital Real Estate be established and what impact will for instance autonomous driving have on urban structures?

The Digital Human How will the digital nativeâ&#x20AC;&#x2122;s future workspace look like? What are the consequences for office buildings as an asset? Are online marketplaces going to fully displace shopping malls and how should Real Estate industry react?

Master in Management #2 in Germany #12 in Europe

Studentenschaft der EBS e.V. Real Estate Ressort

Master in Real Estate #1 in Germany #2 in Europe #3 in the world

RheingaustraĂ&#x;e 1 65375 Oestrich-Winkel Germany

What Attracts Chinese Real Estate Investors to Germany?

In 2017, the South China

companies with a clear and reliable struc-

Morning

(SCMP)

ture. With the help of professional advisors,

published an article called

investors are able to use this comprehen-

“Now is the time to invest

sive structure to achieve economic success

in Berlin Property”. The SCMP is regarded as

within the safety of high legal certainty. De-

the most influential newspaper in South

spite Germany having a comparatively high

Asia and belongs to the Alibaba Group, one

tax burden, it can be reduced through the

of the biggest corporations worldwide.

use of certain investment structures. Chi-

“Berlin is a popular city for investors, but

nese investors tend to use consultants who

this year saw the German capital reach new

have a profound understanding of the Ger-

heights when it was named the hottest tip

man tax law and the double taxation treaty

for residential property in Europe by inter-

between China and Germany.

Post

national consulting and auditing firm PricewaterhouseCoopers.” is the first sentence of the article, showing a clear suggestion towards potential investors.

A passport and sufficient capital are the only necessities for Real Estate investors, there are no cross-border restrictions in Germany. This, however, does not give you

In general, Chinese investors show great in-

an immediate right of residence. Contrary

terest in the German economy. In total, Chi-

to China, where property can only be leased

nese investments in Europe have increased

from the state for up to 40 to 70 years, the

by 130% between 2009 and 2014. The Ger-

right of property is constitutional in Ger-

man economy, especially companies and

many. This means, that Real Estate can be

Real Estate, is extremely affected by this in-

sold at all times.

crease. This is mainly due to Germany’s attractive risk-return portfolio within Europe’s commercial Real Estate sector. China’s economy is the world’s second strongest economy and Germany’s most substantial trading partner. In 2016, 36 German companies were acquired by Chinese investors. These takeovers are part of the Chinese global diversification, as this gives Chinese investors direct access to the EU market.

Noticeable immigration of Chinese citizens into European countries such as Germany, Switzerland and Italy occurs since investors prefer to accompany their abroad investments. For these immigrants, Real Estate poses the preferred form of investment, as it generates long-term steady returns and has great value-retention qualities. Professionals who sell Real Estate to Chinese investors agree upon certain facts. One of

Even though Chinese investors do not have

them is, that Frankfurt and Berlin are gen-

such a long history in Germany as com-

erally regarded as the most attractive areas

pared to the US, Australia or Great Britain,

to invest in by the Chinese investors, even

Germany is regarded as a mature market

though both areas have a Real property

that features stable, sophisticated customer

transfer tax of 6%. According to the market

demands. The rules within Germany’s legal

report “Office Leasing & Investment Ger-

system are complex due to their detail, es-

many 2014/2015” by Colliers International,

pecially within their tax laws. This may

Frankfurt offers 11.7 million square meters

sound negative at first, but it provides the

of office space, top rentals of 35.0 € per

Jannis Markgraf Benedikt Kiefer

Dimitri Pickel

Max Opoczynski

square meter and top returns of up to 5.2%

the “Maintor-Viertel” district, seven percent

to investors. Berlin has an office area of

of newly built, expensive Real Estate has

about 18.2 million square meters, top rent-

been bought by Chinese investors accord-

als approximately 22.0 € per square meter

ing to GEG German Estate Group. Only one

and top returns of 5.0%.

of them is currently occupied by the owner,

Multiple other locations within Germany are favorable for Chinese capital. For the

the other ones are being used as a capital investment.

sake of this article, Berlin and Frankfurt will

The focus is on newly constructed Real Es-

be mainly focused. Interest in other German

tate, as elder houses are only attractive to

cities is shown by Munich, Berlin, and Ham-

this clientele if they have been renovated

burg being classified as top five attractive

extremely well in recent times. The investors

Real Estate locations in Europe by “Emerg-

prefer to invest in Frankfurt’s expensive Real

ing Trends in Real Estate® Europe”, a fore-

Estate, where 9000 euros per square meter

cast issued collectively by PwC and the Ur-

is not an uncommon price.

ban Land Institute (ULI).

