Real Estate News - September 2023

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September 2023

Is serial refurbishment the climate protection solution for existing buildings?

Mönchengladbach is the location of Germany's first real laboratory for serial refurbishment solutions. In this major city in North Rhine-Westphalia, the housing company LEG is working with industry partners on new solutions for energy-efficient refurbishment.

The serial refurbishment method combines digitized processes with industrial prefabrication and standardized procedures. This means that even large housing stocks can be brought up to a modern energy standard in a short time and with fewer skilled personnel.

Since August 2018, 19 identical apartment buildings from the 1950s in the Hardt district of Mönchengladbach have been serially renovated by LEG together with construction partners B&O, Ecoworks, Fischbach, Renowate and Saint-Gobain Pre-formance using five different approaches.

The basic principle of the renovation measures is the same for all five approaches tested. Using industrially prefabricated facade, roof and technology modules, the building stock is brought up to the climate-neutral NetZero standard. Technical innovations and process optimizations are being investigated that will make serial refurbishment even faster, simpler, more tenant-friendly and more cost-effective. Economics Minister Robert Habeck has already visited the model district and learned about the renovation innovations being tested.

LEG plans to invest a total of around 40 million euros in testing and optimizing serial refurbishment solutions. The aim is to develop a process that can take a building from energy efficiency class H to class A within three months, achieving 100 percent decarbonization and 90 percent energy savings. This is to be implemented as neutrally as possible in terms of warm rents for tenants.

Sentiment of real estate financiers clouded

The mood among financiers on the German real estate market has clouded over considerably. Above all, the restrictive market conditions, a decline in new business and also increasing property developer insolvencies are responsible for the current situation according to the financing experts. The Sentiment Index for real estate financiers of the BF.Quarterly Barometer sinks to a new record low in the third quarter of 2023: minus 20.22 points out of a maximum achievable minus 25 points. In the previous quarter, sentiment had still improved with a barometer reading of minus 17.29 points.

The BF.quarterly barometer is compiled quarterly on behalf of BF.direkt AG, specialist for the financing of real estate projects, by the analyst firm Bulwiengesa AG. The index is intended to reflect the mood and business climate in the financing business of the German real estate industry. To this end, 110 experts from the lending business with real estate companies are surveyed on the current situation. The panel is made up of representatives from various banks and other financing institutions. The value of the BF.quarterly barometer is made up of various components of a questionnaire: These include an assessment of the change in financing conditions, the development of new business, the amount of loan tranches extended, the risk appetite of financiers by asset class, the level of LTV and LTC values, the development of margins, the importance of alternative financing options and the development of liquidity costs.

A barometer score of 0 would indicate a balanced market situation, anything above that a good willingness to finance up to progressive lending (plus 25). The barometer score reached its all-time high of 8.11 points in the first quarter of 2015.

The main reason for the current subdued mood among financiers is the situation on the financing market. A large majority of 80.4 percent of survey participants currently perceive increasingly restrictive conditions. Compared with the previous quarter, this is an increase of 7.7 percentage points, while unchanged conditions on the financing market were only cited by 19.6 percent of respondents. No expert has seen more favorable market conditions for more than a year.

Expansion of state construction subsidies

The housing shortage is increasing, prices for building materials are at record levels and interest rates for real estate loans have risen sharply. The Federal Ministry of Construction therefore wants to create new incentives to enable more families to buy their own homes. Federal Construction Minister Klara Geywitz is therefore increasing home ownership subsidies. The aim is to support families who want to build their own home to high energy standards or buy a property that meets these standards. The main support is provided in the form of low-interest building loans via the state development bank KfW.

To enable more families to benefit from the program in the future, the upper limit of the annual income is to be raised: from the previous 60,000 euros for a family of three to 90,000 euros. The loan amount will also be increased: a family of three can now receive up to 170,000 euros from KfW, 30,000 euros more than before. The effective annual interest rate is to be 0.5 percent.

Due to the high cost of building projects to the EH40 energy standard, the program has hardly been taken up to date. Families with small and medium incomes cannot afford such properties even with the subsidy. Since the program was launched in June 2023, just 245 applications have been received.

In its coalition agreement, the current government set itself the target of 400,000 new homes per year. This target has not yet been achieved. Various institutes assume that there could soon be a shortage of around 700,000 apartments in Germany. The demand for housing continues to rise, also against the backdrop of increased immigration to Germany.

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