Bausparen – A Success StoryMobilizing Savings for Housing

3

Even during the financial crisis, the

Bauspar system already established in

Germany for decades together with its

stabilizing impact acquitted itself

admirably. For one thing, Bausparenis an instrument for building personal

funds. Bauspar customers have con-

trol over their savings and therefore

require fewer loans. For another, those

customers receive loans at lower, fixed

interest rates. Guaranteed interest

rates contribute to the stability of an

individual’s construction financing

and stabilize the market as a whole.

In addition, the Bauspar system provi-

des a special architecture for safety. In

Germany, this is set down in a special

law, the Bausparkassengesetz or “Bau-spar Institutions Act”, and is monitored

by the German banking regulatory

authorities. Customers' savings ac-

counts and the Bauspar institutions'

loan obligations are protected by law.

This makes Bauspar institutions a ref-

uge of stability in the financial markets –

yesterday, today, and tomorrow.

On the following pages you can read

how Bausparen works, what effects the

economy experiences, and what coun-

tries have successful track records with

Bausparen.

I hope you enjoy your reading and find

it informative.

Schwäbisch Hall, August 2011

Dr. Matthias Metz

Chairman of the Management Board

Bausparkasse Schwäbisch Hall AG

Dr. Matthias MetzVorstandsvorsitzender

Dear Reader,

Many people all over the world harbor

the dream of owning their own home.

Having a dwelling is one of our basic

needs in life, and people go to great

efforts to make this dream come true:

They save, they go into debt, they take

construction and modernization work

into their own hands. For most people,

an investment in their own house or

their own apartment is the largest one

they will make in their lives. Inexpensive

and safe financing instruments are in-

tended to help when taking the risk of

such a large investment.

Bausparen (Contractual Savings for

Housing) is a tried and true model for

success with a long history. After World

War II, they made key contributions to

the reconstruction of our country.

Bausparkasse Schwäbisch Hall has dis-

bursed more than 273 billion euros in

Bauspar funds since 1948, co-financing

the construction, purchase, or moderni-

zation of roughly 7.9 million apartments

and houses.

4

Reaching the Goal Faster, Together

How Bausparen Works

Bausparen (Contractual Savings for Housing) constitu-

tes a simple and effective financing system for anyone

who wants to build, buy, or modernize a house or

apartment. Let’s look at the basic principle: Mr. Fox

wants to build. Every year, he can save one tenth of the

total amount he will need. Using this method, he will

need ten years to turn his dream of owning his own

home into a reality. However, if Mr. Fox teams up with

nine friends who also want to build, he will be able to

build after only one year. This is how it works: Mr. Fox

and his friends all deposit their yearly savings payments

into a common fund and issue loans to one another.

This allows Mr. Fox to begin after only one year. To do

so, he uses his own savings that he has deposited and

those of his friends. In the second year, the second

friend can build. He also uses his own savings, those of

his friends, and the first repayment installment from

Mr. Fox. In the third year, the third friend begins, and

so on. On average, all ten friends can begin building

after about five years. The basic idea is delightfully

simple – and this is called Bausparen.

German Bauspar institutions have spent the last few

decades refining the concept of the savings association.

The modern system is no longer limited to a specific

number of people; instead, this has been expanded over

time. Today, all of the savers in the Bauspar association

secure incoming funds. Funds are distributed on the

basis of a mathematical formula that focuses on the

factors of time and money.

Model with two Phases

From the customer’s point of view, the practice of Bau-sparen progresses in two phases: During the savings

period, the customer regularly saves a specific amount,

thereby building up the balance in his Bauspar account.

The loan phase begins with the so-called “allocation”:

The contractually stipulated Bauspar sum is paid out to

the customer. This sum is made up of the balance saved

up by the customer and the Bauspar loan. The customer

makes monthly payments to repay the loan.

This system offers many advantages:

A solid basis: By saving this way, Bauspar customers

build up their personal assets and thus the foundation

for solid housing construction financing. The amount

of the total to be financed stays within tolerable limits.

Not dependent on the capital market: Bausparcustomers' savings are used for the issuance of loans.

This closed system makes it possible to provide low

interest rates on the loans, and customers don’t need

to depend on developments in the capital market.

Fixed interest rates: The interest rates during the

savings period and the loan phase apply for the whole

term, starting from the date the contract is signed.

