Outlook for real estate
non-recurring income items. Contrary to 2013, there were only limited downward valuations of
land positions and revaluations of land operations in 2014. Downward valuations of commercial
real estate holdings were also down and the sale of the PalaisQuartier was achieved with a book
profit in 2014. Residential property sales also rose. Due to these developments, the other results
increased by EUR 817 million to EUR 261 (-556) million.
Operating expenses down 8%
Total operating expenses in the real estate segment fell 8% to EUR 311 (339) million in 2014.
This was mainly due to a decline in other administrative expenses. A reorganisation provision was
formed in 2013 as a result of the phase-out of the activities of MAB Development. The expense
associated with this was recognised under other administrative expenses. It was mainly the
absence of this item that caused other administrative expenses to fall 13% to EUR 104 (119)
million. Staff costs rose 3% to EUR 198 (193) million due to the hiring of temporary personnel
and higher pension expenses. Since the intangible non-current assets of Bouwfonds Holding
had already largely been amortised in 2013, depreciation and amortisation fell by EUR 18 million
to EUR 9 (27) million.
Bad debt costs at 364 basis points
Despite the modest improvement in the Dutch economy, bad debt costs for Rabo Real Estate
Group for commercial real estate were still high in 2014. This is partly due to the fact that the
market for real estate finance is late-cyclical in nature. This means that it takes longer for an
economic recovery to be reflected in the figures. Furthermore, the market is still dealing with
long-term developments that have led to an excess of supply. Bad debt costs at the real estate
segment amounted to EUR 656 (513) million and thus amounted to 364 (278) basis points of
the average loan portfolio, against a long-term average of 53 basis points.
Regulatory capital declines
The regulatory capital or external capital requirement for Rabo Real Estate Group declined
to EUR 1.3 (1.6) billion in 2014. The fall in credit risk was to some extent offset by a rise in
operational risk. Credit risk declined due to the phasing out of non-core assets combined with
higher bad debt costs.The economic capital or internal capital requirement declined to
EUR 1.5 (1.9) billion.
Rabo Real Estate Group began to improve in 2014. The condition of the real estate market is
expected to improve further and the result will also recover in line with this. The improvement
in the housing market is expected to continue in 2015 and the number of sales and the level
of prices are expected to rise. Stricter standards for granting mortgages will however be an
obstacle to the recovery of prices in the housing market. There are also regional variations and
the developments depend on the level of mortgage interest rates. Overall, the recovery in the
housing market will be gradual. The market for commercial real estate is late-cyclical, meaning
that customers of FGH Bank can expect another difficult year in 2015.This is also expected to
be shown in higher bad debt costs at FGH Bank in 2015. Bouwfonds Investment Management
is undergoing a strategic reorientation. The company will focus more on its core businesses
in 2015: investing in commercial real estate, housing, parking garages, communication
infrastructure and agriculture and farming.The Fondsenbeheer Nederland unit will also
undergo a strategic reorientation in 2015.
Annual Report 2014 Rabobank Group
