Home truths hit Germans as housing sector reels under economic crisis

Hit by a sudden jump in interest rates and raw material costs, twice as many developers filed for insolvency over the last year than the previous 12 months.

Like hundreds of homeowners-to-be across the country, Valeriy Shevchenko found the construction of his new home suddenly halted. / Photo: AFP
AFP

Like hundreds of homeowners-to-be across the country, Valeriy Shevchenko found the construction of his new home suddenly halted. / Photo: AFP

Valeriy Shevchenko felt like he made the purchase of his lifetime when he beat a queue of prospective buyers to secure a two-bedroom apartment in one of Berlin's most popular districts.

Two years on, the 33-year-old's housing dreams have come crashing down after the developer of his new home, Project Immobilien, went bankrupt.

Hit by a sudden jump in interest rates and raw material costs, twice as many developers have filed for insolvency over the last year than the previous 12 months.

Like hundreds of homeowners-to-be across the country, Shevchenko found construction of his new home suddenly halted, as workers cleared out of the site where the concrete skeleton of the building stands, with no windows.

"From the middle of August, the construction was frozen. The cabinets for the workers here, the crane in the middle, everything moved away," said Shevchenko at the site, shellshocked by the setback.

AFP

View of the unfinished "Malmoerstrasse 28" residential housing project in Germany.

With such scenes multiplying across the country, Chancellor Olaf Scholz has called in leading players in the property sector for talks on Monday, with the aim of jump-starting construction.

For years, record-low interest rates and strong demand had spurred new projects and investment in Germany's property market.

However, a sharp rise in consumer prices as a consequence of Russia's attack on Ukraine has forced the European Central Bank to aggressively raise interest rates to curb inflation, drastically pushing up mortgage costs and in turn bringing down property prices as well as profit margins of building projects.

Builders are also suffering from higher raw material costs, a problem that had already begun during the pandemic but which has been accentuated by the Ukraine war.

"Investors no longer know how to make certain projects profitable," said Tim-Oliver Mueller, president of the German building lobby group HDB.

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'All my savings'

In a sign of the crisis, developer giant Vonovia recently decided to put 60,000 projects on hold.

One in five property companies has reported cancelling building projects in August, while 11.9 percent face financing difficulties, according to a recent survey by economic research institute Ifo, which described the figures as unprecedented in 30 years.

Many of the halted projects are also well-advanced, pushing buyers into dire financial straits.

In Berlin, investors of Project Immobilien's construction had already paid half of what was due.

"I'm not a rich person. My money is the fruit of my labour," said Shevchenko, who had already paid up 250,000 euros ($266,100) for the apartment he bought for half a million euros.

AFP

View of an unfinished residential housing project in Berlin's Wedding district.

With no insurance purchased by the building company or the future homeowners, there is no financial protection against sudden bankruptcy.

Their only hope now is to find someone else to take over the construction, or to finish it themselves.

"I never thought that something like that could happen in Germany," said Marina Prakharchuk, 39, with tears in her eyes.

The Belarusian had paid up 175,000 euros for her 45-metre square apartment.

"All my savings are in there," said the employee of a logistics company.

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