FRANKFURT (dpa-AFX) - Faced with increased lending rates and much uncertainty in the real estate market, consumers continue to hold back on construction financing. German banks' new business in real estate loans to private households and the self-employed slumped 43 percent in December compared to the same month last year, new data from consulting firm Barkow Consulting show. With a volume of 13.5 billion euros, new business was at its lowest level since June 2011, according to the analysis, which is available to news agency dpa.

The decline in December was already the fourth negative record in a row, consultant Peter Barkow said. Measured against the record volume of 32.3 billion euros in March 2022, there was a minus of almost 60 percent, he said. Relief is not in sight for the time being, he said, with new data based on Schufa inquiries pointing to a slump of 41 percent in January compared with the same month last year. The study is based on figures from the European Central Bank and the Bundesbank.

Mortgage brokers also reported a lot of reluctance among customers. "Among capital investors, interest in real estate investments has fallen, and among owner-occupiers, financial feasibility," says Michael Neumann, head at Dr. Klein. Many prospective buyers were waiting for the market to change in their favor. "Say: whether the real estate prices go down".

Currently, fewer people could afford a property because they could not raise the recommended equity of 20 percent of the purchase price, reports Tomas Peeters, head of Baufi24. "Capital investors in particular are holding back because buying property is no longer profitable for them in the current environment," says Jörg Utecht, head of the Interhyp Group, referring to the rise in interest rates.

The business of banks with construction financing is huge. According to Barkow, the loan portfolio stood at 1.57 trillion euros in December, a good five percent more than a year ago. The slump in new business is causing concern in the industry. "For the situation to ease, lending rates or real estate prices have to come down," says Barkow.

In the new business with construction financing, it has been going downhill for months. According to Barkow, it had already fallen by 39 percent to around 13.5 billion euros in November, and there was no recovery in December. The main reason: within a year, interest rates for ten-year loans have more than tripled to around 3.6 percent.

This adds up to hundreds of euros in monthly installments for borrowers. Distressed owner-occupiers pay off more slowly: The repayment rate for newly concluded building loans fell in 2022 on average to 2.4 percent after 2.8 percent in the previous year, reported the credit broker Hüttig & Rompf.

As if the higher interest rates were not enough, builders are also struggling with the immense construction costs. Residential construction projects are being canceled by the dozen. According to the Ifo Institute, 16.7 percent of the construction companies surveyed reported canceled orders in November, significantly more than in the previous month. One reason for this is the lower level of government subsidies.

In addition, banks are scrutinizing real estate loans more closely. They also often apply a higher cost of living because of inflation. "We are noticing that the maximum financing limit has dropped at many banks and that the selection of institutions that finance the entire purchase price is becoming smaller," Dr. Klein says.

Brokers report far fewer inquiries for offered properties than in the past. In some cases, buyers and sellers can no longer find common ground on price. "The uncertainty surrounding the Ukraine war, the energy crisis and inflation is still there in the real estate market, although not as great as it was in the summer," said Felix Jahn, founder of McMakler.

Daniel Ritter, managing partner at broker Von Poll, reported a similar story. "The effects of ongoing inflation and crises continue to be felt." Especially for properties in need of renovation, demand has fallen significantly, he says, as the cost of renovations has risen and is difficult to calculate.

Nevertheless: After the rise of the building interest to over four per cent at the peak, the conditions stabilized with approximately 3.6 per cent at the beginning of February. In addition, many financial experts believe that the central banks are now holding back on further steps after the sharp increases in key interest rates in recent months. This should also take pressure off construction interest rates. At the same time, real estate prices are falling noticeably in most large and medium-sized cities, as Von Poll has observed.

For the loan brokers, who are struggling with the lull in financing, this is all cause for hope. "We expect a somewhat more stable interest rate trend in the current year, as well as lower purchase prices; this should then also bring buyers back into the market," says Baufi24 boss Peeters. Utecht from Interhyp also expects the real estate market to find a new equilibrium in the course of the year. After all, he says, many things have not changed: "Demand for real estate has not gone away, the home ownership rate is the lowest in Europe and the desire to own a home is very high; the same applies to the need for housing."/als/DP/stk