Market Analysis

German Chancellor Olaf Scholz is initiating a new effort to address Germany's property crisis as the nation prepares for a potential recession and upcoming elections, which may strengthen the far-right.

A meeting involving politicians, ministries, and industry representatives is scheduled in Hamburg on December 6, according to two prominent industry officials.

The meeting aims to tackle the housing shortage in Europe's most populous country, which has been worsened by the collapse of major developers and a decline in investment and financing due to falling real estate prices.

The previous gathering in September resulted in numerous government proposals but limited concrete action.

"It indicates that progress is being made," said Iris Schoeberl, president of the German Property Federation, which represents 37,000 firms, regarding the renewed effort. "It also sends a strong signal to the public that the chancellor is addressing the issue."

Tim-Oliver Mueller, head of the German Construction Industry Federation, expressed disappointment that "much of what was discussed previously has led to nothing." He emphasized the need for "concrete steps and real action."

Germany's property industry, valued at 730 billion euros, contributes a fifth of the country's economic output, surpassing its auto sector.

Industry leaders have been advocating for changes, including reducing Germany's property sales tax, which can be as high as 6% of a home's price, and relaxing regulations to lower construction costs.

The government did not respond to a request for comment. The housing ministry stated it was working to support the industry by expediting the building approvals process.

For years, low interest rates and a robust economy fueled a German property boom, which came to an end in 2022 when rampant inflation prompted the European Central Bank to raise borrowing costs rapidly.

The resulting downturn led to a slowdown in transactions, stalled projects, and the collapse of top developers. Recent data indicates a continued decline in building permits for apartments and a significant drop in new building starts in the first half of the year.

While the ECB's June rate cut sparked hopes of a recovery, executives remain cautious.

Rolf Buch, CEO of Vonovia, one of the nation's largest landlords, which reported another loss for the first half of the year, anticipates more property companies will go bankrupt.

Germany has fallen short of its goal to build 400,000 apartments annually as millions move to the country to escape wars and seek employment.

The far-right Alternative for Germany (AfD), advocating policies to support housing, may gain ground in state elections later this year as the popularity of Scholz's three-way coalition declines ahead of the 2025 federal election.

"The housing shortage could lead populists to increasingly address the issue with supposedly simple solutions," warned Schoeberl of the German Property Federation.

Scholz, frequently questioned about the lack of affordable housing, stated at a gathering in Mainz earlier this year: "We must find a way to increase housing where it is needed."

After spending tens of billions to address the energy crisis and boost defense spending, Germany has limited resources for the property crisis, with Mueller also attributing the fragmented responsibility between the federal government and the 16 states as a hindrance to a cohesive response.

Felix Pakleppa, chief executive of the ZDB industry association representing 35,000 building firms, called for subsidies and fewer energy-related regulations. "In Germany, we have become accustomed to the gold standard for technical building specifications, which has made construction projects increasingly demanding and costly," he said.

Since the September meeting, the stream of bad news has continued, with the collapse of Rene Benko's Signa real estate empire, which had a significant presence in Germany, being one of the most notable failures.

Some banks have also experienced stress, with a Frankfurt skyscraper housing Germany's central bank and asset manager Deka filing for insolvency. Apollo-owned Demire also announced that four subsidiaries would file for insolvency after its bank refused to renegotiate a loan.

Schoeberl continues to advocate for measures that enable developers to build quickly and for consistently low-interest loans from a government-backed bank. "What real estate needs is trust and the ability to plan," she said.

Paraphrasing text from "Reuters" all rights reserved by the original author.