Bauspar customers also acquire a legal right to the

Bauspar loan once the contract is signed. Consequent-

ly, they already know today what their loan will cost

tomorrow, the day after tomorrow, or in ten years. By

contrast, the interest rate on mortgage loans dependsNearly everyone dreams of having their own four walls.

5

on the situation in the capital market, or more precise-

ly, on the interest rate at which the lending institutions

are obtaining financing for themselves. Customers thus

take the risk that the interest rate will go up.

Safe investment: Bausparen is absolutely safe. The

German legislature has created a reliable legal frame-

work that imposes the strictest of regulations on

Bauspar institutions and protects customers’ savings

accounts. Bauspar institutions issue loans exclusively

from the funds they have available. Thanks to this

self-enclosed system, not one Bauspar customer lost

even a cent during the financial crisis.

Flexible products: Bauspar customers can choose

between different rate plans, allowing them to tailor

their housing construction financing to their individual

needs. Many different housing-related dreams can be

financed with Bauspar funds – from the alarm system

to the second garage.

Whether new construction or modernization – Bausparen makes it possible.

How Bausparen Works:

66

Impetus for Housing Construction and the Economy

Bausparen Provides Advantages – For State and Society

Having a dwelling is one of humankind’s basic needs.

Providing the population with sufficient housing was

and still is a mission of the state in many countries.

Today, having private investors relieve the state of the

burden of providing housing is more necessary than ever

before. What can a government do in order to mobilize

private capital for housing construction?

One effective and efficient measure is the introduction

of Bausparen (Contractual Savings for Housing). The

sole purpose of Bausparen is to finance housing,

thereby providing direct support for housing policy.

Bausparen promotes the creation and maintenance

of owner-occupied homes. This in turn provides an

essential contribution to asset accumulation as well as

to the social safety net and retirement funding for

large swaths of the population.

Bausparen combines saving and financing into a single

product. Building up savings does give the individual a

certain amount of personal assets, but that’s not all.

There are also elements to saving that have practical

effects on the economy. These curb unbridled consump-

tion and combat inflationary tendencies.

Building personal assets is an important prerequisite

for later acquiring your own home, or renovating or

modernizing a home you already own. People who

save on a regular basis learn to restrain their consump-

tion and, generally speaking, it is easier for them to

repay their loans later. Bausparen is thus educational.

It has been statistically shown that on a yearly basis,

Bauspar customers in Germany save around twice as

much money as those who don’t participate in this kind

of saving. Over the course of their lives, homeowners

in Germany acquire around nine times the amount of

assets that renters do. And Bauspar customers are

more reliable in repaying their loans. In Germany, the

Bausparen leads to building homes – not only does this benefit housing construction, it benefits the entire economy.

77

default rate for loans issued by Bauspar institutions is

only a handful per thousand.

Funds issued by Bauspar institutions go directly into

construction investments: In Germany, roughly one third

of Bauspar funds are used to finance new construction

and real estate purchases. Today, the lion’s share of this

flows into new, energy-efficient building projects that

lower operating and heating costs and CO2 emissions.

Nearly two thirds of Bauspar funds are used for renova-

tion, energy-efficient refurbishment, or house and apart-

ment modifications to suit the residents’ age.

The continual flow of Bauspar funds has a stabilizing

effect on the entire economy. Housing construction

creates revenues and jobs for the construction trades,

small firms, mid-sized companies in the construction

industry, as well as independent contractors such as

architects, engineers, structural engineers, and apprai-

sers. In Germany, the construction industry contributed

some 10 percent of the entire gross domestic product

in 2010; around 8 percent of the working population is

employed in the construction industry.

The state profits from a flourishing housing construc-

tion industry as well: More jobs means less government

assistance for the unemployed. In addition there are

higher tax revenues from sales taxes on housing con-

struction revenues as well as payroll and income taxes

on workers employed in the construction industry.

This far outweighs the government’s investment in a

housing construction subsidy.

Government Premium as Incentive for Saving

A government Bauspar premium is of crucial import-

ance for the long-term success of Bausparen – this

enables the state to make Bausparen even more ap-

pealing. For example, a government premium can act to

compensate for inflation. At the same time, the state is

carefully directing the investment of its citizens’ assets

into safe financial products, therefore a government

premium also functions as a seal of approval.

In many countries, Bausparen thus makes a significant

contribution to a sustainable social and economic policy.

The financial crisis has shown that countries with Bau-spar systems weathered the crisis considerably better

than nations without this financing system.

