The head of the state development bank KfW believes that prices for residential real estate will not collapse dramatically in the coming months. But he is worried about the low demand for construction loans.
The head of the state development bank KfW, Stefan Wintels, sees continued high demand for residential real estate in Germany. He therefore does not expect a “significant” drop in prices for apartments and houses, Wintels told the dpa news agency.
“In view of the continued structurally high demand, we are far from an impending crisis in residential real estate.” However, there are clear regional differences in the price development, according to the KfW boss. In large cities, price declines on the real estate market are significantly lower than in less sought-after locations.
tripling of interest costs
However, the head of KfW is concerned about the low demand for real estate loans. It is mainly due to the sharp increase in construction interest rates in recent months. The comparison portal Interhyp currently shows an annual interest rate of almost four percent for loans with a 10-year fixed interest rate. That is around one percentage point more than a year ago. At the beginning of 2021, comparable mortgage loans were still available for less than one percent annual interest.
“Of course, rising interest rates mean higher costs for all borrowers. Due to the rapid, almost historic rise in interest rates, interest costs have tripled,” says Wintels. In absolute terms, these are still bearable in historical comparison. “But the speed and this rapid increase is what makes it difficult for some, because hardly anyone in the dimension was prepared for it.” The higher interest rates would also affect small and medium-sized companies.
New construction activity collapsed
According to the Bundesbank, new business from banks with real estate loans to private individuals fell by around half in April. The rise in interest rates and expensive materials are also making themselves felt in new construction, and many projects are being cancelled. The ifo Institute expects that 275,000 apartments will be completed this year after 295,300 last year. Residential construction will also shrink in the years to come. The goal of the federal government of 400,000 new apartments per year would thus be clearly missed.
Real estate prices in Germany have recently fallen from their high level. According to the Federal Statistical Office, there was an average decline of 6.8 percent in the first quarter compared to the same quarter of the previous year. According to the authority, residential real estate had already become cheaper by 3.6 percent in the fourth quarter of 2022 compared to the previous year. Residential real estate prices had risen steadily in recent years. The last quarter with a price decline was in 2011.