When Valeriy Shevchenko signed up for a three-bedroom apartment in a to-be-built building in a sought-after neighborhood of Berlin, he thought he had made the purchase of a lifetime. Two years later, his dreams of homeownership were dashed when construction work suddenly stopped.
The company Project Immobilien, which managed the construction, went bankrupt this summer, hit by the real estate crisis that has shaken Germany for several months, leaving hundreds of buyers in limbo.
“The cranes, the equipment for the workers, everything was taken away,” the father, 33, told reporters in front of a windowless concrete facade.
Soaring interest rates are driving up the cost of credit, demand is collapsing and the price of materials is skyrocketing. Business failures in the German construction sector have doubled in the space of a year, stalling many projects.
Chancellor Olaf Scholz invites industry professionals to a summit in Berlin on Monday. The aim is to revive construction activity at a time when the country is severely short of housing.
“Investors no longer know how to make certain projects profitable,” Tim-Oliver Müller, president of the German Construction Federation (HDB), told the press.
For years the sector has benefited from the low interest rates made possible by the generous monetary policy of the European Central Bank. Demand was strong and construction sites in major German cities proliferated.
But the ECB had to dramatically raise interest rates to fight inflation, causing demand for loans, property prices and the profitability of projects to collapse.
The market is slowing down across Europe. But Germany was particularly hard hit, with house prices falling 6.8% year-on-year in the first quarter of 2023, compared to a slight increase of 0.4% for the Eurozone as a whole.
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At the same time, builders are suffering from the rising cost of construction materials, as a result of the coronavirus pandemic and amplified by the war in Ukraine.
The German real estate developer Vonovia, one of the heavyweights in the sector, recently decided to freeze the construction of 60,000 houses. According to a recent survey by the IFO institute, one real estate company in five declared having canceled construction projects in August, while 11.9% had financing difficulties.
In Berlin, the buyers of the Project Immobilien building in the central Prenzlauer Berg district had already paid half of their property.
“I’m not rich. My money is the fruit of my labor and I pay interest on a loan that I don’t even take advantage of,” complained Shevchenko, who said he had paid 250,000 euros.
Neither the company nor the future owners have taken out any insurance. The only hope is to find a buyer to finish the job, or…. finish it yourself.
“I never imagined that something like this could happen in Germany,” explains Marina Prakharchuk, 39, who has already paid 175,000 euros for a 45 m2 apartment in the building, with tears in her eyes.
“I put all my savings into it,” adds this employee of a logistics company, originally from Belarus.
This crisis represents a serious blow to the government of Olaf Scholz, who promised to build 400,000 homes a year when he came to power at the end of 2021.
This is a very distant goal: the sector expects to struggle to reach the figure of 250,000 this year, and even dip below 200,000 by 2024.
Yet the need is enormous, exacerbated by the influx of refugees and foreign workers in recent years in a country with a labor shortage.
A situation that could turn into a social bomb, at a time when the lack of supply is causing a sharp increase in rents. In Germany, half of the population does not own their own home.
This is a further blow to the purchasing power of families, already shaken by inflation, which in the country is still above 6%.
Housing Minister Klara Geywitz has announced plans to extend some measures to help families access home ownership and to invest “a further billion euros” in residences for students and apprentices.