Safety is the Highest Priority

Contrary to other real estate financing options,

Bausparen constitutes by and large a closed

system that is relatively independent of the

fluctuations of the capital market. Customers'

savings are only disbursed to other customers as

loans. Bauspar institutions are prohibited by

law from investing money in risky financial

products. Maximum safety for customers’

savings is a key element of the Bauspar system

philosophy. Bauspar institutions in Germany

are therefore strictly regulated by a banking

law and the supplemental Bauspar Institutions

Act. The latter stipulates strict provisions

concerning the investment options open to

Bauspar institutions, while the issuance of

loans is also subject to strict criteria. So Bau-spar customers’ savings accounts are not only

absolutely safe, but Bauspar institutions’

payment obligations are also backed by a

fluctuation reserve required by law. This

system for ensuring safety proved itself just

recently during the financial crisis.

8

Bausparen as an Export Success Story – “Made in Schwäbisch Hall”

The Market Leader for Decades

With 6.8 million customers, Schwäbisch Hall is Germa-

ny’s largest Bauspar institution and the market leader.

Since the company was first established in 1931, it has

been a permanent fixture in the cooperative banking

sector. Its owners include DZ BANK AG of Frankfurt

am Main, which holds 82 percent, WGZ-Bank AG of

Dusseldorf, which holds 15 percent, and some 600

cooperative banks.

The company sells its financial products through the

approximately 1,200 cooperative banks, which with

12,000 business locations form one of the densest

banking services networks in Germany. Moreover,

Schwäbisch Hall has 3,800 of its own sales consultants

working in the field, enabling it to maintain a presence

everywhere in Germany. Together with the 3,200 em-

ployees who work at headquarters, they ensure that

customers receive competent advice and customer

service. Schwäbisch Hall customers hold 7.6 million

Bauspar contracts totaling nearly 250 billion euros.

The company sells almost a million new Bausparcontracts a year worth around 30 billion euros. The

annual volume of private housing construction loan

business is 10 to 15 billion euros. Schwäbisch Hall is

thus one of the largest financiers of residential real

estate in Germany.

Bausparen Proves Successful Internationally

The amendment of the German Bauspar Institutions

Act in 1991 made it possible for Bauspar institutions to

establish affiliated companies in foreign countries. At

the same time that the planned economic systems in

Eastern Europe were collapsing and transitioning to a

market economy, the demand from the citizenry for

ways to finance new housing construction and moder-

nization financing was also rising rapidly. Of course,

the state banks in these countries were not prepared for

private housing construction financing: Loan interest

rates of more than 20% made it impossible for private

individuals to repay loans, while high inflation also put

a damper on household savings behavior. The new

market economies considered Bausparen (Contractual

Savings for Housing) to be an attractive and suitable

system for financing the required investments in

housing construction. As a result, they supported the

Schwäbisch Hall is Germany’s largest Bauspar institution and the market leader.

9

Schwäbisch Hall has been establishing affiliated companies in other countries since the beginning of the 1990s.

introduction of this financing system by creating the

underlying legal conditions and introducing a lucrative

government subsidy for Bauspar customers.

Schwäbisch Hall is a Pioneer Abroad

Foreign business is an integral part of corporate strategy.

Today, Schwäbisch Hall has holdings in five Bausparinstitutions in the Czech Republic, Slovakia, Hungary,

Romania, and China. These affiliated companies have a

total of 3.4 million customers with nearly four million

Bauspar contracts and 7,600 employees. Almost all of

the affiliated companies are market leaders in their

countries. Schwäbisch Hall was a pioneer when it came

to exporting German Bausparen. Together with part-

ners, it founded the Bauspar institution Prvá stavebná

sporitel'na, a.s., PSS (“First Savings and Loan”) in

Slovakia as early as 1992. In 1993, the Ceskomoravská

stavební sporitelna, a.s., CMSS (“Bohemian-Moravian

Savings and Loan”) was launched in the Czech Repub-

lic. In Hungary, Schwäbisch Hall introduced the con-

cept of Bausparen with what is today the Fundamenta-

Lakáskassza Lakás-takarékpénztár Zrt. (FLK) in 1997. The

first Bauspar institution in the market in Romania, the

Raiffeisen Banca pentru Locuinte, RBL (“Raiffeisen

Bank for Housing”), opened its doors in June 2004.

