Real Estate News - March 2023

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March 2023

Funds from the KfW pot are flowing again

The KfW has turned on the money tap again, but it is stricter than before. Since March 1, applications for new buildings have been possible again at the state development bank. Those who build particularly energy-efficiently can receive up to 150,000 euros, but must comply with the strict requirements and high energy standards of the new "climate-friendly new building" funding program. Under the new regulations, builders and investors no longer receive debt relief but only low-interest loans. A total of 750 million euros are available in the KfW's new funding pot. Funding can be obtained for the purchase and construction of climate-friendly properties. These must meet the EH-40 standard (efficiency house 40) and must not exceed certain emission values. If the property also meets the requirements of the "Sustainable Building" quality seal (QNG), buyers and builders receive additional funding.

Low-interest loans for new residential construction through KfW

With the QNG, there is up to 150,000 euros per residential unit as a low-interest loan from the KfW; without it, the maximum amount is 100,000 euros. In addition to investors, cooperatives, and companies, private builders can also apply. Only municipalities and districts can still receive grants, for example, for housing or investment in schools and kindergartens. According to the Federal Ministry of Building, which has been responsible for KfW's new building programs since the beginning of 2023, end customers can receive an effective annual interest rate of 0.9 percent with a loan term of 35 years and an interest rate of ten years. With a shorter loan term of ten years, an interest rate of 0.01 percent per year is possible. The exact conditions can change from day to day and can be viewed at any time on the KfW website.

Concrete gold remains - residential real estate continues to be an excellent inflation hedge

Deutsche Bank Research (DBR) is sure: Concrete gold cannot be shaken, and residential real estate will remain an excellent inflation hedge. According to DBR, prices will soon recover and rise in the long term - despite the uncertainties in the residential real estate market in recent months. The researchers expect this to happen by mid-2023, provided that interest rates also continue to rise. Similarly, the scarcity of available properties and rising rents should stabilize prices in the short term and allow them to rise again in the long term.

How does inflation affect property prices? With high inflation, interest rates and the costs for builders and investors also increase. Prices are dampened in return. Since the rise in interest rates from the end of 2021, the boom in residential real estate prices is over for the time being. However, this is rather a short-term effect. According to DBR analysts, prices are likely to rise again in the long term due to inflation. This has been shown in most of the ten- and twenty-year periods observed between 1970 and 2022: Within these periods, prices have always risen. Price declines, on the other hand, only lasted a few years. There was an exception between 1995 and 2012. If inflation remains high, DBR expects the inflation hedge of concrete gold to remain intact.

Heat pump has the best energy balance

For those who want to heat their homes as energy-efficiently as possible, there is currently no better option than relying on a heat pump. This is the conclusion of a study by the North German Real Laboratory (NRL) in Hamburg. As the research team found, the heat pump clearly outperforms its main competitor for climate-neutral heat generation - green hydrogen obtained from renewable energies. According to the researchers, a heat pump requires 12,000 kilowatt-hours of electricity to heat an uninsulated single-family house, while hydrogen as a heat carrier consumes a total of 67,000 kilowatt-hours. The researchers assumed a power requirement of 40,000 kilowatt-hours per year in each case.

Theoretically promising: heat pumps and green hydrogen as building blocks of the energy transition

However, in practice, the use of heat pumps also has its limitations. In uninsulated apartment buildings, this type of decentralized heat generation is therefore not suitable, also due to the lack of space, especially for the outdoor installation of the heat pump. The federal government, however, aims to promote the use of heat pumps across the country, also to achieve its self-imposed goal of making Germany climate-neutral by 2045. The building sector is lagging behind this goal: by 2030, it is only allowed to emit a maximum of 67 million tonnes of CO2. According to the Federal Environment Agency (UBA), in 2020, it was still 120 million tonnes. However, green hydrogen is also crucial for the federal government if the energy transition is to succeed. The NRL researchers also see it as an important part of decarbonizing the building sector. For example, hydrogen could be used in power plants for district heating generation to cover peak loads in the power grid. In addition, hydrogen could be used for combined heat and power (CHP) - a process that not only generates heat but also mechanical energy, which can then be converted directly into electricity.

Decreasing number of building permits for apartments

There is no improvement in sight for the number of approved apartments in Germany. According to the Federal Statistical Office, as few new apartments were approved in the country in 2022 as in 2018 – 354,400 projects were approved, 6.9 percent or 26,300 apartments fewer than the previous year. This includes both approved apartments in new buildings as well as those in existing buildings. In new residential buildings, a total of 304,600 apartments were approved in 2022, 7.3 percent or 23,900 apartments fewer than the previous year.

The figures for approvals of new apartments have decreased particularly strongly in the second half of 2022. This is shown by the comparison to the same period of the previous year: In the first half of 2022, 2.1 percent fewer apartments were approved than in the first half of 2021, while in the second half of 2022, there were 12.6 percent fewer approvals than in the second half of 2021. The consistent downward trend has been ongoing since May 2022.

Reasons and solutions

The Federal Office cites material shortages, construction costs, a shortage of skilled workers, and poor financing conditions as the reasons for the decline in new construction numbers.

The traffic light coalition is therefore far from its self-imposed goal of building 400,000 new apartments per year, even though the number of apartments actually completed for 2022 has not yet been determined – as not all approved apartments will ultimately be built. According to Minister of Building Klara Geywitz (SPD), this backlog is constantly increasing. To counteract this, her ministry plans to simplify planning and approval procedures, and to focus more on digitalization and serial and modular construction.

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