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BUILD WHILE EVERYTHING COLLAPSES. Investment in German housing is growing.

Investment in German housing is growing despite the sharp downturn in the global economy, and demand for own real estate remains at pre-pandemic levels. However, the excitement led to a sharp rise in prices and an increase in mortgage rates.

  • APRIL 19, 2021

The current pace of construction in Germany, to the surprise of experts, exceeds all indicators of the pre-pandemic period, and the capitalization of this market segment continues to grow. According to a study by the Federal Statistical Office, the total turnover of construction companies registered in Germany last year exceeded 98.3 billion euros, which is 6.6% more than a year earlier. In addition, the crisis year of 2020 led to a significant increase in the number of full-time employees in construction companies by at least 18,000 people, and the total number of full-time employees in this sector reached a record 505,000 for the first time. In total, according to the statistical office, in 2020 in Germany was issued a building permit for more than 288,000 households, of which about 169,000 are to be built in high-rise buildings. Thus, more than 59% of all new buildings will be for housing estates, 38% of which will be converted into dormitories for refugees, students and workers. At least 41% of all new households will be private homes, most of which will be built within the city limits. For the first time in the history of a united Germany, the high pace of housing construction in Germany has led to a shortage of construction land, forcing regional authorities to give up green areas for the construction of new buildings. Every day, 56 hectares of vacant land are given for the construction of expensive apartments, parking lots and footpaths, according to the Interior Ministry.

Increasing German interest in buying new real estate during the pandemic allowed local credit institutions to transfer some of their assets to a high-yield plane. According to a study by the auditing company PwC, the total amount of loans issued by German banks and savings banks for the construction of new housing earlier this year rose to a record high of 273 billion euros, which is 10 billion more than in the first months of last year. The company emphasizes that the increase in capitalization of this market segment has led to a sharp rise in house prices due to higher interest rates on loans to construction companies.

Mortgage terms have also become less favorable for potential buyers. According to the Munich construction financier Interhyp, the bank's benefit from the issuance of a ten-year loan in the period from early January to early March this year increased immediately by 0.2%. At the same time, the average rate for this type of lending in Germany reached 0.9%. PwC analysts also point to an increase in the average terms of lending for new housing, which for the first time in many years exceeded the limit of eleven years. This time period is typical only for loans at a reduced interest rate.

Mirjam Mohr, a member of Interhyp's board of directors, considers the current situation in the local credit market to be a direct consequence of rising German real estate yields on international stock exchanges, which are often stimulated by government bonds. The growth of capitalization and demand in this single, untouched pandemic, German market industry is forcing German credit institutions to raise interest rates in the pursuit of profit in the long run. Moore notes that the increase in the pace of housing construction, in the first place, plays into the hands of banks themselves, which use the situation to compensate for the financial costs of lost assets at the expense of construction companies and potential buyers of new houses or apartments. The expert is convinced that "cheap money" for the construction of new real estate will allow credit institutions to adhere to the policy of raising interest rates both during the pandemic and after its end during the recovery of the world economy.

The transfer of office workers to work from home has played a crucial role in increasing the interest of Germans in buying new housing or directly financing promising construction projects. According to the Federal Statistical Office, the average price per square meter in a turnkey house or apartment since the spring of 2020 has soared by more than 7.4%. Experts attribute this result to the lack of investment alternatives among the German middle class. These data are indirectly confirmed by the statistics of the consulting company Hüttig & Rompf, which reports an increase in capitalization of the German housing market by 20% since last spring, which is only 4% less than the 2016 record. According to experts, the average price for a new German house in the last twelve months was about 493,000 euros.

According to the Immobilienscout24 portal, the most interesting among the middle class are rural cottages, the demand for which only in the first half of 2020 increased to 50% compared to the same period in 2019, which made this market segment attractive to potential investors interested in acquisition of luxury assets. In addition, researching the search results of users of the site, the portal found that most often potential buyers view lots located in the resort areas of the sea coast in the states of Lower Saxony, Schleswig-Holstein and Mecklenburg-Western Pomerania. In addition, users of the site are interested in private homes in the Bavarian Alps and the Lake District of Brandenburg. The latter option is popular among metropolitan residents who do not want to spend a lot of effort and time on long journeys. According to Immobilienscout24, the new housing market is currently heavily congested, as demand for cottage-type real estate exceeds the available supply by at least 25%. According to Immobilienscout24, the interest of potential buyers in housing outside German metropolises has also provoked a dynamic rise in prices. While in small settlements the price per square meter reached the limit of 2370 euros, in urban-type settlements this value in some cases exceeds the mark of 2500 euros. In percentage terms, growth in this market segment was more than 8% from pre-pandemic 2019 indicators.

Source: "Russian Germany", Виталий Сманцер № 15, 2021 от 16.04.2021

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