Residential Investments,

Residential Investments in Germany – March 2023

1. Mar 2023


Dear Readers,

Germany’s largest private housing company, Vonovia AG, has publicly announced it is cancelling or suspending all of its planned new housing projects. This would seem to hammer the final nail into the coffin of the federal government’s self-imposed target of building 400,000 new apartments per year, which was already looking impossible to meet.

There have been some revealing reactions to the latest developments from across the political spectrum. Some political figures have even taken Vonovia’s decision as further proof that large private housing companies should be expropriated (or the government should at least hold blocking minorities of more than 25 per cent in large private housing companies).  Such moves, they argue, would be the only way to reverse this decision and ease the housing shortage. Of course, this begs the question: why, instead of coming up with ideas to improve the investment environment so that private-sector housing investments become worthwhile again – the primary and most urgent task of economic and construction policy –are some politicians issuing rallying calls for the nationalisation of private housing companies? And that’s to say nothing of the fact that municipal housing companies often manage larger housing portfolios than Vonovia and its peers. Perhaps more worryingly for taxpayers up and down the country, these calls are frequently accompanied by demands to ramp up the construction of new housing, even against all economic logic.

Of course, none of this means that we do not recognise that the private housing sector also has a valuable contribution to make to overcoming the housing shortage. We now face the challenge of finding solutions to deliver the urgently needed housing of tomorrow, despite the difficult framework conditions – and in collaboration with political decision-makers. Vonovia’s announcement is simply yet another wake-up call that we are falling far short of the targets.

Jürgen Michael Schick & Holger Friedrichs


Making real estate transactions more efficient

Sebastian Renn  |  Vice President Sales DACH, Drooms

Real estate transactions in Europe have become increasingly complex over the past few years. Above all, there’s one thing anyone who wants to sell a property today needs plenty of: time. All across Europe, the complexity and, above all, the time required to conclude a real estate transaction – from bidding to closing – have increased significantly.

While in 2019 it took an average of just 165 days from the opening of a transaction data room to closing the transaction, in the first half of 2022 this had ballooned to 258 days – an increase of 58 per cent.

The above figures are taken from a new study called “Real Estate Transaction Barometer 2022” from the digital data room provider Drooms. For the study, Drooms evaluated more than 4,000 transactions from 2019 to 2022 and surveyed around 170 real estate professionals across Europe.

According to Drooms, transactions take the longest to complete in German-speaking countries. In the first half of 2022, from setting up a data room to signing on the dotted line took an average of 273 days in Germany, Austria and Switzerland. That represents a sharp increase on just a few years ago: in 2019, buyers and sellers took just 167 days. In the United Kingdom, a similar picture emerges: on average, the time taken to seal a real estate deal rose to 256 days in the first half of 2022 (2019: 160 days).

But why are real estate transactions taking so much longer today? Drooms asked real estate professionals for their opinions and this is what they had to say: 47 per cent cited country-specific – and thus fragmented – regulatory frameworks in the target markets as a decisive obstacle to cross-border real estate investments. A second major issue, a lack of market access and market knowledge, were key obstacles for 28 per cent of the survey’s respondents.

Delays and postponements caused by the coronavirus pandemic also played a role in transactions becoming more and more time consuming. During the pandemic, many deals were put on hold. Now, even as we learn to live with the coronavirus, the unstable economic situation is causing many buyers to take more time before they make a final decision. As a result, negotiations are taking longer and sales processes are becoming ever more complex. And this adds risk – especially on the seller side as more and more buyers use delays in the sales process to push for even lower prices.

What was always going to be a challenging situation is compounded by another recent development: more extensive ESG documentation requirements – and not just in relation to a property’s carbon footprint. Alongside energy audits and the need to supply extensive data on consumption and CO2 emissions, transactions are becoming more and more complex and taking longer as a result of extensive technical inventories. And that is to name just a few examples of factors that slow transactions down.

Moreover, real estate prices have become increasingly volatile. This makes time an even more decisive factor in the success of every investment. In a steadily rising market, this may not have been a problem, as time was not such a critical factor. While sellers could be certain that transactions would go ahead, buyers were happy to see the values of their future assets rise. In what has become an uncertain market, the parameters have changed. A few weeks, months or even years can now make a massive difference for both buyers and sellers.