The success of Bausparen in Eastern Europe also

kindled interest in China. Together with the China

Construction Bank Corporation, the second largest

bank in China, Schwäbisch Hall established Sino-

German Bausparkasse (SGB) in 2004. The company

has been providing Bausparen in Tianjin, a region on

the east coast with ten million inhabitants, since 2004.

Another region, Chongqing, is intending to follow in

its footsteps soon.

10

Slovakia

Uncontested Market Leader

1992 marked a milestone in the history of Bausparkasse

Schwäbisch Hall. This was the year that the company

founded its first foreign subsidiary, Prvá stavebná spori-

tel'ňa, a.s. (PSS), in Slovakia. This is the first Bausparinstitution ever to enter the market in Eastern Europe.

Three strong partner banks are also shareholders of

PSS, Raiffeisen Bausparkasse from Austria, Slovenská

sporitel'ňa savings bank from Slovakia, and Erste Bank

from Austria. PSS manages around 900,000 contracts

with a total savings value of roughly 11.7 billion euros.

In 2010, it handled around 87 percent of all new Bau-spar business, making PSS the uncontested market

leader in Slovakia. In 2010, PSS’ financing volume came

to around 485 million euros. From 1992 to 2010, PSS

provided a total of roughly 6.3 billion euros for housing

construction in Slovakia. This corresponds to 40 per-

cent of all housing construction financing arrangements

during this period and substantiates PSS’ standing as

one of the largest construction financiers in the country.

After the change in the political landscape in 1989, new

construction activities in Slovakia practically ground to

a halt. Even in 2010, with 17,000 completions, Slovakia

was far below the EU average. In the 1990s, the state

also privatized almost all of the housing on hand

throughout the country. A large percentage of these

apartments and houses were in great need of renova-

tion. The Slovakian citizens were thus facing enormous

investment costs. At the same time, the country was

struggling with a high rate of inflation, which reached

a peak of 25 percent in 1993.

For many of the fledgling homeowners, Bausparen(Contractual Savings for Housing) with their reasonable

interest rates proved to be the ideal form of saving and

financing in this situation. When PSS entered the mar-

ket, the interest rate for Bauspar loans was 6 percent,

which was considerably lower than for comparable

loans. This was what made the financing of moderniz-

ation measures and property acquisition affordable for

people from a wide range of socio-economic statuses in

the first place.

Incentive for Bausparen

The government Bauspar premium provided an addi-

tional incentive to save for a home and accelerated

acceptance of the new financial product, which quickly

Largest Housing Construction Financier

PSS has disbursed roughly 6.3 billion euros for housing construction in Slovakia since 1992. With a share of 40 percent of total financing volume, PSS is the largest housing construction financier in Slovakia. Every fourth Slovak has built or modernized using funds from PSS.

PSS' financing volume from 1992 to 2010

¤ 6.3 billion

35 % new construction/

purchase

65 % modernization

11

Corporate headquarters Bratislava, SlovakiaYear established 1992Core business Bausparen, construction financingEmployees 1,556Customers 820,000

Prvá stavebná sporitel’na, a.s.developed into the most popular form of saving in

Slovakia. By supporting the saving efforts of indivi-

duals, the legislature mobilized considerable amounts

of capital and fostered the accumulation of personal

assets among its citizens. The burden on the state due

to this government stimulus diminished as the perfor-

mance of the Bauspar institutions improved. While the

Slovakian government was still paying out 110 million

euros in premiums in 2002, this figure decreased to 45

million euros in 2010. During the same period, Slovaki-

an Bauspar institutions increased their disbursements

from 2.5 billion euros (2002) to 8.4 billion euros (2010).

New Product for Associations

Over 90 percent of Slovakian citizens are homeowners.

Construction in the housing industry is therefore focu-

sed on modernizing and renovating homes that already

exist. One particular characteristic of the Slovakian

apartment market is homeowners’ associations, which

became widespread following the wave of privatization

in the 1990s. PSS has developed a special product for

this target group. The homeowners’ association can en-

ter into a Bauspar contract as a legal entity. The housing

collective uses the Bauspar loan to renovate windows,

facades, and roofs, for example. The new product has

been received positively. In 2010, PSS issued housing

construction loans to legal entities in the amount of ap-

proximately 29 million euros.

