AIn view of rising interest rates and higher costs, the real estate industry is warning of the end of the construction boom. The Federal Association of Free Real Estate and Housing Companies (BFW) said on Wednesday that new housing construction was taking a massive tumble among its approximately 1,600 members. Most companies postponed their planned projects or would have already given up on them altogether. “This is not a dent in new construction, this is the full braking of an entire industry,” explained BFW President Dirk Salewski, and he added: “In the current situation, new construction is no longer calculable anyway due to rising construction interest rates, exploding construction costs and disrupted supply chains.”
A slump in new construction projects is foreseeable for the near future. Around 70 of the companies surveyed stated that they would no longer implement half of the planned projects in the current environment. Extrapolated, this means a decline of between 50,000 and 75,000 new apartments. “The federal government’s goal of 400,000 new apartments will not even come close to being achieved,” Salewski warned. Recently, the number of building permits had also fallen.
Apartment prices are increasing more slowly
According to the association, the BFW member companies are responsible for 50 percent of new residential construction and 30 percent of new commercial construction. “We now need reliable funding conditions, economical and realistic new building requirements and, above all, more building land,” said Salewski. All rules would have to be scrutinized and additional cost drivers suspended or abolished. The new funding seal for sustainable buildings QNG is completely unattractive and ineffective. “If we can’t build because it’s too expensive, too complicated or simply unprofitable, the housing shortage will be with us for a long time,” warned the BFW President.
According to a study, the years of boom in the German housing market have meanwhile cooled off in the first half of the year. According to an analysis by the major broker Jones Lang LaSalle (JLL), the purchase prices offered for condominiums in the eight largest German cities rose by an average of 7.5 percent compared to the previous year.
The increase was halved compared to the previous year, according to the analysis published on Wednesday. The five-year average of plus 9.3 percent was therefore clearly undercut. If you factor in the inflation of 7.6 percent in Germany recently, condominiums are even slightly cheaper in real terms today than they were a year ago.
The rise in prices in the urban districts has slowed down even more significantly than in the large cities. There, the increase was 6 percent in the first half of the year – after 14.4 percent in the previous year and 10.4 percent on average over the last five years.
In the countryside, the price increase remains the same
In the rural districts outside the cities, however, the prices for condominiums rose by 9.4 percent, similar to the previous years. “In particular, the significant increase in financing interest since the fourth quarter of 2021 is the reason for the reluctance of apartment buyers and the associated weakening of purchase price increases,” explained JLL expert Sebastian Grimm.
The analysis is only based on offer prices, no deals. Nevertheless, the study, which is based on thousands of advertisements in each of the major cities, points to a downward trend in the housing market. Analyzes by several real estate portals have shown that the boom is weakening. The demand for real estate for sale in the second quarter fell by 36 percent within a year, as data from Immoscout 24 showed. And Immowelt reported stagnating or slightly falling asking prices in 7 of the 14 largest cities.
Mortgage rates have tripled
Interest rates have more than tripled in the past few months and have risen above the three percent mark for ten-year financing. Experts at Landesbank Helaba also believe that the turnaround in interest rates will “noticeably slow down” the rise in prices on the housing market. However, there is disagreement among experts as to whether there will only be stagnation or a significant fall in real estate prices.
Official property price data from the Federal Statistical Office for the first half of the year is not yet available. In the first quarter, prices had hardly climbed by the fourth quarter of 2021 (plus 0.8 percent). Compared to the same quarter last year, there was an increase of 12 percent.
According to the study by JLL, the development of rents in the first half of the year is more differentiated. At 3.7 percent, the increase in the eight major cities was below the five-year average (4.3 percent) but above the previous year’s figure (2.4 percent). In the urban districts, asking rents rose by 3.3 percent – a year ago the increase was 8.2 percent and the five-year average was 5.2 percent. There was hardly any change in asking rents in the districts.
“The trend towards rising rents in cities outside of the metropolis has weakened. On the other hand, rents in the immediate vicinity of the big cities are still increasing more than in the cities themselves,” said Grimm. This is due to evasive movements.
