Report of the Management
Board for 1996
Trends in the real estate market
In the 1997 Real Estate Report, under the title 'Back to
the future', we examine a structural change in demand
for real estate, brought about by growing prosperity and
strategic changes in companies. Interest now centres on
property quality rather than the post-war need for
quantity ('a roof for everyone').
In the office market this is leading to demand for small
high-quality offices on the one hand, and the need for
efficient production premises on the other. In
retailing there are two different categories: luxury
centres geared to shopping and leisure and local shops
for 'forgotten' items. And in housing there is an evident
distinction between individually designed homes in the
top segment and marketable, reasonably priced homes
for the home-owner who wants to be flexible.
Real estate that fails to meet these requirements suffers
rapid economic ageing, which is bound to lead to
problems in selling. Solving this problem will be one of
the key questions in the development of real estate
markets during the coming years.
Another current trend on the real estate markets is the
strong demand from German investors: they are buying
only top-class property with long-term rental
agreements, and are satisfied with lower returns. Given
low interest rates and moderate inflation, that is a
reasonable approach, as much of the increase in value of
real estate was based on the decline in interest rates
over recent years. With interest rates at their current
levels, this is not likely to be repeated on the same
scale, so that it makes sense to buy locations which will
keep their value and have qualities which will still be in
demand ten years hence.
For a detailed account of the real estate market
including regional trends, we refer you to the Real
Estate Report 1997 published on February 21, 1997.
When publishing this report, we warned that a
protracted debate on the tax treatment of home
ownership could lead to a serious crisis in the building
and real estate sector if that debate coincides with the
supply of homes from the Vinex 'bulge' after the year
2000.
The Fourth Memorandum on Physical Planning-Plus
(Vinex) of December 1993 provides for the construction
of 650,000 homes between 1995 and 2005. Two-thirds of
these are meant to be built by the year 2000. However,
it is now clear that, should this number actually be
achieved, it will be necessary to work through a huge
backlog just before 2000, because there have been
serious delays in planning.
Meanwhile, the debate has also begun on the financial
relationship between government and home-owners,
focusing on such factors as assessable rental value,
mortgage interest, property tax and property transfer tax
but also on rent subsidies, investment premiums and
the like. In itself, the debate is obvious because the
Dutch regulations are unique in Europe. Harmonization
of the tax laws is bound to follow.
However, the outcome of this debate must not cause
people to incur heavier costs and thus inhibit home
ownership which, at 49%, is still well below the
European average. A protracted debate over the
relationship between government and the public
concerning the tax treatment of home ownership must
not be allowed to coincide with the supply of homes
from the Vinex 'bulge'. Such a situation would
seriously jeopardize the equilibrium on the housing
market and could disrupt market relationships for a
long time to come.
Recapitalization
A financial reorganization was carried out in the second
half of 1995. The rights to earnings accrued since 1987
were transferred to AEGON N.V. and past provisions
were added to the equity. As a result of these changes
non-interest bearing liabilities were replaced by
interest-bearing capital, in the amount of NLG 550
million. The additional interest charges totalling around
NLG 24.5 million depressed the result, but since the
profit was being made with a correspondingly smaller
amount of equity, the yield improved strongly.
For the sake of comparability we have adjusted the
results for 1995 shown below to allow for this interest
burden.
Financial results
Compared with the adjusted 1995 figures, the operating
result was virtually steady in 1996, i.e. NLG 110.8
million against NLG 110.2 million in 1995 (before
adjustment NLG 134.7 million).
The gross result on the core business improved slightly.
The net result of FGH BANK was slightly up at
NLG 84.5 million (1995: NLG 80 million, before
adjustment NLG 104.5 million).
Interest income includes a non-recurring revenue item
of NLG 21.3 million (1995: NLG 21.6 million) earned
from lending activities and derived from up-front fees
and prepayment penalties.
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