One thing is for sure: quick, complete and transparent due diligence is more important than ever before – for both sellers and buyers. The state of a property’s documentation is thus becoming a decisive investment and time factor. Making the full range of essential data for the transaction process transparent and being able to present these data quickly and professionally, as well as complying with the necessary documentation obligations, requires, above all, a uniform data basis. All of the stakeholders involved throughout the investment process, and those in property management, need access to the same data. After all, chalk and cheese file formats and inconsistent drafts of contract are the death knell for a fast and efficient transaction.

Especially in a volatile market environment, closing a deal quickly and efficiently is key: delays can lead to price markdowns or even cause transactions to collapse completely.

Digital tools, solutions and platforms can help to collect all relevant information, update it continuously and store it in a structured way in a database. However, this is only possible if there are appropriate structures in place to collect uniform data that allows investors to conduct an objective assessment of all property related factors during the due diligence process, including sustainability risk assessments, environmental reports, certifications, expert opinions and permits. In any case, owners also have an interest in ensuring that their real estate portfolio is as transparent, measurable and comparable as possible.

Integrated document translation can also help with the international marketing of assets, aiding communication between international sellers and potential buyers during due diligence and negotiations all the way through to closing the deal. Used correctly, this reduces expenditure and minimises the amount of time needed to get a deal over the line. One thing is clear: anyone who sets up an effective and transparent documentation system will ultimately save money. A vital advantage in these troubled times.

Putting a figure on the utility cost catastrophe

Frank Wojtalewicz  |  CEO, d.i.i. Deutsche Invest Immobilien

Soaring energy prices are leading to a noticeable loss of prosperity at every level of society. The consequences are, however, particularly dramatic for low-income households. A new study from d.i.i. and the Cologne Institute for Economic Research (IW) quantifies recent price increases and makes recommendations for minimising their impact.

Energy price inflation, triggered by Russia’s war of aggression against Ukraine, has the potential to unleash major social unrest. For the first time since the end of the Second World War, energy costs have risen so sharply that the financial security of a significant portion of the German population is under threat. The government has provided aid and the energy markets have eased slightly in recent weeks, but the situation remains perilous.

The third “Wohnnebenkosten in Deutschland” (English: “Ancillary Housing Costs in Germany”) report from d.i.i. and the Cologne Institute for Economic Research (IW) underlines the dramatic scale of recent price developments with objective data. According to the report, advance payments for utilities such as heating and warm water have increased by an average of 48 per cent. In apartments that primarily rely on gas, advance payments are up by an average of 56 per cent. And, the report’s authors point out, this affects more than half of all apartments in Germany. Almost quarter of apartments rely on heating oil, which has also become significantly more expensive.

This has resulted in a sizeable additional financial burden on most households, which also means that an increasing proportion of Germany’s housing stock is now out of the financial reach of a growing number of households. Since low-income households are particularly hard hit, the study’s authors, led by Professor Michael Voigtländer, call for the state aid designed to cushion the impact of high energy costs to focus in particular on this group.

The study differentiates between different household sizes. Accordingly, on average, far fewer apartments remain affordable to both single households and families of four than was the case a year ago. Families, the authors’ note, are harder hit. In 2021, families in the bottom fifth of the income distribution could still afford 37 per cent of apartments on the market. Last year, the figure was only 28 per cent.

The authors list the theoretical options for households looking to adapt to the new situation: heat less, move to a smaller or lower quality flat, or cut other expenditure to pay their increased rental costs. However, they also acknowledge that, given tight budgets and limited supply, each of these options is a challenge, especially for lower-income families.

In the medium term, the researchers expect that rising ancillary costs will significantly increase the incentives for energy-efficient renovations. In order for this potential to be exploited, the authors call on politicians to introduce a more supportive regulatory and financing framework. For example, subsidies and grants should be made more transparent and the rules for sharing modernisation costs between tenants and landlords should be adapted to better reflect recent interest rate and construction cost increases.

What’s more, the authors encourage housing companies to be more consistent in acting to minimise the impact of increased energy prices on their tenants. This would include, for example, establishing a forward-looking procurement policy and setting up long-term framework agreements with utility companies.

Read the full study here (in German): Wohnnebenkosten in Deutschland (

A value-based community is the key to creating more living space

Jörg Kotzenbauer  |  CEO, ZBI Zentral Boden Immobilien Gruppe

The coronavirus pandemic, during which millions of people were forced to spend more time in their own homes than ever before, provided an emphatic reminder of just how important it is to make sure that as many people as possible have access to high-quality and affordable housing. Equally, housing as an asset is of paramount social importance. Given the urgent need to mitigate the impacts of climate change, the focus is now on creating housing that has the right energy-efficiency specifications so that we can achieve our climate policy goals on schedule. This in turn is a major challenge for tenants, businesses, the state and investors. The task is to balance the interests of all stakeholders and to strengthen the foundations of trust between tenants and landlords. Unfortunately, implementation is currently proving more difficult than many had hoped: new housing construction is stalling and energy-efficient renovations of existing buildings are way off track.