Nearly Every Other Person is a Bauspar Customer

In the Czech Republic, Bausparen (Contractual Savings

for Housing) has developed into a success story. Today,

4.8 million of the 10.5 million citizens are Bausparcustomers. This means that just 18 years after the intro-

duction of the Bauspar system, almost every other

Czech has a Bauspar contract. Bausparen is especially

popular among young people. 68 percent of Bausparcustomers are between the ages of 15 and 24.

Market Leader in the Czech Republic

Numbering 1.8 million, most Czech Bauspar savers

have chosen to be Ceskomoravská stavební sporitelna,

a.s. (CMSS) customers. The company, established in

1993, is a joint venture of Bausparkasse Schwäbisch

Hall and originally two bank partners, which have

since been merged into one of the Czech Republic’s

major banks, Ceskoslovenská obchodní banka (CSOB).

In 2010, it handled around 51.8 percent of all new busi-

ness, making CMSS the market leader among the five

Czech Bauspar institutions, and one of the four largest

Bauspar institutions in Europe. From the time it was

established to the present, CMSS’ total financing

volume comes to around 10.4 billion euros. That

corresponds to 19 percent of all housing construction

financing arrangements in the Czech Republic during

this period. In 2010 alone, roughly one billion euros

were funneled into housing construction through CMSS.

Modernization Dominates

In the Czech Republic, most Bauspar loans are used

for the purchase of apartments and houses and for

renovation. In 2010, 56 percent of Bauspar loans went

toward the purchase of a house or apartment, 32 per-

cent were used by Czech customers for alterations and

modernization projects.

Over the past few years, CMSS has taken advantage of

its leading position in the Bauspar business to develop

other lines of business such as the placement of retire-

ment planning products, and to offer customers additio-

nal products that meet their needs. This makes CMSS an

attractive partner for other financial services providers in

the Czech Republic. Bausparen has developed into a

1212

The Czech Republic

Start of the contract Allocation

Approx. 6 years

Government premium with a large impact

An attractive government subsidy, especially at the point when a Bauspar system is introduced, creates key incentives for regular saving. A premium totaling 540 euros generates a Bauspar sum of 5,000 euros. That means that for every one euro of premium invested, there are nine euros for housing construction.

Monthly savings amount 30 euros

Interest on savings 3% annually

Government premium 25%

= 5,000 euros Bauspar sum of which, 540 euros from the government’s Bauspar premium

Model Calculation

kind of national sport in the Czech Republic. The Czech

government is convinced of the benefits of Bausparen,

and since their introduction has for this reason suppor-

ted savers by way of a premium. The government Bau-spar premium is currently 10 percent of savings put aside

out of a maximum 800 euros per year. This means that

Czech Bauspar customers can receive up to 80 euros

annually for their savings in the form of a government

premium, which corresponds to approximately 8 percent

of the average monthly salary.

Bauspar Premium – the Government’sSeal of Approval

Right from the beginning, the Bauspar premium was

a clear political signal. This government subsidy is

perceived as a kind of “seal of approval" for a new type

of financial product. Additionally, the premium provi-

des a strong incentive for citizens to make an effort to

improve their living situation. Bauspar contracts that

are subsidized by the state have to be used for housing-

related financial purposes within a set period of time.

This stipulation allows the government to carefully

direct how the financial assistance is used – all of it

flows into housing construction. In turn, an active

housing construction industry creates new living

space, new jobs, and intensifies demand in other sectors

of the economy, which all results in additional tax

revenues for the state. Juxtaposed against this are the

outlays for the government Bauspar premium. In the

Czech Republic, these created a burden on the natio-

nal budget of about one percent during the first few

years. However, as the performance of the Bausparinstitutions improved, the strain on the national

budget continually declined. Initially, from 2002 to

2006, spending on the government's home construc-

tion premium rose from 351 million euros to 575 million

euros, however in the following years this decreased

to 493 million euros (2010). During the same period,

the Czech Bauspar institutions increased their disbur-

sements by nearly sevenfold, from 3.4 billion euros

(2002) to 22.8 billion euros (2010).

