The building crisis deepens
As summer comes to a close, interest rates are finding stability in the 3.75% to 4% range, occasionally edging above 4%. Uncertainty looms as the European Central Bank considers further rate hikes, leading to a sideways holding pattern, according to Interhyp's September Construction Interest Trend Barometer.
In August, rates surged by 0.30 percentage points in a matter of weeks, climbing from May's 3.74% to August's 4.04%, a substantial increase.
For instance, at a 4.04% interest rate, the monthly repayment on an average €300,000 loan with a 2% initial payment is €1,510. In contrast, at 3.74%, the figure drops to €1,435, resulting in savings of approximately €9,000 over the loan's term.
Mirjam Mohr, Head of Private Clients, Interhyp
Mirjam Mohr, Interhyp's board member for private clients, emphasizes the importance of timing and preparation. "Borrowers can still seize opportunities in this volatile interest rate environment. By bundling mortgage documents and monitoring rate dips, substantial interest savings can be realized."
Mohr and Interhyp's surveyors don't anticipate an immediate rate reduction due to persistent core inflation in the German economy. "Interest rate pauses don't equate to rate cuts; the new interest rate level is here to stay," she states.
In summary, Mohr advises taking advantage of rate dips to secure favourable terms.
The crisis facing project developers is profound. Liquidity is their lifeblood, and they rely on payments as project milestones are reached. With most residential projects lasting at least eighteen months, developments financed at historically low interest rates are nearing completion, with insufficient replacements.
But that won't much help alleviate the main problem facing developers, which is the mis-alignment between interest rates and the price which the developers must receive for their finished products. Hence the calls from the industry for cheaper subsidized loans administered by state promotion bank KfW, whose subsequent losses would have to be compensated for by the government.
Additionally, rising residential rents, partly fueled by would-be buyers re-entering the rental market due to unaffordability, add to developers' challenges. Without a steady influx of housing stock, higher rents won't benefit them.
As the crisis deepens, an emergency government meeting is scheduled for the end of September. This may provide new initiatives for the industry to discuss at the annual Expo REAL trade fair in Munich in early October.
