NewsGermany's housing market crisis: Soaring costs and developer bankruptcies

Germany's housing market crisis: Soaring costs and developer bankruptcies

Germany has a housing problem.
Germany has a housing problem.
Images source: © Getty Images | Florian Gaertner
6:47 PM EST, March 4, 2024
From the third quarter of 2023, apartment prices in Germany started to decrease. Experts attribute this downturn to the bursting of a bubble within the German housing market, a development that spells trouble for the country's residents, as mentioned in money.pl.

Developers near our borders are facing collapse

As money.pl reports, seasoned developers in Germany, some with years of experience, are now collapsing. Among these is Project Investment, which declared bankruptcy amid nearly 120 projects valued at 3.2 billion euros in major cities like Berlin, Munich, and Hamburg. A similar fate has befallen Euroboden, a company that has been part of the residential and commercial real estate landscape since 1999.
Experts point out that these bankruptcy decisions stem from a combination of soaring construction costs and a dip in apartment demand. Overly optimistic expectations played a role as well.

Uwe Schmitz, CEO of Frankonia, shed light in a conversation with "Die Welt" on how many developers were banking on low-interest rates persisting for years. However, an unexpected surge in inflation prompted banks to adjust. This, coupled with rising materials and labor costs, pushed prices up, but developers could not transfer these increased costs to their customers.

Currently, the sentiment in the German construction sector is gloomy. Data from the Ifo Institute for Economic Research indicates that the business climate index in January plummeted to an all-time low of minus 59 points, highlighting the broader impact on the German economy.
The construction industry is thus calling for governmental support. Felix Pakleppa, General Director of the Central Association of the German Construction Industry, has urged the government to take bold steps in housing policy.

The plea for government intervention is critical, especially as Germany grapples with a significant housing shortfall. Estimates suggest the market lacks between 700,000 and a million units. Notably, the German government planned to construct nearly 400,000 apartments annually as part of their coalition agreement.

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