1313

Corporate headquarters Prague, Czech RepublicYear established 1993Core business Bausparen, construction financing,

retirement planning

Employees 3,458Customers 1.8 million

Ceskomoravská stavební sporitelna, a.s. (CMSS)

14

Hungary

A Pillar of Housing Construction Financing

In 1997, Bausparkasse Schwäbisch Hall together with

the Hungarian bank, Takarékbank, established the Hun-

garian-German Bausparkasse Fundamenta. In 2003,

Fundamenta merged with the Lakáskassza, a competitor,

to become the Fundamenta-Lakáskassza Lakás-takarék-

pénztár Zrt. (FLK). Today, FLK is majority owned by

Bausparkasse Schwäbisch Hall and currently manages

over 600,000 contracts with a total savings value of

roughly 4.9 billion euros. Its market share is 61 percent.

During the period from 1997 to 2010, FLK’s financing

volume came to around 300 million euros. FLK is thus

one of the largest providers of housing construction fi-

nancing arrangements in Hungary.

Bausparen Withstands Crisis

Since their establishment, the Hungarian Bausparinstitutions have developed into a key economic factor

in the financing of private home construction. In

particular, they contribute significantly to encouraging

the population to take the initiative. Bausparen(Contractual Savings for Housing) is an individually

tailored product allowing people in Hungary with low

and middle incomes to realize their dream of having

their own four walls. What’s more, the success of

Bausparen in Hungary is in great part due to its ability to

withstand a crisis. The self-enclosed system of Bausparfunds provides for independence from the capital mar-

ket. Additionally, in the interest of their customers, the

business activities of the Bauspar institutions are severe-

ly restricted. For instance, these institutions cannot sell

any foreign currency loans. Just how sensible this is has

been confirmed in Hungary over the last decade and in

particular since the international financial crisis.

Over the last decade, the interest rate level in the local

currency (Hungarian forint) was very high due to the

large amount of new government debt and the limited

financing volume. Domestic private customers frequent-

ly entered into foreign currency loans, which appeared

to be more favorable. As was the case everywhere in the

world, banks were handling the issuance of loans very

generously during this period. The result was increasing

household debt. Today, nearly 64 percent of all private

borrowers have debt in the form of foreign currency

loans, primarily in Swiss francs. In 2011, the Swiss franc

has strengthened against the Hungarian forint by almost

50 percent. This means that the burden on builders to

meet their monthly interest and principal repayments

has also increased significantly. Some 150,000 private

households – around 4 percent – can no longer service

their loans in conformity with the contract. This situ-

ation will continue to weigh on personal consumption

Bausparen

Interest rate security and independence from the capital market

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

10 %

3.9 %

6 %

Capital market interest rate1

Bauspar loan interest rate2

1 average effective interest rate on housing construction loans in HUF2 most favorable effective Bauspar loan interest rate from FLKSource: H. J. Dübel: Wohnungsbauförderung in Mitteleuropa, (“Housing Construction Subsidies in Central Europe”),Vienna 2004; Fundamenta-Lakáskassza

20

15

10

5

15

Corporate headquarters Budapest, HungaryYear established 1997Core business Bausparen, construction financing,

retirement planningEmployees 1,230Customers 540,000

Fundamenta-Lakáskassza Lakás-takarékpénztár Zrt. (FLK)

in Hungary for many years. Consequently, Hungarian

banks have tightened their lending policy considerably.

Today, only around one quarter of the former volume

of new lending business is accepted.

Favorable Interest Rates on Loans

Now in particular, Hungarian Bauspar institutions

are able to demonstrate their financing strength. Their

customers are enjoying very favorable interest rates.

For example, FLK is currently offering interest rates on

loans starting as low as 3.9 percent annually. The com-

parable interest rate for alternative housing construc-

tion loans is nearly 10 percent. Consequently, FLK’s

share of new business for private housing construction

loans has increased from 8 percent to 18 percent. It is

already inevitable that FLK will more than double its

new loan business in comparison to 2010.

Financing Community Projects

The Hungarian Bauspar institutions also make an

important contribution to the financing of community

projects. As a rule, communities are not in a position

to make the necessary investments under their own

authority. In this situation, the Bauspar institutions

offer a model with which the residents can enter into

earmarked Bauspar contracts in their own names.

They receive interest on the funds in their Bausparaccounts as well as the government’s Bausparpremium. After several years, these funds flow into

community projects together with EU subsidies and

the communities’ loans. Without this model, several

communities would not have been able to make even

the most necessary of investments today.

During the crisis, the Hungarian Bauspar institutions

proved that they have a stabilizing effect on housing

construction financing and on the entire economy.

Today everyone agrees that Bauspar institutions are one

of the most important pillars of housing construction

and community financing in Hungary.