Anne Schneppen, one of the founders of

Thomas Zabel, an estate agent from the

Berlin Property Services, confirmed, that the

consulting firm JLL, stated, that from 2015

number of Chinese investors has been

to 2016, the number of apartments sold to

growing significantly between 2014 and

Chinese investors in Frankfurt alone dou-

2017. In addition, she confirmed, that it is

bled from 500 to 1000. This is approxi-

unusual for Chinese investors to buy prop-

mately thrice as much capital invested as in

erty with the intention of owner-occupancy.

Berlin, and Chinese investments in Berlin

Berlin Property Services is specialized in

have increased as well. This may be due to

helping interested Chinese investors ac-

the fact, that most of the flights to Germany

quire property in the capital. Other German

arrive in Frankfurt and most of the big Chi-

businesses advertise construction projects

nese banks have their German headquar-

at property fairs directly in China. This re-

ters and first branches in Frankfurt. The Chi-

sults in investors buying anything from one

nese community in and around Frankfurt

property up to whole portfolios of Real Es-

grew from 10,000 to 14,000 in 2016 alone.

tate investments.

With Anija Immobilien & Consulting, the first Chinese Real Estate agents have opened a subsidiary in Frankfurt’s district “Europaviertel”. This enables the Estate agents to sell property directly on site. In

In Berlin, investors are investing in less strictly regulated alternatives such as student residences and serviced apartments, as there are only few houses being built

within recent times. Due to this trend, con-

property. In Shenzhen it is forbidden by law

dominium values in Berlin have more than

to buy more than two residential apart-

doubled since 2010. An increase of nearly

ments for families with a permanent resi-

1.700 € per square meter has been rec-

dency. Anyone without a permanent resi-

orded. On average, renting out an apart-

dency is limited to one residential apart-

ment in Berlin comes with a 4,6% to 6%

ment.

yield as opposed to 2,5% in Beijing. Despite the shortage of new construction, Berlin’s Real Estate market has a high potential as there is plenty of building land left within Berlin’s city limits. Current housing prices in Berlin are rising at approximately 15% annually. Forecasts suggest, that the growth will stay like this for years to come, and that residential rental yields will remain appealing in comparison to other international markets. In addition, the professionals agree upon certain sources of the investment boom. One of them, as mentioned previously, is, that the German economy is regarded as stable with a favorable risk-return profile. Furthermore, the Chinese middle class is growing at a constant rate. This enables a greater number of Chinese investors to invest significant capital abroad in order to grow their own wealth.

“It is expected that the next generation in China will have even more influence and buying power.”

Currently, China’s middle class is estimated to consist of 109 million inhabitants, 10,7 % of the whole population. Some studies go the extent that by 2022, three quarters of the urban population will belong broadly to the middle class. Additionally, it is suggested, that the growth rate for capital is approximately nine percent until 2020. This is mainly due to China’s strong economy. The growth benefits from a five-year plan that was implemented by the communist party in 2016. Due to this growth, it is expected that the next generation in China will have even more influence and buying power. China’s growing middle class trusts the Chinese economy less and less. This leads to more

Ultimately, the prices in Chinese cities have

investment abroad. China intervenes, by

rocketed through the roof. In Peking and

only allowing their own citizens to ex-

Shanghai, central apartments are usually

change $50,000 annually in foreign curren-

priced at around 10,000 € per square meter.

cies. Families unite their capital in order to

Luxurious apartments might even be priced

buy property abroad. Certain loopholes,

at as high as 15,000 € to 18,000 € per square

such as the special administrative region of

meter. These circumstances leave the ma-

Hong Kong, are being used to smuggle

jority of the Chinese middle class to only

money out of the country. China tries to

buy one apartment for the whole family and

prohibit such activities but has not man-

look for investment opportunities abroad,

aged to stop the growing foreign direct in-

as Real Estate abroad tends to be way more

vestments (FDI) in Germany, Austria and the

affordable and profitable. On top of this,

US so far.

some cities in mainland China have further restrictions when it comes to buying

The increasing number of wealthy people in China and the growing middle class will

probably lead to a continuity of this great

property, investors are going to look for al-

interest in Germany.

ternatives.

