Three major property developers in Germany have gone into insolvency in the space of two months.
According to reports from Berlin, Centrum Group, Development Partner and Euroboden have all begun to declare bankruptcy in recent weeks due to financial problems caused by a constraint on the nation’s property markets. A report from Reuters suggested Euroboden was facing possible downgrades in its credit ratings, along with outstanding bonds of €115m.
Elsewhere, Handelsblatt reported earlier this week that the Dusseldorf-based Development Partner filed for insolvency last Friday in district court. This followed the Centrum Group’s similar filing in July. A fourth developer, Fakt, is also understood to have filed last year.
All of this is an indicator the German property market is not only cooling off but could be entering a period of decline. An April paper from Deutsche Bank, titled 2023 Housing Market Outlook, took a negative view on the market. Other reports, such as this one in the Financial Times in June, indicated German house prices fell by 6.8% in the first three months of 2023. This is backed from statistics from the Bundesbank.
Jochen Möbert, author of the Deutsche Bank piece, wrote: “The boom is over. House prices are falling. Some indices show significant price declines, others are very restrained. The price expectations of potential buyers and sellers diverge. The number of transactions is very low.”
He added: “At current financing costs, prices would probably have to fall by about 20% from their peak to return to positive cashflow. However, five key arguments lead us to expect only a price dip. Negative real interest rates, inflation protection through real estate, rising rental growth and, most importantly, a high fundamental supply shortage. In addition, real house prices have already fallen very sharply due to the surge in inflation.”
First dip in prices
A lurch in the German housing market has been in play for some time. Last year, the news broadcaster Deutsche Welle wrote that Q4 2022 had seen a dip in housing prices – then at just 3.6%, but the first drop, it said, since 2010.
Deutsche Welle wrote then: “Overall, prices for single family homes and duplexes in cities fell 5.9% compared to Q4 2021. Prices for apartments fell an average of 1%. Prices for homes in rural areas fell 5.5%. Prices in Germany’s seven most populous cities — Berlin, Hamburg, Munich, Cologne, Frankfurt, Stuttgart and Düsseldorf — also fell for houses (2.9%) and apartments (1.6%).”
More recently, Reuters reported that the beleaguered firms were looking to central government for help, noting: “The German property industry will ask the government for multi-billion euro support at a meeting with Chancellor Olaf Scholz, people familiar with the matter said, as gloom engulfs the nation’s real-estate sector in its worst crisis in decades.”
It added: “The meeting of politicians, ministries and industry at the chancellery is scheduled for 25 September and will discuss a housing shortage in Europe’s most populous country – a property crisis exacerbated by a collapse in prices.”