400,000 new residential units per year? In 2021, just 293,000 units were completed. The numbers declined again in 2022 – to as few as 280,000 units – according to the latest estimates. A review of the current situation is sobering: builders and developers are feeling the effects of strict sustainability requirements, which make renovating existing buildings expensive and time-consuming and make new construction projects less and less economically viable. In addition to ever more stringent climate policy requirements, the impacts of the Ukraine war – rising energy, construction and financing costs – are also fuelling the more general sense of uncertainty. Tenants are worried about their utility bills and prices on the investment market have not yet stabilised. This mixed situation has resulted in fewer transactions, standstill on construction sites, a reduced willingness to invest, and a noticeable reticence on the part of private buyers.

For residential property fund companies, this raises the question: How can we succeed in achieving our climate targets, creating more living space and, at the same time, growing the value of our property assets in the interests of our investors – while also doing maintaining the trust of our tenants? The answer can be a “value-based community” in which the diverging interests of all parties can be balanced to find the optimal compromise. Because without the ability to reach a common consensus, we as a society will not make progress on this crucial issue.

The success of every company in the residential property sector also depends on establishing healthy, long-term relationships with tenants, investors and authorities. At the ZBI Group, for example, we have anchored the interests of our stakeholders in our corporate identity, which obliges us to adhere to the principles of self-responsibility, solidarity and sustainability. We firmly believe that it is not only necessary, but also possible, to reconcile a “social return” with the pursuit of profit in the housing sector. If anything, current market events confirm our position: a growing number of investors are also increasingly integrating ethical and social standards into their investment strategies.

Now, our politicians must do everything in their power to establish an economically viable framework and make energy-efficient renovations economically attractive for all stakeholders. Taking a lead from Austria and the Netherlands, authorities in Germany should also make it easier and quicker to provide the necessary housing in this country, too.

After all, most of the housing we need already exists. It just needs an energy-efficiency upgrade. At the same time, however, the costs of refurbishment must remain socially acceptable and not be placed solely on the shoulders of the tenants. Although moderate increases are inevitable, everyone must pull together and play their part.

Housing companies are well-placed to build on existing sound foundations, such as their relationships with their tenants and their extensive expertise in property management. What the housing industry needs to do now is get involved, not close itself off to change. It needs to adopt a social and, at the same time, climate-friendly approach. It needs to act as an interface and mediator between authorities, tenants and investors. It needs to facilitate constructive, open dialogue and, perhaps above all, offer practical solutions.

The keys to success? Resilience and a keen eye for an opportunity

Jürgen Michael Schick, FRICS  |  Präsident des IVD, Immobilien Verband Deutschland e.V.

Every salesperson knows that getting to “yes” means getting past many “nos”. In many cases, rejections and objections to an offer will far exceed the number of expressions of interest. There is pretty much no “yes” without a “no”. All salespeople learn to deal with rejections professionally sooner or later. But not all people can deal with negatives as rationally as trained salespeople who see from their sales figures, for example, that only one in ten potential customers will actually buy. They know they most likely face nine “nos” before they arrive at a sought-after “yes”. This type of resilience is alien to many people. Today, especially in a phase of market correction, the repeated “nos” can easily wear on the nerves of both owners and brokers. This makes it all the more important to cultivate and strengthen the necessary resilience. This applies to everyone, whether in business or in private life, but especially in the entrepreneurial environment. The market will continue to adjust and what was selling like hot potatoes last year is no longer in demand.

I am convinced that it is more important than ever that companies – and everyone else, for that matter – develop a high level of resilience. In a professional setting, this means that our teams need to be both mentally and physically fit. This is an obligation for each and every one of us – as one aspect of managing our own lives. And it is an obligation for entrepreneurs, as they take responsibility for their employees. With the necessary mindfulness, it is possible to master the various challenges we all face.

Those who combine resilience with the ability to identify and exploit opportunities will find a great deal of potential in the current market phase. Naturally, both the mainstream media and trade press are by no means short on negative economic and political news. Negative scenarios are, after all, what the media does best. Of course, as an investor or entrepreneur, it is good to be risk-averse. Having said that, it doesn’t help to focus on risk to the exclusion of all other considerations. What tends to resonate and have the greatest impact on public opinion is what is known internationally as “German Angst”. And yet, there are countless opportunities to be found in today’s market.