Especially in the turbulent times of Brexit,

The specialization of Real Estate agents in

Trump etc., Germany is characterized by

Germany, which offer an all-round support,

political stability and a strong economy,

also signals and favors the appearance of

which is particularly attractive for foreign

further buyers from overseas on the market.

investors. The uncertainty about investments in the metropolis of London have shifted interest to Germany.

A continuation of the trend is therefore to be expected. Meanwhile, it remains exciting how this development will affect the market

Although China is making it increasingly

in Germany. Even if Chinese are only one in-

difficult for its citizens to transfer their

vestor group of many, they contribute to

money abroad, this hardly slows down the

significant changes in the German Real Es-

ambition of buying property abroad. This

tate market. Not only an increased demand

will continue as long as Real Estate in China

results from it, but also due to the high

only generates a comparatively low yield

standards for new buildings in metropolitan

through high purchase prices and the cir-

areas conspicuously many small flats with

cumstance of only being able to acquire a

high square meter prices arise.

temporary right of with the purchase of a Written by Max Opoczynski

Dimitri Pickel

Author for Bull&Bear

at EBS.Invest e.V. View LinkedIn Profile

With the help of Benedikt Kiefer

Jannis Markgraf

Author for Bull&Bear

at EBS.Invest e.V.

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The Future is Now Modern Real Estate Technology

Kilian Enders

Nowadays it is essential to have an excellent

investors what they intend to build by cre-

understanding of how Real Estate changed

ating a 3D model of their idea.

in the previous decade. This becomes obvious when buying a house, for example. The difficulty of getting information about the desired object was and still is essential. This lack of information now has been solved by technology over the last decade.

Last but not least, home automation is a very recent innovation. In the previous years, the demand for "smart" homes increased as big companies, such as Apple, Samsung, and Nest demonstrated what is possible with nowadays technology. The

Starting off with online marketplaces: Al-

"smart" home has the aim to enable resi-

most the entire Real Estate sector moved to

dents automatized interaction with their

different online platforms. It is now tremen-

property. Use cases are for instance turning

dously easier to gather information about a

the lights on or locking down the house, us-

specific object, enabling easy comparison

ing nothing but a smartphone.

with others. The online market still enhances – Engel & Voelkers for example published a smartphone application to make searching and choosing property even simpler for customers.

In a nutshell, technology changed the Real Estate market in a way that it is easier and better to interact with the seller and the buyer. Vivid, virtual visualization of the property as well as extendend access to

Another technological progress is the Vir-

data that is relevant for the investors’ deci-

tual Reality (VR). Especially in Real Estate, it

sion might be future game changers. Thus,

opens a new way for estate agents. The

Real Estate gets even more attractive from

technology itself aims at creating a 3D

investors’

world in which one for instance could see

emerging technology may be used to get a

and walk though the interior of a house.

better view on the actual investment.

perspective, since

Thus, architects, for example, can show Written by Kilian Enders Author for Bull&Bear at EBS.Invest e.V. Head of Event at EBS Real Estate Congress View LinkedIn Profile

the

now

Backing CryptoTokens with Real Estate The next big thing or just a huge letdown?

Cryptocurrencies - They seem to be everywhere. Everyone is gazing at them, drooling

What to Learn from Common Securitized Assets

in hope of potential extraordinary returns.

The usual way of securitizing (So to say the

The hype around Cryptocurrencies (called Crypto-Tokens throughout this article) seems like it can’t be bothered by the last immense price drop, bringing BTC and its fellow Crypto-Tokens onto their knees ($6914.26 on 5th of February 2018, according to coindesk.com). Hinting at BTC’s flaws back in December 2017 (“A Fool and His Money” in Bull&Bear’s “Cryptocurrencies”), when BTC was at $16,500, we also decried the issue of BTC and other Crypto-Tokens having their prices set solely by supply and demand. Even though this fact may warm the economist’s heart, this circumstance causes high volatility, making the self-de-

predecessor of tokenizing) assets has been around for some time, with first mentions of Real Estate securities in the 1920s. As they more or less vanished in the aftermath of the Black Thursday in 1929, they had their comeback in the 1970s. Since then they have been around, gaining questionable fame due to the financial crisis in 2007. Taking a look at securitizations in Europe and the United States it becomes obvious that they have lost momentum over the last decade, yet picking up pace in the US since 2012. According to sifma research and AFME in the US roughly EUR 1,844.2 billion

clared currencies impractical to use.

