Record cancellations in housing projects after the rise in interest rates in Germany

Germany’s housing construction crisis, caused by rising credit and material costs, is accelerating.

The Institute for Economic Research (Ifo), one of Germany’s leading economic think tanks, published the results of its August survey of construction companies’ projects.

Consequently, 20.7 percent of companies reported that their projects were canceled in August. The rate in question was 18.9 percent in July.

The Ifo statement states that due to rapidly rising construction costs and significantly rising interest rates, many projects that were still profitable at the beginning of 2022 are no longer economically viable.

‘UNCERTAINTY IN THE MARKET IS TOO GREAT’

According to the survey, although some companies’ order books are still full, 44.2 percent say they are already suffering from a lack of orders. A year ago, this rate was 13.8 percent.

Klaus Wohlrabe, director of the Ifo Study Center, comments in his assessment of the issue: “Cancellations in housing construction are reaching a new peak. We have not seen a comparable situation since the survey began in 1991. “The uncertainty in the market is enormous.” he said.

‘SOME COMPANIES ARE IN WATER UP TO THEIR THROATS’

Wohlrabe points out that the reduction in financing due to stricter energy-saving requirements also affects builders’ accounts: “Some companies are already up to their necks in water.” he said.

Wohlrabe stated that 11.9 percent of house construction companies are currently in financial difficulties: “This is the highest value in the last 30 years.” he gave the information.

REQUEST FOR MEASURES

On the other hand, the Association of Real Estate and Housing Companies (BFW) demands countermeasures from the German federal government due to the crisis.

BFW president Dirk Salewski said: “The all-time high in cancellations and the huge shortage of orders show that our warnings of a collapse are now coming true. This economic fever curve will continue to increase. “If action is not taken soon, nursing homes will be dead.” he made the assessment of it.

BFW stated that it is necessary for the country’s construction companies to reduce land costs, relax financing conditions and have less bureaucracy in the approval processes.

Meanwhile, the European Central Bank (ECB) is battling rising interest rates and high inflation. This situation slows down the economy by making investments in construction and other sectors more expensive.

While the German economy contracted by 0.4 percent in the final quarter of last year and by 0.1 percent in the first quarter of the year, it failed to grow in the second quarter of the year.

INCREASE IN ENERGY PRICES AND DECREASE IN INDUSTRIAL PRODUCTION ARE A CHALLENGE

While numerous crises such as the Covid-19 epidemic, supply chain disruptions and the war between Russia and Ukraine in recent years have revealed the weaknesses of the German economy, many countries, especially China, are producing more and more goods. imported from Germany and interest rates increase. due to high inflation, which further hinders the growth of the German economy.

Slowing global growth, declining exports, high energy prices, declining industrial production and consumers’ efforts to cope with rising inflation are also negatively affecting the German economy.

For this year, the Ifo expects a contraction of the German economy of 0.4 percent and the Kiel Institute for the World Economy (IfW) expects a contraction of 0.5 percent. (AA)