Real estate investors warn of regulatory ‘wall of debt’
Property managers have warned of the negative impact that incoming banking and insurance company regulation is already having on deals, saying it is “paralysing” the market according to IP Real Estate.
At the recent IPD European Property Investment conference in Frankfurt, several speakers highlighted the problems posed by the impending introduction of both Solvency II and Basel III and how the stricter capital requirements amounted to a “wall of debt”.
Michael Morgenroth, chief investment officer at Signa Holding, said Germany in particular had seen allocation to real estate fall as a result of the incoming regulation.
“It’s harming the ability of refinancing on the one hand and on the other hand, asset allocation of insurance companies is more and more driven by risk consumption,” he said, noting that this allocation based on capital consumption was resulting in lower property exposures.
Philippe Depoux, chief executive of Generali France Immobilier, meanwhile highlighted that Solvency II was far from being a done deal and that direct investments therefore remained of interest for those active in the market.
He nonetheless was far from positive about the impact of the new European Union legislation for insurers, saying: “Solvency II is like a wall of debt.”
Current proposals will see insurers subject to a 25% capital charge on direct investment, with IPD co-founding director Ian Cullen calling the measures “draconian” and calculating that a 17% charge would be sufficient – based on analysis of the European property sector during the crisis.
Wenzel Hoberg, European head of real estate at the CAD161bn (€126bn) Canada Pension Plan Investment Board, said the European market had seen a lot of activity from international investors, but that domestic players were less interested.
Discussing Solvency II and the insurance industry’s attitude towards it, he said: “They all know it’s coming, but they don’t know what’s coming, so it’s really paralysing the market at the moment.”