If the stock market, with its endless cycle of booms and busts, is reminiscent of the roulette table in the casino, then the real estate market is like a poker game. You bet without knowing what your opponent’s hand is. A dangerous game.

It is bluffing come hell or high water. The most important prerequisites for later profits are willingness to take risks and good nerves. The real estate market in times of the energy price explosion and rising interest rates shows itself from this opaque side. Potential buyers lurk for opportunities with a poker face. They expect a minimum discount of ten to fifteen percent compared to the pre-war level.

“Nobody wants to be the one who starts buying in a falling market,” says Jacopo Mingazzini, CEO of project developer The Grounds Real Estate Development.

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The willing sellers, on the other hand, sit on their finished or semi-finished real estate projects and try to turn market observers into market participants. The German stiffening in the waiting position should be resolved by referring to foreign investors. Because of the fall in the euro, the Federal Republic looks like a great buying opportunity from the point of view of US investors (and their colleagues from Canada and Australia).

No seller or potential buyer should ignore them:

1. After a good ten years of boom, prices are still high. According to Europace, which claims to be Germany’s largest transaction platform for real estate financing, prices for condominiums fell by -0.86 percent to 228.65 index points in July. Within the past twelve months, however, prices have risen by 7.93 percent.

The prices for new single and two-family houses also fell slightly for the first time, with a drop of 0.26 percent. The index thus drops to 226.28 points. Compared to the previous year, growth of 11.65 percent was still well above the ten percent mark.

This means that the owners and developers of residential real estate are not willing to realize losses just yet, as long as the banks do not force them to act. The market is crumbling but not slipping yet.

2. Nonetheless, there is a noticeable slowdown in market activity, a harbinger of a price slide. At the Expo Real real estate fair in Munich, Peter Axmann, who manages business with real estate customers at Hamburger Commercial Bank, spoke of a halving of transactions in the past six months: “Buyers and sellers don’t come together.”

3. There has been a stalemate in many sub-markets of the real estate business because expected returns and willingness to pay no longer go together. Jörn Stobbe, Managing Director of the Hamburg real estate and investment company Becken, believes that an increase in returns of at least one percentage point is necessary in the portfolio of residential properties so that investors can do what their name promises again: invest. But for this to happen, purchase prices would have to fall significantly or rents would have to rise noticeably.

Neither is currently the case. Sellers don’t want it and tenants can’t. You could also put it like this:

4. Many potential buyers have put their dreams of owning a home or an apartment in the city on hold for now. According to the real estate portal Immowelt, inquiries for properties to buy across Germany have fallen by 17 percent within a year. At the same time, the number of inquiries about rental property increased by 34 percent.

Energy has never been as expensive as it is now. But instead of panicking, you should calmly check potential savings at home. As our guide shows, there are many of them.

5. The economic crisis has left its most visible traces in the new construction business. A third of the construction sites have been shut down, says Arnaud Ahlborn, Managing Director of the residential real estate investment specialist Industria: “We have not experienced that even in the midst of a pandemic.”

“Since April we have seen that a striking number of projects are being canceled,” agrees Ifo researcher Felix Leiss. The framework conditions for housing construction have deteriorated massively in recent months. “Explosive construction costs, rising interest rates on financing and limited funding options are a heavy burden on potential builders’ calculations,” he says.

Felix Embacher from the real estate consulting and analysis company Bulwiengesa agrees with this assessment: “Cancellations in residential construction are at a record level.”

They are currently fourteen percent, but cancellation rates of 20 to 25 percent will be experienced.

6. The reluctance of buyers can also be explained by the changed financing conditions. Mortgage interest rates for loans with fixed interest rates have more than doubled from 1.4 to 3.87 percent within eight months. This means that real estate financing is again as expensive as it was around ten years ago.

The comparison portal Check24 calculates: With construction financing of over 400,000 euros at an effective interest rate of around three percent, this means higher costs of 78,831 euros up to the end of the ten-year term.

7. At the same time, construction costs will increase by an average of 17.6 percent in the second quarter of 2022 compared to the previous year for residential buildings and by 19 percent for office buildings. A stubbornly entrenched inflation is likely to lead to a further increase in interest rates and construction costs. The construction industry is already reporting an increase in total costs of ten percent compared to the previous year.

8th The policy is currently no real help for the real estate market. It does not succeed in simplifying the approval process and thereby significantly shortening construction times. The immediate stop of KfW funding for energy-efficient construction and renovation, which Robert Habeck issued less than eight weeks after taking office at the end of January, irritated the markets and did not stimulate them.

So it’s no wonder: In July, 9.7 percent fewer construction projects were approved than in the previous year, and in June the number was even 14.9 percent. Many in the Greens – keyword landscape sealing – were happy about these numbers, not annoyed.

9. The target propagated by the SPD of building 400,000 new apartments per year is unrealistic in view of the previous figures. SPD building minister Klara Geywitz, a political scientist from Potsdam, reiterated her target at the Munich real estate fair and throws sand in the eyes of the industry and herself. Even if the federal government creates half, i.e. 200,000 new apartments, by the end of the year, the state can consider itself lucky.

10. The roulette table and poker room occasionally meet – in the form of listed real estate companies. Here you can read very precisely the state of mind of the investors and their expectations for the future. The stock market has no poker face, it lives for the moment. Lo and behold: Vonovia shares, Germany’s largest real estate group, have lost almost 50 percent of their value since the beginning of the year. This is the petrel that warns of the coming storm.

Gabor Steingart is one of the best-known journalists in the country. He publishes the newsletter The Pioneer Briefing. The podcast of the same name is Germany’s leading daily podcast for politics and business. Since May 2020, Steingart has been working with his editorial staff on the ship “The Pioneer One”. Before founding Media Pioneer, Steingart was, among other things, Chairman of the Management Board of the Handelsblatt Media Group. You can subscribe to his free newsletter here.

There are good reasons to be suspicious of the government’s and parts of the real estate industry’s optimism. Homeowners looking to sell and renters looking to become buyers need a common virtue in this situation: strategic patience. It’s like at the poker table: whoever twitches now has lost.