Drawing on his close contacts with players in the real estate market and financing institutions, Peter Kleinwächter from Your German Mortgage is able to give a first stock-taking analysis of how the coronavirus pandemic is affecting the property market in Germany.
None of us have ever experienced an economic crisis like the one we are seeing today, caused not by a weakening economy or bank excesses (as in 2008 / 2009), but by a global pandemic. This is a first for everyone.
Based on the information currently available, this article answers a number of real estate financing questions that are likely to arise amid the ongoing crisis: Is the property market adversely affected? Are banks still lending? And should you wait until after the crisis to buy a property in Germany?
Expect a slow-down in the existing real estate market
The high number of coronavirus cases and subsequent mandatory social distancing requirements are hindering the usual process in property purchasing, in particular for the existing property market, for the foreseeable future. What we would consider to be the standard procedure, i.e. viewing several properties before making our final purchase decision, is now impossible.
It is hard to imagine that online inspections and videos of properties, compared to a personal visit, will lead to the same desire to buy. What is missing are the impressions people gain from direct contact with the property and its surroundings. In this segment, a market slowdown is likely to be expected until unrestricted mobility is restored.
Newly-built properties will continue to sell
On the other hand, unlike existing properties, many new constructions projects are still in the planning stages. Since there is nothing to view, the decision to buy will depend on the location, the demographics, the apartment layout and the price of the property, as has been the case to date. You do not have to meet anyone personally.
Here, it is important for the buyer to clarify how far the construction has progressed, and how solvent the developer is. If the developer has so-called developer financing from their bank, the completion of the project is usually secured. A lawyer specialising in real estate will undertake a legal review of the purchase contract on your behalf.
It is also important to note, for investors, that newly-built properties are excluded from the rent cap. This means you can demand the market-driven rent for a high-quality newly-built flat.
Overall, therefore, the newly-built property market is likely to be less affected by the coronavirus pandemic than existing real estate.
Longer waiting times for bank financing
There are two types of banks operating in Germany. So-called commercial banks or universal banks such as Deutsche Bank, Commerzbank and Volksbanken, manage day-to-day banking transactions and services for both business and private customers, alongside real estate financing. As a result of the COVID-19 outbreak, financial difficulties are already visible in both sectors.
This is putting a strain on the banking industry as they try to manage the situation, organise the state aid being offered and oversee the logistics of distribution. This process needs more staff, staff which would usually be employed in different sectors of the banking industry. Alongside the “home office effect”, this means that one must inevitably expect long waiting periods, of one month or more, to receive a loan commitment.
On the other hand, there are lenders, banks and so-called non-banks, which have primarily private customers and only a small percentage of business customers. These lenders include, for example, ING, PSD banks, MLP bank, building societies, insurance companies and pension funds. The impact of the COVID-19 crisis will affect business here, and there will also be delays, but to a lesser degree.
Should I wait until after the crisis to buy a property?
This is a question that is probably asked by everyone who is considering making this big economic decision. If you need financing to purchase a property, consider the following question: How secure is my job and income? Having to continue mortgage repayments if your job was in jeopardy would be a daunting prospect.
On the other hand, Germany is now offering loan repayment deferrals for up to three months (with the possibility to extend for an extra three months) on loan contracts closed before March 15, 2020, for those who have lost income due to the coronavirus crisis. This “mortgage holiday” instrument should allay fears about not being able to pay your mortgage.
Moreover, if you are sure that you can pay your loan instalments during and after the crisis, the current situation also opens up opportunities. Many investors are currently focusing on tangible assets such as gold and real estate. The prices for these forms of investment may become more expensive in the future.