were issued in 2017 in contrast to EUR

Assets - Nowadays, barely anyone seems to

rope went from EUR 818.7 billion in 2008 to

care even one bit (exaggeration!) about classic assets such as good old commodities, loan receivables or Real Estate anymore.

Nevertheless,

common

knowledge that having ownership of some asset with a distinct value has been

2,080.5 billion in 2007. Correspondingly EuEUR 235.0 billion in 2017. As we are exploring the idea of ensuring Crypto-Tokens with Real Estate, it could be worth asking what classic securitizations have in store that could serve the new Real

of advantage throughout history, as property, machines or anything else of actual use seems to be most valuable within times of uncertainty. Therefore, backing Crypto-Tokens with assets might be the right action to decrease volatility by enhancing the Token’s reliability. This way the backed Token could actually be used as a currency, as it would be possible to leave your house knowing that your currency’s value will most likely still be sufficient to purchase what you were initially longing for.

https://www.afme.eu/en/reports/Statistics/securitisation-datasnapshot-q4-2017-and-full-year/ European and US Securitization Issuance in bn EUR (AFME, Feb 2018)

Johan ten Doornkaat Koolman

Estate Backed Crypto-Tokens (or REBCT as

selling its claim to a Special Purpose Vehicle

someone with plenty of time might abbre-

(SPV), where the claim is securitized and

viate those tokens) as a blueprint. Usually

sold to investors in the shape of a bond

one

Asset-

(which is the final MBS). Rating Agencies

Backed-Securities such as Credit Card ABS,

hypothetically enable investors to under-

Auto Loan ABS or Student Loan ABS

stand the security by providing the MBS

(SLABS) and Housing related securitizations

(not the SPV) with an individual credit rat-

such as Mortgage-Backed Securities (MBS),

ing. Conventionally investment banks or the

Commercial MBS (CMBS), Residential MBS

originator itself act as versatile Service

(RMBS) or Home Equity Loans (HEL).

Agents, taking care of the overall transac-

differs

between

common

Figure 1 shows how a typical MBS structure may look like in simplified terms. Not going into further detail concerning collateral

tion and mediation between the parties involved. Within one structure there may be several Service Agents.

management, subdivision into different

One may not forget the huge role MBS and

tranches, true sale/synthetic or pass-

friends played within the two biggest crises

through/pay-through

the

the modern world has seen. Having this

debtor receives a mortgage from a mort-

troublesome Subprime MBS background,

gage lender, paying interest in return. The

these instruments radiate an aura of worry-

mortgage lender becomes the originator by

ing danger Crypto-Investors most likely

structures,

would not be into. Furthermore, they are relying

mortgages,

which make use of Fiat Money, hence contradicting

the

typical

Crypto-Investorâ&#x20AC;&#x2122;s opinion of Crypto-Tokens taking over the current financial system. But in Figure 1: Simplified Mortgage-Backed Security Structure

Figure 2: Simplified OpenGoods BrickCoin Tokenization Structure

terms of structure and usability, Asset-Backed Securities may serve as a template Backed

for

Asset-

Crypto-Tokens.

Emerging Asset-Backed Crypto-Tokens In memorial of the gold standard, it might be worth having a look at the several

gold

backed

Crypto-Tokens out there. AurumCoin for instance is backed with 0.75 grams of stored physical gold and ought to be worth 1 gram of pure gold per coin,

using the widely applicable tokenization

whereas HelloGold generated the Hello

tool OpenGoods (Figure 2).

Gold Token (HGT) to finance their initial launch,

promising

undetermined

amount of newly generated Gold Backed Tokens (GOLDX) to their investors, which then shall be backed by 1 gram of gold each.

According to BrickCoin and OpenGoods it is supposed to work like this: BrickCoin agrees on a contract with OpenGoods on setting up a BrickCoin branded Blockchain infrastructure, which provides exchange and wallet features for the BrickCoin token.

