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The construction industry is in a deep crisis. More and more property developers are bankrupt. This often has dramatic financial consequences for home buyers.
Having your own house or apartment: This is what many people have always dreamed of. But now the dream of having your own four walls often looks like this: The property developer is bankrupt and nothing is happening on the construction sites. However, buyers still have to pay loans and rent.
Antonia Meyer can’t believe it either. She had decided to buy a new apartment in Berlin and wanted to move in herself. But then construction stopped last year. “There were delays at first, which we were also informed about,” reports Meyer. “In the spring and summer there was no communication at all.” She then researched and found out that the property developer had filed for bankruptcy.
Insolvent property developer: defenseless buyers
At this point, Meyer, like many other home buyers, had already paid hundreds of thousands of euros. Without insurance, as is usual in the industry. In addition, she has to continue paying her loan for the apartment in addition to the rent for her current apartment. And nobody knows what will happen next.
Meyer called in Berlin construction lawyer Martin Liebert. More and more people affected are turning to him. In the last six months alone, he has accepted 50 to 60 new cases, reports Liebert. “And of course there are fates behind it every time.” For example, young couples who have already given notice of their rental apartment, trusting in the completion date. And then the news comes that the construction won’t be finished.
More property developer bankruptcies than ever before
All over Germany, home buyers are faced with building ruins and have to watch as their long-awaited home begins to rot, half-finished. Because more and more project developers and property developers are filing for bankruptcy: 578 last year alone. This is a new negative record. According to the German Economic Institute (IW) in Cologne, the crisis is currently hitting home with full force among property developers who build residential complexes and then sell the apartments individually.
On the one hand, construction costs have risen by around a third within two years, explains Michael Voigtländer from IW. “At the same time, however, interest rates have risen sharply. That’s why those interested simply no longer have the ability to pay.” And the longer the phase lasts in which little is sold, the more likely there will be more bankruptcies, says Voigtländer.
Apartment buyers are legally in a bad position
There is no mandatory insurance for the money already paid in Germany. The buyers then have little in their hands, as construction lawyer Mathias Schmid explains: In normal construction contracts – regardless of whether you are building an entire house or just having a new floor laid – the entrepreneur is always obliged to pay in advance.
“With the property developer contract, it’s exactly the other way around. You have to pay 100 percent, then you get the consideration in the form of the property and the property on it,” adds Schmid. There is no mandatory insurance or bank guarantee in the event of property developer insolvency.
Better protection in other countries
In Austria, insurance for the purchase of an apartment is required by law. In the event of bankruptcy, the apartment buyer receives either a finished apartment or his entire down payment back.
And in France, a bank or insurance company guarantees that construction will be completed and there is also a guarantee after completion. “This guarantee is important for consumers to avoid finding themselves in a situation like in Germany, with a home that they have started paying for and that is ultimately not completed because the developer has gone bankrupt,” explains the Strasbourg resident Lawyer and construction law expert Pascal Rivera.
Consumer protection through EU directive?
The European Union has had a so-called clause directive since 1993. This means “that all member states throughout EU Europe must ensure that clauses that put consumers at an economic disadvantage are declared ineffective. But the German legislature is boycotting this,” says construction lawyer Schmid.
The Federal Ministry of Justice replies that the EU directive has been implemented Plus minus. However, the ministry admits that it is currently examining whether consumers need special legal protection when purchasing real estate from property developers. “Considerations regarding a possible legal regulation have not yet been completed,” it says.
Construction lawyer wants to sue state
But these considerations have now lasted almost five years. As early as 2019, consumer associations submitted concrete proposals at the invitation of the ministry. The ministry has been investigating since then.
Construction lawyer Schmid now wants to hold the German state responsible and sue. “It is entirely justifiable that there is a state liability claim here because the German legislature has let consumers fall into the open,” says Schmid. “And this is to the great detriment of the consumer, to the great detriment of people who are really committed to pushing the limits of what is economically feasible.”