Bursting bubble: Crisis grips German housing as developers falter

Apartment prices in Germany have been on the decline since the third quarter of 2023. Experts attribute this trend to the bursting of the bubble in the German housing market, a development that spells bad news for the country’s residents, according to money.pl.

Money.pl reports that in Germany, seasoned developers find themselves in turmoil. One notable example is Project Investment, which declared bankruptcy amidst nearly 120 projects worth around £2.8 billion in major cities like Berlin, Munich, and Hamburg. A similar fate has struck Euroboden, a firm that has been active in the residential and commercial real estate market since 1999.

Experts point to rising construction costs and a diminishing demand for apartments as the primary reasons for these bankruptcy decisions. This is further compounded by overly optimistic projections.

Uwe Schmitz, CEO of Frankonia, recently expressed to "Die Welt" that many developers had assumed interest rates would stay low for an extended period. However, an abrupt surge in inflation prompted banks to adjust, with the prices of materials and labor also escalating. Unfortunately, developers found themselves unable to transfer these increased costs to their customers.

The mood among those in the German construction sector is notably downbeat. January data from the Ifo Institute for Economic Research revealed that the business climate index plummeted to a historically low level of minus 59 points, illustrating the negative impact of the housing market situation on the broader German economy.

The construction industry is therefore appealing for government intervention. Felix Pakleppa, the General Director of the Central Association of the German Construction Industry, has recently urged the government to take bold steps in housing policy.

This call for government support becomes even more critical as Germany grapples with a significant housing shortfall. Estimates suggest a deficit of between 700,000 to 1 million units. It's worth noting that the German government had set a goal in its coalition agreement to build around 400,000 apartments annually.