If mortgages most likely would not float a

OpenGoods then tokenizes the assets

Crypto-Investor’s boat, could Real Estate it-

(Real-Estate-Investment-Trusts)

self be the adequate asset to ensure the

by BrickCoin and transfers the generated

prevailing Crypto-Token, eventually be-

Crypto-Tokens into BrickCoin’s account. In-

coming the currency of the future?

vestors, if they do not fail Anti-Money Laun-

Well, that is exactly what enterprises like Zabercoin, Brick&Mortar Tokens, Brickblock and Brickcoin are aiming to establish. Zabercoin states that their idea is that every virtual Token of Zabercoin shall represent a physical share in an underlying company, which is supposed to mainly invest in Emerging Markets Real Estate. BrickCoin as one example presents a different way to tie their property to their tokens,

provided

dering or Know-Your-Customer checks, are able to create accounts with the BrickCoin investor wallet. Then they are enabled to deposit Fiat money or other Crypto-Tokens and use them to purchase BrickCoin tokens, either from BrickCoin or other investors. Blockchain and smart contracts ensure that a BrickCoin’s value is strictly linked to the underlying assets. Owning a BrickCoin token grants the investor a claim to the ensuring REIT. BrickCoin as an asset manager

gets access to a regulated market of inves-

Finally, investors gain access to a liquid and

tors and new ways to generate revenue by

affordable market representing the illiquid

charging investors a transaction fee for the

and expensive Real Estate market, inde-

token-transaction. Since the REITs that back

pendent of any financial institution.

the token are not concerned when a token is transferred from investor A to investor B, BrickCoin does not need to take any kind of action regarding the assets, enabling them to reduce costs. OpenGoods ensures compliance with regulation, while essential auditing requirements are easily met through the usage of smart contracts. Furthermore, one of the so-called “Big Four” auditing companies shall be commissioned to check

In comparison to the structure of a common MBS, OpenGoods replaces SPV and Service Agents, ideally saving costs. Blockchain technology automatizes several operations and eases auditing. Moreover, the involvement of other parties, which were not mentioned before, such as trustee, trust company, liquidity providers and collateral provider could at least partly be reduced.

the OpenGoods infrastructure as well as the

LAToken has a comparable approach, being

Asset Manager (BrickCoin) on compliance

a blockchain platform which aims to make

with regulations and tax and to take care of

potentially any type of asset tradable

the correctness of the parties’ financial

through tokenizing fractions of Real-life as-

statements.

sets. The Russian Liquid Asset Token Platform raised the equivalent of $9.6 million within 3 days of August 2017, promising to back their Tokens with any asset – even old paintings or antiques. Even though Moody’s stated in their report on recent development on ABS market in December 2017 that “fully implemented blockchain is still some time away”, it has to be notified that while issuance of common securitizations stands idle, tokenization of assets seems to increase. It is to be said, that as long as mainstream follows conventional “Cryptocurrencies”, making a move in another direction and including Real Estate Backed Crypto-Tokens into your horizon, could set you ahead of the game. Nevertheless, in the end REBCTs are more or less unregulated investment vehicles that combine two markets, that are infamous for their fraudulency and lack of transparency. Proves for their long-term applicability and trustworthiness are still pending, leaving potential investors in uncertainty.

Furthermore, assets might not be the swiss

issue, please go back to “How to: Inflate a

army knife, as which they were praised ear-

Housing Bubble”. Finally, tokenization of

lier on. In the case of Real Estate, it is to be

assets may be the future, purified substitute

assumed that there is a mispricing of prop-

for securitization – but the risks attached

erty, which eventually will lead to a correc-

should legitimately scare any rational inves-

tion of some kind, reducing the applicability

tor off until a reliable and safe environment

of Real Estate as a stabilizer for Crypto-To-

is created.

ken prices. To find out more about that

Written by Johan ten Doornkaat Head of Research at EBS.Invest e.V. Layout/ Composition, Editorial Supervision & Chief Responsibility for Bull&Bear View LinkedIn Profile

www.ebs-immobilienkongress.de 20th of April 2018

The Digital Humans How will the digital nativeâ&#x20AC;&#x2122;s future workspace look like? What are the consequences for office buildings as an asset? Are online marketplaces going to fully displace shopping malls and how should Real Estate industry react?

