GroKo agreement ‘boosts stability’ of German real estate market

Germany’s Christian Democratic Union and the centre-left Social Democrats have reached an agreement regarding the terms of a coalition deal, in a move that will boost stability in the market, Dr. Esfandiar Khorrami, a partner at law firm Bottermann Khorrami, told REFIRE.

‘It comes as a relief that they have come to an agreement,’ he said. ‘It will be perceived as a sign of stability.’

The announcement earlier this month (7 February) followed marathon 24-hour talks in Berlin. Speaking at a press conference alongside former SPD leader Martin Schulz and CSU leader Horst Seehofer, Chancellor Angela Merkel said that the coalition agreement would enable both parties to ‘finally form a government and, what’s more a stable one’: ‘We have a working plan that will improve life in Germany and support business going forward,’ she said.

The unveiling of the 177-page draft coalition agreement marks a breakthrough following months of wrangling, ending a prolonged period of political uncertainty in the country after its federal election last September. Under a ‘grand coalition’, or ‘GroKo’ as it is known, the SPD will head up six ministries, including the finance, work and foreign ministries. Olaf Scholz, the Social Democrat mayor of Hamburg, will become finance minister. SPD leader Martin Schulz will hand his party leadership to former labour minister Andrea Nahles. He has ruled out moving to the foreign ministry. The CDU has laid claim to five ministries and Merkel will retain her role as Chancellor. Conservative acting finance minister Peter Altmaier will become economy minister and Jens Spahn will become the new health minister. CSU leader Horst Seehofer will become home secretary and the CSU will also head up the ministries of transport and development assistance.

This deal has been a long time coming. The CDU and the SPD have been in coalition talks since the beginning of the year after exploratory talks to form Germany’s ‘Jamaica’ coalition comprising the CDU/CSU/FDP and Green party collapsed in spectacular fashion in November. The FDP walked out of negotiations after the parties failed to reach a compromise on the key issues of migration and energy policy. ‘It is better not to govern than to govern badly,’ said FDP leader Christian Lindner at the time. ‘The four discussion partners have no common vision for modernizing the country, nor a common basis of trust,’ he added.

However, disagreements between the CDU and SPD regarding several key issues, including the country’s housing market, immigration and healthcare have seen talks drag on for weeks, with compromise seemingly elusive. The SPD’s 463,000 members began voting on Tuesday last week on whether to enter a new coalition with the CDU. The result of the vote, which runs to March 2, will be announced on March 4.

So what does the deal mean for the German real estate market? According to Khorrami, it is likely to be a case of ‘same old, same old’: ‘I think the new government will keep both the Mietpreisbremse (rental brake law) and the Mietspiegel (rent control table). The Mietpreisbremse law has been presented to Germany’s Constitutional Court and politicians have already tried to pre-empt the outcome,’ he said. ‘The government is trying to avoid the economic burdens that this creates for the cities and municipalities. The Mietpreisbremse law will absolutely remain but will become formally stricter by strengthening tenants’ rights. The government has said it will update the Mietspiegel every three years going forward, instead of two years at the moment, using more scientific data to improve accuracy.’

Nonetheless, construction hurdles still need to be overcome, Khorrami said: ‘In the ‘Big 7’, it can be a challenge to find land upon which to develop. Also, there are literally thousands of residential projects that get put on ice every year because neighbours complain, so they don’t get built. If this goes on in cities such as Berlin, we’ll never be able to play catch-up. People are now moving outside the city centres to ‘satellite hubs’ around 40 minutes away. Another issue is older people in Germany living in a big home that they can’t afford to leave because a new place would be more expensive. If we could resolve that problem, it could really change the housing market and create more opportunities for families.’

In a bid to help families, the government will introduce ‘Baukindergeld’ to the tune of €1,200 per child per year for up to 10 years as an incentive for families to buy their own home, providing their joint income is less than €75,000. In addition, the government is offering an allowance of €15,000 per child.

‘I think this will be good for the market,’ said Florian Mundt, managing partner of open-ended fund manager Deutsche Investment. ‘The pension system is becoming more difficult as more people claim it than pay into it. This subsidy will help to compensate.’

Kai Wolfram, managing director of Engel & Völkers Investment Consulting, agrees: ‘This kind of tax relief can drive the market because there hasn’t been enough done in the past to encourage people to buy homes,’ he said. ‘There might also be tax relief for developers who build homes. However, for bigger housing developments in Berlin, 30% of the floor area has to be affordable/rent-capped, which pushes up the prices of the other apartments in the building.’

However the new coalition plays out, the deal this month marks a volte-face for Schulz, who initially ruled out a ‘GroKo’ last year, saying that voters had rejected it. Not all SPD voters are behind the deal. Germany’s Juso, the youth wing of the SPD, has retained its anti-GroKo stance. Juso leader Kevin Kühnert said that the SPD ‘got out of the deal what was possible’ but stressed that fundamental differences between the two parties continued to exist. Even Seehofer failed to give the GroKo his ringing endorsement. Speaking at the press conference with Merkel and Schulz, he said: ‘If we’re happy with something in Bayern, we say, ‘it fits’. It fits.’

The federal election in September dealt a bitter blow to the CDU/CSU, securing them just 33% of the vote. Whilst putting them in the lead, the result represented a loss of 8% compared to the previous election and CDU’s worst result since 1945. It was also a disastrous night for Martin Schulz’s Social Democrats, which took just 21% of the vote, the poorest vote for Germany’s oldest party since 1949. However, it was a strong night for Germany’s Free Democratic Party, which gained almost 5% to take 10.7% of the vote. More worryingly, it was a strong night for Germany’s far-right Alternative für Deutschland (AfD), which won 12.6% of the vote, making it Germany’s third largest party and propelling it into the Bundestag, where it is expected to occupy 88 seats, compared with 217 for the CDU/CSU and 137 for the SPD. (ssk)