The construction slump: another crisis to hit the German economy

Germany’s third skyscraper is currently a large area under construction. It is located in the city-state of Hamburg. It has about 64 floors, 100,000 square meters of leasable space, units for retail businesses, restaurants and even a hotel. The project, whose height reaches 254 meters, is called “Elbe Tower”, an obvious reference to the great river in which Hamburg swims. It was designed by British architect David Chipperfield. Its value is estimated at around 1000 million euros.

Contrary to what one might think, the “Elbe Tower” is not a project with a bright economic future for the northern German metropolis today. There are many uncertainties on the horizon for this project.

It seems from the beginning that this tower will not be finished by the company that designed and started its work. Signa Real Estate Management Germany, a subsidiary of the Austrian real estate firm Signa Holding, was responsible for this work. The problems of “Elba Tower” are the problems of Austrian tycoon Rene Benko. He is the owner of Signa Holding, a Central European real estate and business empire. This empire is now experiencing great difficulties.

“Elbe Tower” may soon change hands, reports the business daily Handelsblatt. Negotiations are already underway between the heads of Signa Holding and German businessman Klaus-Michael Kuhn. The “Elbe Tower” was originally a project intended to make his company an unmistakable place on the entire urban skyline of Germany, the largest economy in the Eurozone and the fourth largest in the world.

But Signa Holding declared itself insolvent a few days ago. In Hamburg, your company faced a difficult economic situation. As a result, the German economy is the only major OECD economy to fall into recession this year. According to the latest forecasts, Germany’s GDP will decrease by 0.4%.

In this context, Signa Holding faced problems such as rising construction prices, the burden of rising interest rates and other internal problems that made it impossible for the company to overcome difficulties.

As the Frankfurter Allgemeine Zeitung wrote in its economic pages, the case of Signa Holding serves as “an example of the emergency situation in the German real estate sector.” Admittedly, for a long time now, the energy crisis linked to Russia’s invasion of Ukraine, a war that will soon be two years old and without which the current recession would not be German, has occupied all the attention of observers. explained.

This war forced Germany to change its plans in the direction of decarbonization, which is planned for 2045. He also demanded that the country buy liquefied natural gas, which is more expensive than Russian natural gas, on which the country has become dependent. On the other hand, this situation forced the government of Chancellor Olaf Scholz to continue the extensive use of coal as an energy source.

This evolution is key to understanding inflation in Germany, which continues to put pressure on many key industrial sectors of the German economy. The construction sector is one such area, and the case of Signa Holding and Elba Tower is no exception.

Real estate company Devello, based in Hamburg, also declared insolvent, as did Centrum Holding, based in Düsseldorf. These are well-known names in the sector. The Frankfurter Allgemeine Zeitung also collected this among several other examples, while referring to the case of Vonovia, one of the major housing rental companies that has helped build new homes in the current economic context.

In the aforementioned Frankfurt newspaper, they talk about the “stopping” of the industry. Experts generally speak of a “crisis”. “The market has been broken for years,” according to recent explanations offered by public television network ARD. “Inflation and high interest rates make investments often insufficiently profitable,” they said in a recent public media news release.

As a result, less is being built in Germany than Scholz and company would like to see in their country. The German executive aims to build 400,000 homes a year. But this number seems impossible. According to the latest reports from economic weekly WirtschatsWoche, between January and July this year, 156,200 homes were given permission to build, 27.8% less than in 2022, a year when not even 400,000 were reached.

There are complaints of excessive bureaucracy slowing down construction. But it’s another element in a crisis in which Scholz and company seem powerless, at least for now. At the current rate of construction, the German Real Estate Federation (ZIA) estimates that 700,000 homes will be lost from the market in 2025.

Fiscal stimulus and a fight against red tape — about 50% coming from the EU, according to the Berlin complaint — that the chancellor and his chief executive launched this summer have yet to offer results. Be that as it may, this situation, the market rules – “when there is a lot of demand for a commodity and a little supply, the price goes up” – has led to a sharp rise in housing prices in recent years.

However, amid the current crisis, housing prices appear to have started to decline, according to last month’s data from the Federal Statistical Office (Destatis) and the latest reports from the Kiel Institute of Economics. German abbreviations).

In fact, IfW notes that in the third quarter of this year, the decline in prices compared to the same period in 2022 amounted to 10.5%. According to the German statistics portal Statista, the average price per square meter of a house owned in Germany’s big cities is more than 7,000 euros per square meter. In Munich, the capital of Bavaria, the same area costs 10,800 euros. In the most expensive autonomous communities of Spain, Catalonia and Madrid, it does not reach 4,500 euros per square meter.

Source: El Diario





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