One trend that may be about to change is the number of foreclosures or forced auctions in the German residential market, after years of steadily declining numbers while prices continued their upward rise. The negative shift in Germany's economic climate may well put growing numbers of property owners under pressure.
Walter Ruesch, the Ratingen-based publisher of Argetra Verlag, which tracks foreclosure auctions across nearly 500 district courts throughout the country, is expecting a rise in the number of auctions arising from difficulties experienced by middle-income earners who may have bought in the last few years pushing their financial resources to the absolute limit. The rise in interest rates, high inflation and wobbling consumer confidence could force many homeowners to the wall, he believes, with little room for renegotiation with financing banks.
"The fact that around 40% of these financings are structured variably means that financing costs are likely to explode as interest rates rise," said Ruesch. "Irrationally inflated real estate prices increasingly form an explosive cocktail with recklessly awarded financing."
Ruesch says there is no current wave of defaults yet, but it IS building up, suggesting that, with the usual processing time of up to a couple of years, the higher number of foreclosures is likely to become apparent in 2023 and 2024. The delay in processing large numbers of existing cases is also partly due to the coronavirus, with many owners selling off their troubled assets before the banks started foreclosure proceedings.
His views are supported by researchers at the Deutsche Institut für Wirtschaftsforschung (DIW) who are also warning about higher rates of default. Those most likely to be affected are borrowers whose fixed-rate 10-year or 15-year financing deals are running out, and who need to extend with a new loan. Their monthly repayments are likely to rise considerably.
As a rule, about 50% of bank foreclosures end up in the courts, with the remaining half being sold off privately beforehand.
The number of foreclosures has been falling steadily over the last few years with Germany's healthy economy and record-low interest rates, which held servicing costs down and demand for property ownership high. So high, in fact, that many forced sales achieved prices above market prices, while the days of really dirt-cheap deals for habitable accomodation are long gone. The total of such sales last year was 13,163 properties, at a market value of €2.9bn.
In the first half of this year, the number of foreclosure sales was 6,248 - slightly less than in the same period last year (6,432). The sales volume achieved was €1.66bn, up from the €1.42bn of last year.
Of the foreclosures this year, 67% was residential accomodation, mainly single and dual-family homes, followed by apartments. The other 33% were commercial land, multi-family and mixed use properties.
Geographically, the largest number of foreclosures this year (21%) was in North Rhine-Westphalia, while proportionally the highest number of court-appointed foreclosure was in Saxony, at 28 per 100,000 households, nearly three times higher than in prosperous Bavaria, at 10 per 100,000. The average across Germany was 15 per 100,000 households, unchanged from last year.
The highest average value of a forced sale was in Berlin, at €980,000 per foreclosed property, followed by Hamburg at 930,000, with the cheapest being Thuringia at €77,000 on average. The national average was €265,735 per property, up from €221,091 last year. The cities with the highest number of foreclosures was Berlin, followed by Chemnitz, Munich, Zwickau and Leipzig.
Properties at foreclosure auctions are generally offered at a minimum reserve price (Verkehrswertgutachten), which the public can view at the relevant court, along with any mortgages or claims (financial or otherwise) which any third parties may have on the property. However, in most cases it's not possible to do a thorough inspection of the property, with neither the bank nor the delinquent previous owner having a particular interest in on-site inspections.
For most forced sales, there are two appointments, making bidding for a property a bit like a poker game. At the first appointment, any bid that fails to reach 50% of the market value (reserve price) is withdrawn from sale. If the highest offer reaches only up to 70% of market value, the lender (generally a bank) is entitled to withdraw the property from sale, at his discretion. (Hence very keen bidders will generally offer north of 70% to try to clinch the deal.)
The really determined bidder waits until the second appointment, when there is no minimum reserve, and the property is sold to the highest bidder. Bidders might get lucky, if few competitors show up to bid for the asset, or they might end up owning a property whose actual value is even less than the assessed market price, since valuers have the same problem as other bidders in not gaining access to the property without the express permission of the owner.
A successful bidder has to provide a security of 10% of the market value on the day of the sale, with the remainder of the sale price being payable in full within six to eight weeks at the latest. Failure to pay this means the property is immediately returned to foreclosure, with the putative buyer becoming the new debtor.
