International Forum

Property Transaction in the Digital Age

Mülheim an der Ruhr30/09-01/10/2010

Otmar SchusterOtmar Schuster

Short Excerpt

Connection with Mortgaging

Short Excerpt

Connection with Mortgaging

ZENIT GmbH

• Public Private Partnership founded in 1984 to support structural change in our region, about 50 employees, turnover (2009) 4.9 million €

• Shareholders: Netzwerk ZENIT e.V., State of North Rhine-Westphalia, and a consortium of banks

• Mission: To promote innovation and technology, above all in small and medium-sized enterprises, in North Rhine-Westphalia

Who we are

ZENIT GmbH

What we do

Europe

• Mediation of cooperation partners

• Information on European Single Market

• Support in internationalisation

Funding

• Consulting/information on national/EU funding programmes

• Evaluation of project ideas and proposals

Technology & innovation

• Initiation of international technology and know-how transfer

• Support of innovation management

• Technology and innovation assessment

• The largest business support network in the world with close to 600 organisations in 45 countries

• All EU services for business and science from one source

• Regional, national, EU, and international networking

• Key feature is 17 Sector Groups

• NRW.Europa is the Enterprise Europe Network node for North Rhine-Westphalia, in a consortium with NRW.Bank

ZENIT GmbH

Core project: Enterprise Europe Network/NRW.Europa

www.nrw-europa.dewww.enterprise-europe-network.ec.europa.eu

North Rhine-Westphalia (NRW)

Key data* – A region on the scale of a nation

• Population 17.9 million (= Australia or Taiwan!)

• Population density 526/km2 (Germany=231, EU=112)

• GDP 522 billion Euro

• Imports 148 billion Euro

• Exports 139 billion Euro

(17.1 % of Germany’s exports are“Made in NRW”)

* 2009

Source: © NRW.INVEST GmbH, Knowledgebase NRW, 7/7/2010

• 20 of the 50 largest enterprises in Germany have their headquarters here

• There are 763,000 SMEs in NRW (99% of all enterprises)

• 150 million consumers are within a day’s truck journey

…and one of the densest R&D landscapes in Europe

• 54 non-university research institutions

• 68 universities and technical colleges with 478,000 students

• 30 technology transfer units at universities

• 48 technology centres and incubators

North Rhine-Westphalia (NRW)

An economic powerhouse...

Digitalisation

Growth sector: Digitalised information, created, captured and replicated worldwide

Graph kindly provided by IB

M Z

urich Research L

aboratory

Digitalisation

Not just technologies and appliances

• Consumer market (e.g. eCommerce, “online shopping”)

• Services sector (e.g. online banking, utilities, cell phone industry, insurance companies)

• Public sector (e.g. eGovernment, eHealth)

Digitalisation

What is the Digital Agenda for Europe?

The DAE is:

• Europe's strategy for a flourishing digital economy by 2020

• An agenda outlining policies and actions to maximise the benefit of the “Digital Revolution” for all

To achieve these goals, the European Commission will work closely with national governments, enterprises and other relevant stakeholders

An annual “Digital Assembly” will bring stakeholders together to assess progress and emerging challenges

DuisburgDuisburg

Unbuilt plotsUnbuilt plots

Built up plotsBuilt up plots

condominiumscondominiums

DuisburgDuisburg

condominiumscondominiums

Built up plotsBuilt up plots

Unbuilt plotsUnbuilt plots

Duisburg – a livable town

The Role of the Digitization

Digital Economy• The Data Base for the Transaction Property Register Company Register List of Debtors and List of Insolvency Property Cadastre in Spatial Data Infrastructure BORIS.NRW a Success Story • Methods and conditions in financing

What has to be discussed?

• Security?• Efficiency – economic benefit• Transparency or the need of data protection?• Protection of Trust for the parties?• Proven and / or new financial products?• Geo-information and the link to the ground• Replicability – and its conditions.• Remuneration and allocation of work – fields to stumble

across

in bn. €

Cross border finance: still small for residential real estate, but growing for commercial real estate

Cross-border property loans of former Pfandbrief Banks (held at 31st Dec.)

B) Demand for Information

..

Eligible for Pfandbrief cover pool:

EU, EWR, Switzerland,USA, Canada, Japan

As at: 5.1.2007

B) Demand for Information

courts

an independent public authority

a public authority subject to instructions

II.1 Who keeps the land register?

3

2

1

JP

D) Legal Structures of Land Registers

Mortgage Pfandbrief cross border assets (Dec 09)

bn

Eu

ro

total cross border46 bn €

Source: vdp, Pfandbrief banks’ disclosure acc. Art 28 Pfandbrief Act

B) Demand for Information

proprietorship, security rights and other limited

rights over real property

proprietorship and other limited rights over real property, particular

register for security rights

II.2 Which rights are registered?

2

1

JP

D) Legal Structures of Land Registers

II.3 Are contracts and disposals over real property concluded before a notary?

yes, mandatory by law

notaries do exist, but areusually not involved

in property transactions

yes, not mandatory for all types of transactions, but common in

practice (e.g. for the purpose of third party protection)

use of notary not mandatory, but common in practice

5

4

3

2

1JP not before notaries but usually

with the assistance of specialised advocates or professional third parties

D) Legal Structures of Land Registers

joint administration of land register and cadastre

completely separate, but the land register

refers to the cadastre

there is no cadastre

II.4 What is the connection between the land register and the cadastre?

