German construction booms, fears rise about Mietpreisbremse

After a run of three good years since 2010, there are further good times ahead for the German construction industry, with growth of 3.5% forecast for the full-year 2014 on turnover of €285bn, and an even better 5.3% growth for 2015, according to a new study by German leading credit insurer Euler Hermes.

“Germany’s construction industry is booming – against the general trend in Europe”, said Ludovic Subran, chief economist at Euler Hermes, presenting the study. Growth is coming almost exclusively from the demand from private individuals to invest in their own four walls, with public construction a long way behind. However, rising prices for energy and material costs are keeping builders’s margins under pressure, at about 6%. This has also led to a high level of insolvencies, the second-highest of any industry in Germany, although the number is set to fall, according to Euler Hermes’ director for risk management Thomas Krings, by 3% in 2014 and a further 5% next year, as a result of improving payment practices.

The biggest threat facing the construction industry’s future growth is the so-called Mietpreisbremse, or rental cap, due to be introduced across Germany next year. A similar move in France led to a fall of 19% in new building projects and the granting of 13% less building permits.

In Berlin the Justice Minister in the coalition government, Heiko Maas (SPD) confirmed that the lawmakers were excluding newly-built properties from the constraints of the Mietpreisbremse, so as not to strangle the incentive for new construction as a measure to cool down demand for housing, particularly in the larger cities where demand is greatest for affordable housing.

The decision has been welcomed right across the German real estate industry, where many landlords had feared being unable to charge an acceptable market rent for a new tenancy agreement. Jürgen Michael Schick, head of the IVD property association, which represents landlords, commented: “This is a move in the right direction, as finally the housing can be built which can help to alleviate the housing shortage in urban areas.”

However, the gap is still growing between building permits granted and actual buildings built. “A lot of building projects still fail to get built despite having a permit. In central areas of the bigger cities demand for housing is still outweighing supply”, he said. Schick’s organisation is still appealing to municipalities and city planning authorities to rezone more land for residential and to speed up the issuing of permits, particularly in areas likely to be affected by the Mietpreisbremse.