Germany’s equity-release experiment heads for regulation

Germany’s Teilverkauf (partial sale) market is entering a decisive phase. In mid-January, the Federal Association for Real Estate Retirement (BVIV) published a legally reviewed model contract — the clearest attempt yet by the sector to professionalise ahead of expected regulation. The move follows years of operation in a legal grey zone and sustained criticism from consumer advocates and regulators.

For investors observing the overlap between residential property, retirement finance and long-duration income streams, the move is less a signal of renewed growth than of defensive consolidation. The industry is preparing for scrutiny, not expansion.

For REFIRE's international readers, it is worth underlining just how young Germany’s equity-release market still is. In the UK and the US, equity release in various forms has long been embedded in retirement planning, supported by established market infrastructure, underwriting standards and, in the UK’s case, a sizeable and well-documented lifetime-mortgage sector with thousands of active customers and quarterly lending volumes in the hundreds of millions.

Germany sits at the opposite end of the spectrum. Household leverage is culturally sensitive, owner-occupied housing is treated conservatively, and financial innovation linked to residential property is scrutinised closely by regulators and consumer advocates alike. Against that background, Teilverkauf is not merely a new product but something of a cultural outlier. That helps explain both the intensity of the public debate and the industry’s eagerness to impose contractual order and comparability before lawmakers do it for them.

Standardisation as pre-emptive compliance

One of the most persistent criticisms of partial sale models has been the opacity of their contracts. Consumer protection bodies and policymakers have repeatedly argued that homeowners were being asked to commit to complex, long-term arrangements without sufficient transparency or comparability.

The BVIV’s response is a publicly accessible model contract that discloses more than 90% of the contractual content typically used by affiliated providers. Only transaction-specific variables – price, share sold and individual conditions – are left open. The contract sets out, in full, how usufruct rights work, how usage fees are calculated, what powers of attorney apply, how value appreciation is treated, how buyback rights function and how a full sale proceeds. It is accompanied by a cost overview, a structured FAQ and explanatory guidance.

Use of the model contract is recommended rather than mandatory, reflecting antitrust constraints. Even so, the initiative directly addresses demands made by consumer protection organisations and by Germany’s Consumer Protection Ministers’ Conference in 2024. It also reflects a growing recognition within the sector that voluntary transparency may be preferable to externally imposed rules.

Alongside the contract, the BVIV has introduced further comparability measures. All members now provide a Key Information Document modelled on European PRIIPs standards, summarising purpose, functioning, risks and costs. Sample calculations must be published using a uniform assumed annual performance of 2%, making cost structures, repurchase scenarios and profit distributions easier to compare across providers.

From an investor’s perspective, this distinction matters. These steps improve visibility and standardisation, but they do not alter the underlying economics of partial sales. Usage fees remain recurring charges linked to the sold share, maintenance obligations largely stay with the occupier, and exit outcomes continue to depend on property values and longevity assumptions.

Regulatory pressure and unresolved criticism

The timing of the BVIV initiative is no coincidence. Partial sale models have long attracted warnings from the financial watchdog BaFin, which has highlighted risks ranging from misleading advertising and escalating costs to insolvency scenarios involving partial buyers. Consumer advice centres, including the Verbraucherzentrale, have gone further, repeatedly warning that Teilverkauf can become a cost trap for older homeowners. Recent media coverage has reinforced this narrative, portraying the product as expensive, complex and weakly regulated.

Against this backdrop, BVIV board member Christoph Sedlmeier framed the model contract as groundwork for regulation rather than a final solution. “As an association, we have always said that a fair partial sale needs rules,” he said, welcoming the fact that lawmakers are now preparing legal regulation. The message is clear: the sector wants to help shape the regulatory framework rather than react to it.

Critics, however, remain unconvinced that transparency alone resolves the core issues. Providers of alternative equity-release products, particularly senior loans, argue that partial sale remains structurally inferior. Unlike senior loans, partial sales introduce co-ownership, limit freedom over major refurbishments and typically involve higher ongoing costs.

Particular criticism continues to focus on contractual value guarantees, often referred to as the “117% rule”, under which partial buyers are assured a minimum uplift on invested capital even if the property underperforms. Should sale proceeds fall short, the original owner must make up the difference. From a risk-allocation perspective, critics argue, the downside remains heavily skewed. These features are not addressed by the new model contract.

What this means for investors

For investors, the key takeaway is not growth, but governance: formal regulation of the partial sale market now appears inevitable. Likely outcomes include mandatory disclosures, clearer product classification and stricter conduct requirements. Thanks to the BVIV’s preparatory work, much of the technical architecture for such a framework is already in place.

For institutional capital, this improves legal clarity and reduces reputational uncertainty, making partial-sale portfolios easier to analyse, finance and potentially structure. At the same time, heightened oversight will constrain aggressive pricing and limit the scope for opaque innovation.

Partial sale therefore remains a niche exposure rather than a mainstream real estate strategy. Its appeal lies in long-duration cash flows and demographic tailwinds. Its constraints lie in complexity, longevity risk, political sensitivity and persistent public scrutiny.

The publication of a model contract does not transform the product. It signals a sector attempting to stabilise itself before regulation arrives – a shift from legal ambiguity to cautious standardisation. Whether that is enough to secure long-term investor confidence remains an open question.