Cracks in German real estate sector visible as housing starts fall Author: Reuters

By Tom Sims

FRANKFURT (Reuters) – The number of new housing starts in Germany fell in the first half of the year, data showed on Wednesday, underlining tensions in the real estate market in Europe’s largest economy.

According to data from Bulwiengesa, a company dealing with real estate market consulting and analysis, in the first half of the year the number of construction starts dropped by 26% compared to the previous year.

“The decline has stabilized, but recent trends such as project delays, low construction starts and project developer defaults continue,” Bulwiengesa said.

The figures follow a pessimistic assessment by one of the country’s largest property owners, Vonovia CEO Rolf Buch, who last week predicted that more real estate companies would go bankrupt.

For years, low interest rates and a strong economy have kept Germany’s real estate sector flourishing, which contributes 730 billion euros ($798.40 billion) a year to the country’s economy, about a fifth of its GDP.

That boom ended when runaway inflation forced the European Central Bank to raise borrowing costs. Real estate financing dried up, deals collapsed, projects stalled, major developers went bankrupt and some banks faltered.

Some in the industry hope lower interest rates will help reverse a market that is in its third year of crisis.

“Financing project development remains a challenge,” said Francesco Fedele, CEO of BF.direkt, a real estate finance consultancy.

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