Germany's Construction Crisis: New Building Starts Plummet 26%

Germany's property market faces significant stress as new construction starts fell by 26% in the first six months of the year. Low interest rates and a strong economy had driven a property boom that ended with the rise of borrowing costs due to rampant inflation. Executives hope for lower interest rates to revitalize the market.

Germany's new construction starts fell further during the first half of the year, data showed on Wednesday, indicating stress in the property market of Europe's largest economy.

New building starts dropped 26% in the first six months, from a year earlier, based on data from Bulwiengesa, a property consulting and analysis firm. "The downturn has levelled off, but recent trends such as project delays, a low number of construction starts and project developer insolvencies persist," Bulwiengesa said.

The data follow a bleak assessment from one of the nation's biggest landlords, Vonovia CEO Rolf Buch, who last week predicted that more property companies would go bust. For years, low interest rates and a strong economy sustained a boom across the German property sector, which contributes 730 billion euros ($798.40 billion) annually to the nation's economy, or roughly a fifth of Germany's output.

That boom ended when rampant inflation forced the European Central Bank to raise borrowing costs. Real-estate financing dried up, deals fizzled, projects stalled, major developers went bust, and some banks teetered. Some industry executives hope that lower interest rates will help kick-start a turnaround in the market, which is in its third year of a slump.

"Financing of project development continues to be challenging," said Francesco Fedele, chief executive of BF.direkt, a property financing consultant. ($1 = 0.9143 euros)

(With inputs from agencies.)