Bausparen Extends Beyond Europe’s Borders

Searching for new options for financing housing con-

struction, even the People’s Republic of China started

to take notice of the German Bauspar system. After a

preparatory period lasting several years, Schwäbisch

Hall together with the second largest Chinese bank,

China Construction Bank Corporation, founded Sino-

German Bausparkasse (SGB). In February 2004, the

first Chinese-German Bauspar institution opened its

doors for business in Tianjin Province, 140 kilometers

southeast of Beijing.

Characteristics specific to China play an even stronger

role here than in other countries where Bausparkasse

Schwäbisch Hall has established joint ventures. One of

the most important factors is the country’s rapid urba-

nization. By the year 2030, the number of city residents

will rise from the current figure of 600 million to one

billion people. By 2020, the number of cities with more

than a quarter million middle class residents will triple

from 88 to 279. In addition to urbanization, the decli-

ning birth rate is another reason for the trend toward

small families or single-person households. On aver-

age, only 3.1 people live in a Chinese household. Ten

years ago that figure was still 3.4. Consequently, the

demand for living space will continue to rise – and

with it the opportunities for growth in housing con-

struction financing.

New Construction Booming in Growth Regions

Because the Chinese government regulates land use,

multi-story buildings are being constructed almost ex-

clusively in China’s growth regions. Modernization

projects play no role. Old structures are pulled down

and replaced with new buildings.

Home ownership is also extremely significant from a

cultural perspective. For the Chinese, having their own

1616

China

i

Multi-story buildings dominate the cityscape in growth regions.

apartment is one of their goals in life, even more so than

in Germany. For people in China who have money to

invest, purchasing an apartment is at the top of the list.

Home ownership is even a generally accepted require-

ment for getting married.

Government Relies on Public Housing Construction

Recently, these factors have led to steeply rising real

estate prices – with the result that it is nearly impossible

for the average urban wage earner to pay for their own

home. The Chinese government is attempting to coun-

teract this problem, also to prevent real estate specula-

tion. For example, there has been a five-year speculation

limit in place for real estate sales since 2010. Addi-

tionally, in the case of private financing arrangements, a

larger down payment must be made to increase equity.

Another measure is the subsidizing of public housing

construction. The Chinese government has openly

stated that its goal is to make home ownership afford-

able for middle and also lower income groups. For

example, important target groups include young fami-

lies in cities and people who have traveled there to

work. In 2010 alone, some 5.8 million public housing

units were built. Over the next few years, another 40

million units are planned.

SGB Successfully Expands its Business Model

SGB has taken this development into account and ex-

panded its business model. It has been offering supple-

mental private mortgage loans and property financing

arrangements since 2007, primarily in the context of

public housing construction. The focus is on the middle

and low price segment. The unit sizes of the properties

being financed is between 50 and 150 square meters. At

the end of 2010, SGB had private mortgage loans for

209 million euros and property financing arrangements

for 522 million euros in its portfolio. Classic Bausparbusiness has also experienced increasingly positive

development in China. With total Bausparen (Con-

tractual Savings for Housing) of 458 million euros in

2010, SGB generated the second best new business

results since it first opened its doors.

Market Entry in the Megacity of Chongqing

Bausparen still has high potential for growth in China.

The combination of Bausparen, mortgages, and proper-

ty financing arrangements has proven successful in

Tianjin. Additionally, government representatives from

other growth regions have been displaying interest in

Bausparen based on the German model. The expansion

of activities in China is thus a foregone conclusion. SGB

is currently laying the foundations for entering the mar-

ket in Chongqing, one of the most dynamic cities in

China. 29 million residents live here, of those 5 million

in the city proper, 10 million in the suburbs, and 14 mil-

lion in the rural areas economically connected to the city.

1717

Corporate headquarters Tianjin, ChinaYear established 2004Core business Bausparen, mortgage loans,

property financing

Employees 1,105Customers 76,800

Sino-German Bausparkasse (SGB)

18

Romania

Strong Partners

In 2004, Raiffeisen Banca pentru Locuinţe S.A. (RBL)

was the first Bauspar institution to start up operations

in Romania. It is the newest of Bausparkasse Schwä-

bisch Hall’s five foreign affiliates in total. Two other

companies also have a stake in the Romanian joint

venture Bauspar institution: The Austrian Raiffeisen

Bausparkasse also participated in founding PSS in

Slovakia and today is a reliable business partner for

Schwäbisch Hall. In addition, the Romanian Raiffeisen

Bank also holds shares of RBL, applying its sales ex-

pertise to provide the representation required locally.