3

2

1

JP

D) Legal Structures of Land Registers

II.5 Are buildings part of real property (apart from rights equivalent to real property) or are they legally separate and registered separately?

part of the real property (superficies solo cedit)

very often still legally separate, but consolidation is possible

always legally separate

not part of the property, but the real property and the buildings can only be mortgaged jointly

4

3

2

1

JP

D) Legal Structures of Land Registers

yes, with the effect that the rankis reserved against anybody

yes, by a mention in the margin of the register with the effect that the rank is reserved in the registration

procedure

no

II.6 Can requests for registration be indicated even before registration of a mortgage?

yes, with the effect that the rankis reserved against anybody, but for a limited period of time

5

4

3

2

1JP

no, but the register can be blockedfor a certain period (“freeze")

D) Legal Structures of Land Registers

exclusively by documents authenticated by a notary

a notarial certification of the signature is enough, however, documents authenticated by a notary are

commonly used in practice

by a signature certified bya notary, court or advocate

by documents in writing

II.7 How is the grantor’s consent to registration verified?

by the assistance of a notaryor use of bank documents

5

4

3

2

1JP

D) Legal Structures of Land Registers

joint administration of land register and cadastre

completely separate, but the land register

refers to the cadastre

there is no cadastre

II.4 What is the connection between the land register and the cadastre?

3

2

1

JP

D) Legal Structures of Land Registers

registration of rights

collection of documentsfrom which rights appear

II.8 What is the basic structure of the register?

2

1

JP

Eurohypothec according to Basic Guidelines:

D) Legal Structures of Land Registers

complete electronic procedures (e-conveyancing) without interference

of a neutral keeper of the registry

supra-regionalelectronic database

electronic access, but regionally limited

II.10 How is the register technically designed?

4

3

2

1

register kept on paper only

JP

D) Legal Structures of Land Registers

yes

under consideration

II.11 Is electronic access from other countries via EULIS(European Union Land Information Service) possible?

free cross-border access to the register over the internet

in preparation

for the time being not planned

5

4

3

2

1JP

Eurohypothec according to Basic Guidelines:

E) Protection of Trust

Covered Bonds: Common Basic Principle

Payment claims of investors are covered by assets ( in this case: real estate assets ) and income streams generated by these assets. The related legal basis – in particular coverage requirements - can be

Statutory, i.e. prescribed by law– examples: Covered Bonds, defined and regulated by several EU

jurisdictions, e.g. German Pfandbriefe

Contractual, i.e. based on individual documentation– examples: non-regulated Mortgage Backed Securities; recent Sukuk

issues

Volker Kerl, Otmar Schuster, 2003Volker Kerl, Otmar Schuster, 2003

Lessons of the Credit Crisis

Strictly regulated statutory covered bonds have weathered the crisis fairly well, compared to other wholesale funding instruments.

There was a reasonable degree of secondary market liquidity for classified covered bonds under European and other international regulation, whereas the MBS markets practically dried up.

Although related spreads had widened significantly during the crisis, they have come down dramatically in the meantime.

– Crisis Peaks between 380 bps ( Irish CBs ) and 140 bps (German „Pfandbriefe“ );

– „Pfandbriefe“ spreads have come down to levels around 10 bps– * 1bp = 1/100 percentage point. The spread over mid-swap is an indicator of the price of funds.

The resilience of covered bonds depends on– the quality of cover assets;– the strictness of regulatory requirements;– the soundness of the governing jurisdiction, in particular the

certainty of property rights.

Quelle: LBBW Credit Research, iBoxx

Covered Bond swap spreads (bp)

Mortgage and Public Pfandbrief not affected by financial turmoil to the extent observed in other European Covered Bond markets Copyright: VdP Verband deutscher Pfandbriefbanken

... in secondary markets

-200

20406080

100120140160180200220240

07.0

3.20

07

07.0

5.20

07

07.0

7.20

07

07.0

9.20

07

07.1

1.20

07

07.0

1.20

08

07.0

3.20

08

07.0

5.20

08

07.0

7.20

08

07.0

9.20

08

07.1

1.20

08

07.0

1.20

09

07.0

3.20

09

07.0

5.20

09

07.0

7.20

09

07.0

9.20

09

07.1

1.20

09

07.0

1.20

10

Gesamtmarkt France Covered Legal Hypothekenpfandbriefe Oeffentliche Pfandbriefe Portugal Covered Spain Covered SingleSweden Covered UK Covered

beginningUS-subprime

crisis

Insolvency Lehman Brothers

ECB Covered Bond Purchase Program

announced

Covered Bonds: Recommended Requirements –

Certainty of Property Rights

The soundness of the governing jurisdiction, in particular the certainty of property rights, is a major factor in attracting investors. Therefore, the methodology of Rating Agencies caters for jurisdiction-based rating uplifts. Basic legal requirements:

Clearly defined and enforceable property rights covering ownership, transfer and collateral for claims;

Property rights must be unambigously allocated to owners and beneficiaries.

– This can be achieved by official registers established with public faith. Property rights must be unambigously allocated to the underlying physical

real estate.– This can be achieved by land registers based on an official public

cadastre. The judiciary system must ensure reliable and speedy enforcement and

execution of property rights.

Covered Bonds: Recommended Requirements – Further Legal Basics

The soundness of the governing jurisdiction has to include:

A clearly defined and enforceable legal basis for securities, transfer of claims and rights, and securitisation;

clearly defined and enforceable corporate law in respect of issuing entities;

a clearly defined and enforceable legal basis for insolvency and insolvency remoteness.

Thank You for listening!