Exclusive: German builders demand Schulz stop the crisis in the real estate market

The construction sites in Frankfurt, Germany, July 19, 2023. REUTERS / Kai Pfaffenbach / Photofile

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FRANKFURT, Oct 13 (Reuters) - German Prime Minister Olaf Scholz has been bombarded with fresh demands to end the real estate crisis in Europe's biggest economy after the latest summit created to rescue the sector ended in scandal. Construction industry officials will present a new set of proposed measures to the chancellor this month to ease the worst property market crisis in generations, two people familiar with the preparations said.

In the letter, the contents of which were described to Reuters, one of the country's biggest construction companies will ask for support to prevent mass layoffs and boost building activity. Wolfgang Schubert-Rab, president of industry association ZDB, told Reuters he planned to send proposals to the chancellor and his finance, economy and housing ministers.

The demands of the industry

The industry's demands reflect worries that Germany is increasingly immersed in the global real estate market crisis, which is being keenly felt in China in particular. There is also a danger that the government is stalling after a controversial meeting with the industry in September.

G real estate and the German economy

"We can't afford to waste any more time," Schubert-Rab said.

Real estate has been the backbone of Germany's economy for many years, accounting for about a fifth of the total and providing one in ten jobs.

But a sharp rise in interest rates ended that boom, driving real estate developers into insolvency amid frozen deals and falling prices. The number of workers in the construction sector has started to decline for the first time in a decade.

The economic slowdown is part of a broader problem, with the International Monetary Fund this week predicting that Germany's economy will be the only one of the major economies to contract this year, and the contraction will be larger than previously forecast.

The industry reaction

Four people who attended Scholz's meeting with real estate industry and regional leaders told Reuters they felt as if they were not given a chance to speak out on support measures that they felt were going in the right direction but were generally insufficient.

"Construction is almost impossible because of financial problems," said Nicole Razavi, a regional politician representing state ministers, as she addressed Scholz during a closed-door meeting, according to an eyewitness.

The chancellor's office said "most of the proposals" from the federal government were supported.

There are industry leaders like Schubert-Rab reflecting on their next steps.

Among the measures the ZDB association will propose is an expansion of the government's "Kurzarbeit" wage subsidy scheme, which would protect hundreds of thousands of workers whose jobs could be at risk. The association is also demanding more generous terms for government loans for families and is demanding that the chancellor hold another meeting with government officials and the industry in December.

"We have to speak out because it's urgent," Schubert-Rab said.

Global attention to real estate

The collapse of commercial real estate in the United States due to empty offices in the wake of the pandemic, as well as big real estate developers' struggles in China, has brought global attention to the sector.

Germany, where the population is growing rapidly due to the migration of millions of people into the country, is failing to meet its target of building 400,000 apartments a year due to a fall in building permits, leading the industry to warn of social problems.

The chief executive of BF.direkt, a real estate finance consultancy, Francesco Fedele, expects insolvencies in the sector to double in Germany until the market bottoms out in the middle of next year, and calls for the measures taken to be seen as "just a show".

"This is not the impulse that the industry and a lot of citizens are waiting for," he said.

Edited by Kirsten Donovan

Thomson ReutersNorms. Covers the German financial industry with a special focus on large banks, insurance companies, regulation and financial crime.Previously worked for the Wall Street Journal and New York Times in Europe and Asia.