Market with Potential

Fundamentally, the Romanian market offers potential

for Bausparen (Contractual Savings for Housing). Fol-

lowing the change in the political landscape in 1989, the

Romanian government privatized a large portion of the

public rental apartments. Home ownership shot up to

over 90 percent. However, the houses and apartments

are generally in need of renovation and modernization.

Around 50 percent of the residential units have deficient

bathroom plumbing. Additionally, many Romanian

families live in cramped living conditions. The average

household, with just about 3 people, is larger than in a

comparison with the EU (2.4 people). At about 20 square

meters, the average floor space per capita is also well

below the EU average (approximately 35 square meters).

Modernization projects, alterations, and residential

additions in particular can be safely and inexpensively

financed via Bausparen. Investments are being made at

present primarily in energy-saving projects, also in order

to decrease related building costs.

Bausparen can perform an important task for the

Romanian government: While the citizens’ enormous,

pent-up demand primarily for consumer goods came

to the fore in the years following the political and

economic upheaval, saving for the future now needs

to become more firmly entrenched.

Corporate headquarters Bucharest, RomaniaYear established 2004Core business Bausparen, construction financingEmployees 63 (not including field staff)Customers 131,500

Raiffeisen Banca pentru Locuinţe (RBL)

The formula: Move large sections of the Romanian

populace out of rapid consumption and into long-term

asset accumulation.

A Short History of Bausparen (Contractual Savings for Housing)

200 BC Non-profit mutual savings societies (“Li-Wi”) are developed in China during the Han dynasty.

1775 The first Bauspar institution is founded in Birmingham, England, while others follow decades later in

the US (1831), in Australia and New Zealand (1832), in South Africa (1833), and in Brazil (1834).

1885 The first German Bausparkasse für Jedermann (“Bauspar Institution for Everyone”) is founded by

Pastor Friedrich von Bodelschwingh. Gradually, settlers join together to create a number of smaller,

sometimes regionally restricted Bau- und Sparvereine (“Building and Savings Associations”), which

function according to cooperative society principles.

1921 Following World War I, Germany suffers from a major housing shortage. Interest rates of 60 percent

on home loans are not uncommon. Other Bauspar institutions gradually emerge, which still function

today according to the cooperative banking principles applied then.

1931 Bausparkasse Schwäbisch Hall is established in Cologne as “Deutscher Bausparer AG, Bau-, Spar-und Entschuldungskasse”. At the end of the 1930s, the first fundamental change to the German

Bauspar system takes place. The “random drawing system” used up to this point for disbursing

Bauspar funds is replaced by a mathematical assessment process.

1934 Tax advantages are provided for Bauspar contracts for the first time in Germany.

1948 Following currency reform in West Germany, the beginning of the German “economic miracle”

heralds an upswing for German Bauspar institutions.

1952 The government supplements its support of Bausparen with the Wohnungsbau-Prämiengesetz(“Housing Bonus Act”). Bauspar customers receive a government subsidy for their deposits. The ob-

jective is the accumulation of personal assets for a particular goal and simultaneously the acquisition

of a Bauspar loan that is independent of the capital market and has a favorable interest rate.

1973 The Bauspar Institutions Act and the Bauspar Institutions Ordinance go into effect. These create a

uniform statutory foundation for the business dealings of all Bauspar institutions.

1991 Following the amendment of the Bauspar Institutions Act, Bauspar institutions are also able to start

operations in other countries. A comprehensive system to ensure the safety of Bausparen is created.

1992 The first Bauspar institutions in Eastern Europe are formed in Slovakia and the Czech Republic in

1993. Bausparkasse Schwäbisch Hall plays a crucial role in their establishment.

2004 Bausparen returns to China. Sino-German Bausparkasse is launched in the Chinese province of

Tianjin at the initiative of Bausparkasse Schwäbisch Hall.

2008 Bauspar institutions come through the international financial crisis completely unscathed.

The system created in 1991 to ensure safety passes its greatest test.

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2001

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Bausparkasse Schwäbisch Hall AGInternational DepartmentCrailsheimer Straße 5274523 Schwäbisch HallGERMANYPhone +49 791 46-3706E-mail: International.Department@schwaebisch-hall.de

www.schwaebisch-hall.de