If you are planning a new property development in Germany any time soon, brace yourself: Construction costs are rising faster than at any point since the financial crisis. The cost of constructing a standard residential building was 4.0 percent higher in February 2018 than just 12 months earlier. According to Federal Statistical Office, this was the highest increase in construction prices since November 2007, when prices rose by 5.8 percent. So, why are prices rising so rapidly and what does the future hold in store for construction companies, property developers and homebuyers? Read on to find out more.
Bargaining from a position of strength
The construction industry has cited strong demand, higher material costs and stricter regulations as the major factors behind the recent uptick in prices. “The market has definitely shifted. Construction companies no longer have to accept whatever offers are on the table – they are in a strong position and can afford to be picky, choosing the best prices and offers as the building boom continues,” said Heiko Stiepelmann from the German Construction Industry Federation (HDB).
Many experts describe the recent price increases as nothing more than the market normalising after years of subdued prices and weak demand. They also point to higher prices for raw materials, such as steel, as contributing to recent price hikes. To some extent, the construction industry is merely passing these higher prices on to its customers.
More red tape = higher prices
Construction costs have also been inflated by a raft of new, and more stringent, building regulations. “In terms of standards, the bar is always being raised. That, of course, feeds through to prices”, explained Stiepelmann. According to the Federal Association of Housing and Real Estate Companies, the number of building regulations in Germany has risen fourfold since 1990. There are now 20,000 regulations covering everything from noise protection to fire safety, from energy-efficiency to accessibility.
Beyond the residential sector, price rises are also having an impact on office and other commercial developments. Between February 2017 and February 2018, construction costs in the non-residential sector rose by 4.1 percent. The cost of constructing roads was also up, by an inflation-busting 5.3 percent, while the costs associated with maintenance of residential real estate gained 3.9 percent.
The boom continues
With revenues across the construction industry up by a whopping 22.2 percent last year, and no end to the construction boom in sight, the future certainly looks rosy for Germany’s construction industry. And it looks as if Germany’s property developers, and homebuyers, will have to get used to digging even deeper into their pockets for some time to come.
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