Germany has long prospered due to an era of cheap money that spurred a decade-long boom in the real estate market, but now the sector has found itself at a crossroads.
The largest German real estate group, Vonovia, has recorded billions of euros in losses and write-offs, and the demand for construction workers is stagnating, which is the latest in a series of signs of trouble in the sector. While real estate issues are also present in the US and Sweden, Germany is significant because it is the largest economy in Europe and the largest real estate investment market on the continent.
The real estate sector accounts for about one-fifth of economic output in the country and one in ten jobs, according to the German Real Estate Federation.
New construction in Germany fell by 47 percent in the first half of the year compared to the average of the last two years, and the demand for new building permits dropped by 27 percent during the first five months. Apartment prices also fell in the first quarter by the most since the German Federal Statistical Office began keeping records, down 6.8 percent compared to the previous year.
Data in September will show how the trend continues and will shed light on the employment situation in the construction sector. “The current crisis will certainly last for some time,” said Sven Carstensen, CEO of the real estate consulting and analysis firm Bulwienges.
The main factor in the decline of the real estate market was the sudden and rapid increase in interest rates by the European Central Bank (ECB), which is trying to curb the highest inflation in the last decade.
