Fewer German property foreclosures despite pandemic

Last year saw a falling number of German property foreclosures despite the ravaging effects of the COVID-19 pandemic, according to the annual figures released recently by the Ratingen-based specialist forced auction publisher Argetra.

2020 saw foreclosure proceedings opened on 14,853 properties with a market value of just over €3.1 billion. In the previous year 2019, there were forced auctions of 17,600 houses, apartments or land with a market value of more than €3.4 billion.

The Argetra team write in the report that continuing low interest rates, deferred loans from banks and the state-sponsored short-time allowance (Kurzarbeit) had prevented numerous cases falling into foreclosure during the pandemic. In 2020, an average of 36 out of 100,000 households in Germany were affected by foreclosures (previous year: 42).

Argetra warns that, with the expiry of state aid, more unemployment and insolvencies, the numbers could be set to rise. For its study, as every year, Argetra collates the foreclosure data from all the nearly 500 district courts throughout Germany.

Of the properties offered at auction, two-thirds (66%) were single- and two-family homes, followed by owner-occupied apartments (condominiums). The remainder (34%) is accounted for by commercial properties, business premises, land and other properties.

In reality, however, only about half of the foreclosure proceedings opened actually end up in court. The other half of the houses, apartments or plots of land are sold off beforehand - with there being no shortage of buyers in the current real estate boom.

The number of foreclosures has been falling steadily for years, probably due to the sustained period of strong economic activity and the prevailing low interest rates, which keep the interest burden of loans low for debtors as well as driving demand for real estate.

Kai Warnecke, president of nationwide property owners' association Haus und Grund, puts it thus: "Over the past ten years, the economy has grown steadily, the number of socially insured employees has reached ever higher records, and real wages have risen steadily in the process, so the falling numbers of foreclosures is no surprise. The positive economic development has come to an abrupt end due to the Corona pandemic."

During the crisis, banks are permitting borrowers to defer payments instead of canceling loans and initiating foreclosures, said Argetra CEO Walter Ruesch. He added that many foreclosure appointments have been canceled because of assembly bans during the pandemic. Because of the economic slump and increased unemployment, especially in the auto industry, significantly more foreclosures can be expected down the line after a time lag, he said. "We're not really expecting the Corona-related loan cancellations until the second half of 2021 and especially 2022, given the long processing times at the banks and the courts."

The Argetra figures show that properties auctioned last year had an average market value of just over €212,000, up from an average of €195,000 the previous year. The values were highest in Hamburg and Berlin, and lowest in Saxony-Anhalt. The market value of properties often deviates from the current market value, as one to two years often elapse before the date of the forced auction and prices rise or fall in the meantime.

A particularly large number of properties were auctioned in central Germany, from North Rhine-Westphalia to eastern Germany. Despite a decline, the number of foreclosure appointments per 100,000 households is still three times as high in Saxony-Anhalt (73) as in Bavaria (22). Chemnitz leads the 40 cities with the most court appointments, followed by Leipzig, Zwickau and Berlin.

Argetra CEO Ruesch was quick to dispel the impression that buyers can automatically get their hands on apartments or houses at truly knockdown prices at the foreclosure auctions. "Nothing is cheap any longer in the real estate market", he said. It's more that the forced auctions are now more about debtors getting out of their financial situation as best they can, generally after becoming unemployed.