The real estate industry is feeling almost all the consequences of the economic crises: First, the corona pandemic put a strain on the supply chains, which made building materials scarce and expensive.

Then the costs for construction projects went up because energy prices and building interest rose.

It is therefore increasingly common to hear that projects are being paused or canceled entirely, if that is possible.

Jan Hauser

Editor in Business.

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Irrespective of the expected slump in the construction industry, Federal Building Minister Klara Geywitz (SPD) is sticking to the government target of 400,000 new apartments per year.

"It's not rocket science, generations before us have done it with 700,000 new apartments," she said this week at the Expo Real property fair in Munich.

In the industry, on the other hand, there are growing voices that the government's goal is becoming ever further away from reality.

Jacopo Mingazzini, CEO of the real estate company The Grounds Real Estate, says that the number of completed projects is falling.

"I heard that this year instead of the 400,000 desired apartments, it should be more towards 200,000," he told the dpa news agency.

400,000 apartments, a utopian goal

In the run-up to the industry meeting in Munich with around 1900 exhibitors, almost 500 German participants in the real estate fair expressed rather pessimistic opinions in an online survey.

Almost half assume that the sums of money invested in German real estate will decrease.

One in four respondents also expects stagnation.

Nevertheless, a majority of those surveyed assessed the interest rate increases by the European Central Bank (ECB) as positive and stated that the central bank was thus ending the real estate boom and that real estate financing was now becoming more realistic.

"In view of the current framework conditions, the real estate industry is entering the autumn with subdued expectations," said Stefan Rummel, CEO of Messe München.

He notes positively that the number of exhibitors has almost reached the pre-Corona level again.

The goal of 400,000 new apartments per year had already been set by the grand coalition as the previous government, but was not achieved.

"We never managed to actually build significantly more than 300,000 apartments because we had these capacity bottlenecks in terms of materials, specialists and land," said Geywitz in Munich.

According to the German Real Estate Association, there should be a top meeting on housing construction in Berlin next week.

Last year, 293,393 apartments were completed in Germany.

This is a decrease of 4.2 percent compared to the previous year.

For years, the construction overhang has been significantly higher.

According to statistics, 846,467 apartments were approved last year but not yet completed.

The procedures here seem to be taking a long time.

In order to build faster, Geywitz wants to digitize construction projects from planning through application to execution.

But she also knows that this will not help quickly.

In Munich, the Minister of Construction therefore said that it will still take quite a while before capacity is expanded in Germany.

Politicians continue to be criticized at the real estate fair because the federal government has changed housing subsidies and is still changing them.

Leading representatives of the industry are calling for further funding.

From seller to buyer market

The reluctance to build promises a change for the housing market, but hardly any significant price declines.

The real estate agent Engel & Völkers now sees that, for the first time, the price increases on the residential real estate market of the past few years will not continue due to increased mortgage interest rates and the high inflation rate.

We are talking about a sideways movement in real estate prices at a high level and recently slight declines in asking prices in medium and simple locations.

After the residential real estate market in Germany was largely a seller's market for many years, we are currently experiencing a development towards a buyer's market.

However, the intermediary is not assuming a sharp drop in prices, but sees the development as a healthy regulation of the previous exceptionally high price increases.

Inflation is slowing down the upswing not only in Germany, but also in the European real estate market.

"At the moment, both buyers and sellers are staying on their side of the dance floor - nobody wants to be on the floor," says Ian Rickwood, founder of Henley Investment Management, describing the current market situation.

The rising borrowing costs can pose a risk for companies.

For loans secured by British, German and French real estate, Hans Vrensen from AEW Capital Management sees a refinancing gap of up to 24 billion euros over the next three years.

Bayes Business School's Nicole Lux, which analyzes UK property loans, expects forced sales of commercial and residential property as a result.

The shift will play into the hands of well-funded investors who could make bargains.