In Germany, the construction crisis reaches an unprecedented level

The construction site of Überseequartier in the Hafencity of Hamburg, Germany, September 4, 2023.

Yannick Kollmann has so far weathered the storm that has hit real estate construction in Germany. The entrepreneur, who runs Berliner Jungens Development, a small Berlin company specializing in the construction of wooden-structured housing, is adapting as best he can to a situation that has become frankly hostile. “There are projects that we have simply put on hold while waiting for financing conditions to improve. For the moment, apart from in the luxury segment, no construction project is profitable”, he says. Rather than building, he therefore fell back on renovation projects, less costly in capital, while waiting for the situation to improve.

The rise in interest rates by the European Central Bank has put an end to fifteen years of insolent growth in real estate construction in Germany. Added to the rise in the cost of credit was an explosion in construction costs. Inflation, which melted household purchasing power, did the rest: demand for new housing collapsed. In May, the number of building permits granted fell by 25.9% year-on-year. And more and more construction contracts concluded before the war in Ukraine, with much lower negotiated prices, can no longer be honored.

Tuesday September 12, the economic institute IFO confirmed this unprecedented deterioration: according to a survey carried out among companies in the sector, 20.7% of bosses indicated having suffered project cancellations, compared to 18.9% the previous month. “The crisis in housing construction continues to worsen. Cancellations have reached a new record. Since surveys began in 1991, we have never observed anything like this”, alarms Klaus Wohlrabe, director of studies at the IFO. According to the institute’s data, 11.9% of companies in housing construction reported financing difficulties. “This is the highest level in more than thirty years”continues the expert.

Historically high immigration

Lacking liquidity, as well as new projects, real estate developers find themselves in great difficulty. For several months, bankruptcies have been increasing, even affecting very established companies in recent weeks. In August, four large groups (Gerchgroup and Development Partner, in Düsseldorf, Project Immobilien Gruppe in Nuremberg and Euroboden in Munich) have in turn declared themselves insolvent. Each of them managed multi-billion euro projects in different regions of Germany, which are now under threat.

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