Are waves of bankruptcies threatening the financial sector?
The corona crisis is having an enormous and hitherto unpredictable impact on the global economy. The economic crisis threatens to turn into a financial crisis if companies are no longer able to cover loans from banks. Vacant retail space and vacant hotels mean plummeting returns for investors who have invested in commercial real estate. How can investors protect themselves from recession? Private investors should ensure that they do not invest in blind pools, but in individual, concrete properties that are transparently comprehensible.
From economic crisis to banking crisis?
Business was closed for weeks during the corona crisis. Although the buying mood among consumers is now recovering, some sectors, such as the luxury goods market, the tourism sector and companies operating abroad, have suffered significant slumps. Recession and declining sales are threatening not only retailers, but also large corporations. Without income, traders cannot pay rents or loans. Short-time work and insolvencies are imminent. Medium-sized companies have loans in the tens of billions of euros outstanding, particularly from savings banks and cooperative banks.
The question is whether an ongoing economic crisis could also result in a banking crisis. In a recent study, the Leibniz Institute for Economic Research Halle (IWH) has questioned the extent to which the current economic crisis caused by the corona pandemic can also affect the banking sector. The result is worrying. Even in the best case scenario with a rapid economic recovery, around 6% of German banks could get into serious difficulties as a result of defaulting loans. If the scenario is even more pessimistic and the crisis persists even longer, as many as 28% of banks could get into serious difficulties. The loans at risk amount to between 127 billion euros and 324 billion euros.
A banking crisis as a result of economic turmoil can therefore certainly be assumed to be likely. Investors should also draw conclusions from this in their personal investment strategy. Particular caution is currently being exercised in the investment sector for commercial real estate. After all, anyone who invests in commercial real estate that suddenly no longer generates income and can no longer service their loans must reckon with loss of assets.
Open-ended real estate funds — the asset class has been shaken by the crisis
Open-ended real estate funds are particularly affected by the corona economic crisis. For a long time, open-ended real estate funds were considered an extremely secure asset class. However, the composition of real estate can vary significantly from fund to fund. Funds with a high share of commercial real estate have long been a guarantee of secure returns and dividends of around 3% per year. However, the recent economic downturn caused by the corona lockdown has shaken open-ended real estate funds.
Failure to pay loans and vacant real estate could significantly weaken performance. Rating agency Scope has already downgraded the ratings of twelve of 15 German open-ended real estate funds. The downgraded funds include the four top sellers Hausinvest, Deka Immobilien Europa, Uniimmo Europa and Uniimmo Deutschland. According to Scope, it can be assumed that the returns on this type of investment will fall significantly to around 1.5% to 2%. When private investors invest in funds, they should be aware of the specific risks that the long-term consequences of the corona crisis will still entail.
Tokenization of individual properties — benefit from real estate in a personalized way
Investing in an open-ended real estate fund certainly offers advantages. Private investors acquire shares in a broad pool of real estate and can thus offset rent losses of individual properties and mitigate the negative effects on returns. But on the other hand, it is very difficult for you to overview the exact portfolio of properties, let alone choose for yourself. They therefore invest almost blindly in a selection of buildings without being able to assess their potential or the risk of vacancy.
One way out of these often opaque investments in real estate pools is to invest in individual, specific real estate properties. However, these are usually very expensive and not feasible for most private investors. Blockchain technology, which can be used to sell, trade and sell tokens in a forgery-proof manner, offers a possible way out. Real estate can be divided into digital tokens, which are then made available to investors for purchase via blockchain. Thanks to digital shares, retail investors can invest in individual properties and are not stuck in a pool.
