How you can finance a real estate purchase

Energy-efficient construction has been supported for many years by the KfW Banking Group and/or the Federal Office of Economics and Export Control (BAFA) in the

How you can finance a real estate purchase

Energy-efficient construction has been supported for many years by the KfW Banking Group and/or the Federal Office of Economics and Export Control (BAFA) in the form of low-cost loans or grants. But now banks and insurers are discovering green construction financing for themselves and are entering into competition, especially with the state-owned KfW. Real benefit or marketing gimmick?

Carsten Zimmermann is Chairman of the Board of the Bundesverband Baufinanzierung e.V., which supports its members in all matters relating to financing as well as the content and special features of the purchase and developer contracts. Previously, Carsten Zimmermann worked as a property developer and as a sales and credit manager in a Hamburg cooperative bank.

Building energy standard – a book with seven seals

Anyone who acquires a turnkey new building knows the energy standard of the property. An energy certificate is part of the standard of building documents. With used objects, you have to make the effort to have the energy requirement determined by an energy consultant. There are also programs for investigation on the Internet. However, a certain basic knowledge of the matter is necessary for this. Laws like the BEG tend to be understandable only to professionals. However, if you do not understand terms such as reference buildings, primary energy demand, transmission heat loss for understandable reasons and want to use it to a meaningful advantage for a cheaper construction financing loan, you can't help but get external help, according to Carsten Zimmermann of the Bundesverband Baufinanzierung e.V.

Exactly the classification that a building has, a new building will have and to which a second-hand property can be developed is decisive. The products on the market apart from the actual KfW products are based on the KfW standards or on minimum standards derived from the reference building.

Green construction – and what's behind it

KfW and BAFA are primarily responsible for promoting energy-saving real estate. It is supported by special credit programs and grants in combination. For those who do not need or apply for KfW loan funds, there are pure grant variants that correspond in amount to the grants in the loan program with the same energy standard. A KfW loan cannot be taken out directly with KfW. The contractual fixation is always carried out by a domestic credit institution. On the other hand, no institute is obliged to offer KfW products to its customers. If a bank or savings bank decides against trading through KfW products, it loses the important market in the area of new construction properties. Why? Building according to KfW standards is always seen in the context of KfW loans. Those who do not offer them are out of the choice of credit first.

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Why don't banks work together with KfW?

The reasons can be very diverse. Some also run on two tracks and offer their own construction financing with a green coat parallel to the KfW loan. First of all, you have to know that banks receive ongoing commission payments from KfW for negotiating KfW loans. This is their immediate yield. In this respect, an entrepreneurial weighing process takes place in the banks. The simple question arises: can a higher yield be achieved with one's own product? If this question can be answered with a yes, the loan is advantageous for the customer compared to the KfW funds or at least not worse, this is the basis for a new product. Let's call it Green Baufi. Such decisions are significantly influenced by the fact that banks and insurers have to pay negative interest rates for existing liquidity at the European Central Bank (ECB). Many bank customers are currently experiencing that more and more credit institutions are moving to recoup these costs in the form of penalty interest on deposits in part from the customer. However, banks and insurance companies are swimming in liquidity through deposits and contributions. The motivation is obvious to boost one's own lending business instead of paying penalty interest at the ECB.

What is green about construction financing?

In the first place, this should be the external effect of offering a green or similarly named product at all. Green attracts, green is sexy. Also on the investment side there are green products, mutual funds turn green and so on. Whole cohorts of consultants are on their way to give a clean image to an often scolded financing industry. Here the train is just slowly moving. The clear advantage is who gets out of the starting blocks quickly at the beginning of the journey. At some point, the effect will occur as with the promotion of KfW – 70 houses. What was innovative before becomes the standard, the promotion is abolished. If all banks are green at some point – whatever that means – the unique selling proposition is missing and the offer is arbitrary. So it's all a sham pack? No, absolutely not. It depends on the point of view. We cannot judge what steps an institute takes to become green. Perhaps it is already the measure to use 100 percent green electricity for the administration building. As Bundesverband Baufinanzierung e.V., we support our members in the development of an individually suitable financing structure. If a bank's own product is cheaper than a KfW loan, this is initially a purely economic criterion that speaks in favor of this product. It doesn't matter if it has a green, yellow or red coat.

Examples of green building financing products

The previous providers are based on the energetic building standard, often in direct reference to the KfW efficiency house standards. An example: KfW is discontinuing the promotion of KfW– Effizienz 55 houses as of 31.01.2022.

  • Surf tip: Apply quickly: Popular real estate promotion aid KfW 55 is running out

A well-known provider extends the option with its own product by two months. The interest rate is 0.1 percent cheaper than the standard product of the same institution. But watch out. A grant that is granted without a loan must also be made by the end of January 2022. Such an attractive offer tempts one to become careless at another point. KfW 40 or 40 plus efficiency houses are currently financed by this institute at a discount of 0.2 percent. At the beginning of the new Year, it rises to 0.4 percent compared to the standard product. Another bank offers mortgage loans at a discount of 0.1 percent if the maximum final energy value of the property of 75 kWh/m2 per year is not exceeded. This is clearly an offer that is also aimed at owners of existing properties, for example as part of follow-up financing.

Advantages of green construction financing for the customer

Whether there is an advantage of a green construction financing product can only be answered in comparison with other products. However, there are some aspects that you should pay attention to:

  • The benchmark for a green building is first the current KfW condition
  • Always make an interest rate comparison; green is not the same as inexpensive
  • You do not benefit from a high discount, but from a favorable interest rate
  • Get a current energy certificate early
  • Existing properties will increasingly fall into the funding circle
  • Banking products are often more flexible than KfW loans, e.g. for special repayments
  • Make sure that the requested grants may be included as special repayments

Conclusion: The market is in motion. Climate protection is a priority. New buildings are already designed to be climate-friendly today. The old stock is for the most part poorly insulated and equipped with outdated technology. Construction financing is only really green if it is a product with incentives for the existing sector. In addition, without massive additional subsidies, the necessary economies of scale will not be achieved. So maybe it's just about image maintenance. 

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Updated Date: 03 April 2022, 00:01

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