Master in Management #2 in Germany #12 in Europe

Studentenschaft der EBS e.V. Real Estate Ressort

Master in Real Estate #1 in Germany #2 in Europe #3 in the world

RheingaustraĂ&#x;e 1 65375 Oestrich-Winkel Germany

Debt Capital Market Outlook The December 2017 edition of Bull & Bear

front load their annual funding ahead of

started off with a detailed report on the

potential European Central Bank tapering.

M&A market. Following the trend of including a market report, as you finish reading the first edition of Bull & Bear for the year 2018, you get a short summary of the happenings in the Global Debt Capital Market.

The astonishing risk-off sentiment in the second half of 2016 after the Brexit vote and the election of President Trump never materialised in 2017, despite troubling news that included ECB tapering, Brexit ne-

When it comes to the Global Debt Capital

gotiations, the German elections, North-

Market, 2017 was a year where outstanding

Korea tensions and the Catalonia crisis. Tak-

volume was raised across different curren-

ing a dive into the financial sector, discus-

cies. Concerning the corporate and SSA

sions around Banco Popular, Monte dei

bonds, a record amount was raised. The low

Paschi di Siena and the liquidation of Ve-

interest rate environment and support from

neto Banca and Popolare di Vicenza were

central banks were again major drivers of

also not given much importance by the

opportunistic issuance, pre-funding, and

market. Record volumes of high yield issu-

M&A financing. Maturity extension also

ers, return of Greece to the bond market

stayed high on the agenda, a good example

and the steady stream of new issuance

can be Austriaâ&#x20AC;&#x2122;s EUR 3.5 billion century

throughout the year points to the fact that

bond.

resilience is increasing in the debt capital

Looking at the investor perspective, it can

market.

be concluded that investors had a different

One particular theme attributed to 2017 is

view in 2017 compared to 2016. Due to fall-

the rise green bond market. While still very

ing commodity prices in the beginning of

small, it is no longer a niche market. It al-

2016, there was high volatility and record

ready crossed the EUR 100 billion equiva-

low volume of issued debt. In Q1 of 2017,

lent mark worldwide for the first time, and

political uncertainties in France and the

sovereign issuers entered the league with

Netherlands

Franceâ&#x20AC;&#x2122;s debut of EUR 7 billion green bond.

drove

many

issuers

If we consider the environment in the supras and agencies space, more than 70% of the top 35 issuers in EUR and USD have now issued green bonds and are committed to issuing them at least once a year. Issuance of green bond has become a global phenomenon,

with

strong

growth not only in China, but also more recently in Japan, India and Australia. Looking at all the trends in 2016 and 2017 it can be concluded that 2018 is not going to be as predictable as one might think it to be. There will be instances of market resilience due to political headlines such as the upcoming Italian elections, while tapering of European Central Bank, to which markets have so far refused to react negatively, will take full effect. Combining the political trends in Europe with that of US, it can be assumed that Federal Reserveâ&#x20AC;&#x2122;s expected rate hikes will put additional pressure on European long-term rates. In a nutshell, liquidity and risk appetite will remain conducive and new issue volumes will be broadly in line with what is observed over the last two years. Nevertheless, the outlook for the second half of the year is more uncertain, especially in Europe.

Written by Gautam Kumar Head of Research at EBS.Invest e.V. Chief Responsibility for Bull&Bear View LinkedIn Profile

Thank you very much for reading our second edition, this time about Real Estate Market! Once again, we hope it was as exciting to read as it was for us to create. Please keep in touch with us to receive the next edition. If you have any concerns, questions, business inquiries or further food for thoughts feel most invited to contact us.

Thanks to this edition’s team: Max Opoczynski, Pascal Jäger, Adrian Scheffler, Benedikt Kiefer, Dimitri Pickel, Luca Wombacher, Jannis Markgraf, Felix Heyd, Kilian Enders, and Heads of Research (Gautam Kumar & Johan ten Doornkaat) Layout/ Composition & Editorial Supervision: Johan ten Doornkaat Chief Responsibility: Gautam Kumar, Johan ten Doornkaat Photography: Felix Tholen Cover Page Design Annisa Qurratu'Ain