The days of sellers being able to achieve record prices are behind us. We have passed the peak. But compared to the many years that owners often hold a property, property was worth significantly less in most years than it is today. In 2023, sellers are simply disposing of their properties at the second-best moment in time. For sellers, there are now plenty of opportunities to sell and reinvest. The real estate market is once again a source of attractive opportunities. And other asset classes, such as bonds and securities, are again also offering interesting returns.

Of course, investors can take advantage of what is now a buyer’s market. Buyers are no longer outflanked by 50 other prospective buyers. Prices are no longer as inflated as they were at the peak. Demand for housing is not letting up, while declining construction activity means that there is far too little new housing being built. The gap between rents and purchase prices is narrowing again.

High interest rates are also causing problems for buyers who need financing. But there are opportunities here, too. Today, if you want to take out a forward loan for 2024 or 2025, you will not pay an additional premium. The conditions for 10, 15, 20 and 25-year fixed interest rates are almost identical. And loans for high-yield secondary locations are easier to service than loans for acquisitions in good core locations.

With the ability to spot and exploit an opportunity and a resilient mindset, I am sure you will have an exciting and positive year in real estate, despite all the challenges!


Federal Minister of Building unveils new construction funding

At the end of January, Klara Geywitz, Federal Minister of Housing, Urban Development and Building, announced new construction funding for 2023. The new funding programme – Climate-Friendly New Construction – is designed to promote the construction of the next generation of energy-saving buildings. Starting in March, the Kreditanstalt für Wiederaufbau (KfW) will start to accept applications for funds from the EUR 350 million available to families who want to build their own low-emission homes. A further EUR 750 million are available for housing groups and cooperatives. In total, the available funding amounts to EUR 1.1 billion. The real estate industry is not exactly impressed: “The Federal Government is doing little to nothing to meet the actual needs of developers and investors. This is because the viability gap in new construction, which is growing ever larger as interest rates and construction costs continue to rise, cannot be anywhere near closed with this funding”, says Jürgen Michael Schick, President of the German Real Estate Association (IVD). In his opinion, the new funding only exacerbates the situation, as funds are linked to stringent conditions, such as satisfying the Efficiency House 40 standard and “Sustainable Building PLUS Quality Seal”, which makes new construction even less affordable for low- and middle-income families.

Property tax declaration deadline will be missed by many citizens

Despite getting more time to submit their property tax returns (the original deadline was extended from the end of October 2022 to the end of January 2023), the Tagesspiegel newspaper claims that large numbers of property owners are expected to fail to get their documents in on time. Nationally, only 50 per cent of property tax returns had been received by 8 January. In Berlin, only 49 per cent had been received by 16 January. As a result, updating Germany’s outdated real estate data will take longer than expected. There will be no further wholesale extension of the deadline. In view of the number of people who have failed to meet the deadline, tax authorities will initially adopt a less than confrontational approach. The Berlin Senate Department for Finance told the Tagesspiegel that in the first quarter of the year, property owners will be sent reminders to submit the required data. According to Finanztip, most federal states are expected to adopt a similar strategy. As a result, taxpayers are not likely to face late fees as long as they submit their property tax returns before the end of the first quarter. It is only once we move into spring that property owners will be asked to pay extra: a penalty of 0.25 per cent of the assessed property tax for every month or part thereof – which can be expensive, especially for valuable properties.

Two new social environment protection areas in Berlin-Mitte

Two more neighbourhoods are being added to the twelve existing social environment preservation areas in Berlin-Mitte. In the Badstraßen neighbourhood behind Gesundbrunnen station and the Müllerstraße Nord area around Afrikanische Straße in Wedding, property owners will no longer be able to renovate or modernise their properties without official approval. Berlin’s “anti-gentrification” laws are designed to prevent rent increases connected with unnecessary modernisation measures. Thanks to the social environment preservation areas, almost half of all tenants in Berlin-Mitte are now protected from displacement, said Ephraim Gothe, City Councillor for Construction, who warns of the significant potential for displacement: 95 per cent of households live in rented apartments and 70 per cent are currently paying less than EUR 6.00/sqm/month net rent. This shows that there are many long-standing leases, claims Gothe. Most of the apartment buildings in the new preservation areas have been untouched for 50 years, another sign of potential for modernisation. However, it is unlikely that any more social environment protection areas will be created in the near future, as only these two were well justified, Gothe explains.