Introduction
The apartment market in Germany is currently very uncertain and complex. After initial problems with material shortages, we now face high interest rates that are causing disruptions in the real estate market. Sellers often have to face a significant drop in prices when trying to sell their property. The drop in property prices compared to last year will be significant, while rents, especially for new contracts, will increase considerably. In addition, housing construction has slowed, while the population in Germany continues to grow. Despite the end of the boom in the real estate market, now might be the right time to buy.
1. Movement of construction loan interest rates in 2023.
1.1. Impact of political factors
In May there was hope. In Washington, politicians could not agree on a budget, and some investors feared the US default, so they began buying German government bonds en masse. The higher the demand for German government bonds, the lower their interest rate. This in turn reduces the interest rates on housing loans.
1.2. Increase in the reference interest rate
However, this is not a trend reversal, especially since the European Central Bank recently increased the reference interest rate to four percent. According to experts, loan recipients should definitely take advantage of smaller exceptions downwards. Interest rates for ten-year mortgage loans are expected to range between 3.5 and 4.5 percent.
1.3. Recommendation for long-term loans
Experts recommend a long-term duration of loans with a fixed interest rate. Loans with interest fixed for only five years currently cost the same as loans with a term of 15 years.
2. Delivery problems in a quarter of companies: Lack of materials and workers
2.1. Problems with the supply of construction materials
Construction investors and contractors face problems related to the supply of construction materials. Last year there was a shortage of materials, and the Covid-19 pandemic and the war in Ukraine further disrupted supply chains. Construction materials such as bricks, tiles, roofing materials, and bitumen were lacking.
2.2. Improving the delivery situation
However, the situation is slowly improving. According to a spring survey by the German Construction Industry Federation (ZDB), the availability of construction materials, machinery, and equipment has mostly normalized again. Although there are still some limitations on materials like waterproofing and heating, the supply has generally improved.
2.3. High prices of construction materials
Despite the improved supply, construction material prices remain high. The statistical federation reported that waterproofing and heating in particular have become more expensive, and prices have not decreased in other areas either. This presents a challenge for investors and contractors who must take into account the high material costs when planning construction projects.
2.4. Employment of workers in the construction sector
Workers in the construction sector are still well employed, especially those working on the energy renovation of existing buildings. However, overall, the number of orders in the construction sector is declining, and some companies have already introduced shorter working hours. This is partly the result of the slowing of housing construction and the uncertain situation in the real estate market.
3. Decline in real estate prices by five percent by the end of 2023.
3.1. Current market situation
Housing property prices in Germany fell in the first quarter of 2023. According to the apartment price index, there was a decline of 2.1 percent compared to the same quarter of the previous year. These are the largest declines since the start of index tracking. According to a study by vdp Research for Handelsblatt, housing property prices are expected to fall between four and five percent in 2023.
3.2. Expert forecasts
Experts predict that the decline in property prices will continue until the end of 2023. The main reason for this prediction is the market's recovery from the COVID-19 pandemic and the increase in the supply of apartments.
3.3. Reasons for the decline in property prices
One of the main reasons for the decline in property prices is the oversupply of apartments. In recent years, a large number of apartments have been built to meet the high demand. However, there is currently an excess of apartments on the market, leading to a decline in prices.
In addition, changes in financing conditions also affected the decline in property prices. Interest rates have risen, and credit control measures have been tightened. This resulted in reduced availability of credit for property purchase, leading to reduced demand and declining prices.
3.4. Impact on the real estate market
The decline in property prices has various consequences on the market. On the one hand, it represents a favorable opportunity for those planning to buy property as they can take advantage of lower prices. On the other hand, it can be a challenge for sellers who may have difficulty selling their property at the desired price.
Also, the decline in property prices can impact investors. Those who have invested in real estate as a form of investment may face a lower return on investment. However, for those planning a long-term investment, the decline in prices may represent an opportunity to buy property at more favorable prices.
4. Conclusion
In conclusion, the construction sector in Germany faces challenges like high material prices and declining orders. On the other hand, the decline in property prices represents an opportunity to purchase at lower prices. Therefore, it is important to closely monitor the further development of the situation and the change in interest rates in the market – in order to make informed and smart decisions and eventually have your own four walls.
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