When Valeriy Shevchenko signed up for a three-bedroom apartment in a building to be constructed in a sought-after district of Berlin, he thought he had made the purchase of a lifetime. Two years later, his dreams of becoming a homeowner were dashed when construction work came to a sudden halt.
The company Project Immobilien, which was managing the construction, went bankrupt this summer, hit by the property crisis that has been rocking Germany for several months, leaving hundreds of buyers in limbo.
“The cranes, the equipment for the workers, everything has been taken away”, the 33-year-old father told reporters, standing in front of a windowless concrete facade.
Soaring interest rates are pushing up the cost of credit, demand is plummeting and the price of materials is skyrocketing. Business bankruptcies in the German construction sector have doubled in the space of a year, bringing many projects to a halt.
Chancellor Olaf Scholz is inviting industry professionals to a summit in Berlin Monday. The aim is to revive construction activity at a time when the country is cruelly short of housing.
“Investors no longer know how to make certain projects profitable”, Tim-Oliver Müller, Chairman of the German Construction Federation (HDB), told the press.
For years, the sector benefited from the low interest rates made possible by the European Central Bank’s generous monetary policy. Demand was strong, and building sites in Germany’s major cities proliferated.
But the ECB has had to raise interest rates drastically to combat inflation, causing demand for loans, property prices and project profitability to plummet.
The market is slowing across Europe. But Germany has been particularly hard hit, with house prices falling by 6.8% year-on-year in the first quarter of 2023, compared with a slight rise of 0.4% for the eurozone as a whole.
At the same time, developers are suffering from the rise in the cost of building materials, following the coronavirus pandemic and amplified by the war in Ukraine.
German property developer Vonovia, a heavyweight in the sector, recently decided to freeze the construction of 60,000 homes. One in five property companies said they had cancelled building projects in August, while 11.9% were facing financing difficulties, according to a recent survey by the IFO institute.
In Berlin, the buyers of the Project Immobilien building in the central Prenzlauer Berg district had all already paid for half of their property.
“I’m not rich. My money is the fruit of my labour, and I’m paying interest on a loan that I’m not even taking advantage of”, lamented Mr Shevchenko, who said he had paid €250,000.
Neither the company nor the future owners have taken out any insurance. The only hope is to find a buyer to finish the work, or…. finish it themselves.
“I could never have imagined that something like this could happen in Germany”, explains 39-year-old Marina Prakharchuk, with tears in her eyes, who has already paid €175,000 for a 45 m2 flat in the building.
“I’ve put all my savings into it”, adds this employee of a logistics company, originally from Belarus.
This crisis is a major blow for Olaf Scholz’s government, which promised to build 400,000 homes a year when it came to power at the end of 2021.
This is a long way off: the sector is expecting to struggle to reach the figure of 250,000 this year, and even fall 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 labour shortage.
A situation that could turn into a social bomb, at a time when the lack of supply is causing a sharp rise in rents. In Germany, half the population does not own their own home.
This is a further blow to household purchasing power, which has already been shaken by inflation, which is still running at over 6% in the country.
The Minister for Housing, Klara Geywitz, has announced that she wants to extend certain measures to help families access home ownership, and to invest “an additional billion euros” in residences for students and apprentices.