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04 04 2019

Housing Construction in Germany’s “Big Seven” Becoming Less Attractive

Germany’s metropolises are plagued, across the board, by housing shortages – and yet investing in newly constructed buildings is becoming less and less attractive from a property developer’s point of view. This is the upshot of the latest Property Developer Survey compiled by the real estate consultancy bulwiengesa.1 It suggests that, after years of growth, the total floor area of new-build flats in Germany’s seven largest cities has clearly declined lately, dropping by 2.0 percent in 2018. Munich was the only city among them that reported a year-on-year increase in residential accommodation (6.9 percent) whereas the corresponding take-up decreased noticeably in Berlin (-3.5 percent) and Hamburg (-5.1 percent).

 

Costs Putting the Brakes on Growth

As a result of the significant drop in the residential segment, the market for property developers as a whole is stagnating for the first time since the financial crisis. From bulwiengesa’s perspective, the situation in the big cities is explained above all by the hefty price hikes of recent years. Other reasons the survey cites for the decline in appeal include a backlog of applications waiting to be processed by overworked authorities, costly constraints and regulatory interventions—such as those prescribing energy efficiency measures and social housing quotas.

This has now caused some developers to reconsider the completion even of projects already approved. The effect is particularly conspicuous in Berlin because the city accounts for one third of the developments that have been postponed. The phenomenon reaffirms the medium-term trend among investors to shift their activities to B- and C-class cities and into the gravy belts of the metropolises, since conditions there are more favourable and higher returns to be expected.

 

70 Percent Aware of Deteriorated Parameters

The “Neubauradar” survey on building activity that was conducted by the BFW Federal Association of Independent Property and Housing Companies reached a similar conclusion.2 It found that despite the Federal Government’s housing offensive, conditions had more or less deteriorated last year. According to the survey, 63 percent of the respondents stated that housing development projects in the major cities are hampered by political measures. Instead of speeding up the release of urgently needed land onto the market as promised, plots are still being auctioned off to the highest bidder, as 40 percent of the respondents criticised.

Three out of four companies also believe that cities and communities are slowing things more than is compatible with the stated intention of the federal body politic. Especially the time-consuming communication with zoning authorities and the associated planning stages were criticised during the poll. Given these circumstances, the number of completed flats will not exceed the number of 250,000 annually, as BFW President Andreas Ibel stated very clearly, according to the Immobilien Zeitung.3 This would be 50 percent lower than the annual requirement of 375,000 residential units identified by the Federal Government.

 

 

1 www.bulwiengesa.de/de/publikationen/studien/projektentwicklerstudie-2018
2 www.bfw-bund.de/services/presse/pressemitteilungen/87249-bfw-neubauradar-neubauziele-werden-weit-verfehlt-grossstaedte-fuer-projektentwickler-immer-unattraktiver/
3 www.immobilien-zeitung.de/1000060375/wohnprojekte-auf-rueckzug-bueros-auf-vormarsch/