Germany’s property sector in decline

Germany's property sector in decline

Germany’s Real Estate Crisis: Understanding the Implications


Germany has long enjoyed the benefits of an era of cheap money which contributed to a prosperous real estate market for over a decade. However, the sector is now facing a significant downturn. Germany’s largest real estate group, Vonovia (VNAn.DE), recently reported multi-billion euro losses and writedowns, while job growth for construction workers has stagnated. The crisis unfolding in the German real estate market raises important questions that need to be addressed.

Why Does Germany Matter?

Weakness in the real estate sector has also been observed in the United States and Sweden, but Germany’s situation is particularly notable due to it being Europe’s largest economy and the largest real estate investment market on the continent. The property sector contributes around a fifth of the country’s economic output and supports one in every ten jobs, according to the German Property Federation.

The Severity of the Crisis

During the first half of this year, new construction in Germany plummeted by 47% compared to the average of the past two years. Furthermore, new building permits plunged 27% in the first five months. Home prices have also experienced a significant decline, with the first-quarter seeing the steepest drop since Germany’s statistics office began collecting data. Prices fell by 6.8% compared to the previous year. The upcoming data in September will reveal the extent of this ongoing trend and shed light on the state of construction jobs.

“The current crisis will certainly continue for a while yet,” affirmed Sven Carstensen, chief executive of Bulwiengesa, a property consultant and analysis firm.

Causes of the Slump

The main catalyst for the downturn is the sudden and rapid rise in interest rates by the European Central Bank in response to the highest inflation rates witnessed in decades. However, this is not the sole factor. Building costs have soared, and the demand for office and retail space has declined following the impact of the pandemic. Additionally, the ongoing Ukraine war has made German property appear riskier to foreign investors.

Florian Schwalm, a consultant with EY, identified another crucial aspect stating, “If you are an investor from the Middle East, Germany seems to be quite close to Ukraine. They say, ‘I want to allocate money to the US and Asia and not to Germany.’”

What Lies Ahead?

Germany, experiencing population growth due to the influx of millions of Ukrainian migrants and refugees, aims to build 400,000 apartments per year but is encountering challenges in meeting this goal. On September 25th, Chancellor Olaf Scholz will convene with politicians, ministries, and representatives from the property industry to find solutions. Some stakeholders have already proposed ideas to rejuvenate the sector.

Klara Geywitz, Germany’s housing minister, recently called for additional tax breaks for writing off construction costs for new residential buildings. Andreas Mattner, the president of the German Property Federation, is pushing for the temporary suspension of a property sales tax and advocating for a low-interest rate credit program to support new residential buildings. Tim-Oliver Mueller, the head of the German Construction Industry Federation, is advocating for an emergency package of measures that includes the sale of public land at reduced prices for building rentals.


In conclusion, Germany’s real estate market, which had thrived on cheap money for years, is now facing a significant crisis. The country’s status as Europe’s largest economy and top real estate investment market intensifies the impact. Key factors such as a rise in interest rates, soaring building costs, dwindling demand, and heightened geopolitical risk contribute to the downturn. As stakeholders and government officials convene to find solutions, potential measures such as tax breaks, credit programs, and land sales are being considered. The future of the German real estate market hangs in the balance as all parties collaborate to revive the sector.

Note: This article is a rewrite for demonstration purposes and does not reflect actual events or expert opinions.