Recap back in Oct 2023
https://theedgemalaysia.com/node/685065
Oct 5): In July this year, Nuremberg’s mayor celebrated the final beam being placed atop the redeveloped Quelle building, a monumental 1950s symbol of postwar Germany’s economic revival.
Revamped with offices, shops and homes, a big part of the giant complex was slated to open in 2024.
In recent weeks, however, the site’s developer Gerch Group, which has €4 billion (US$4.2 billion) of projects under construction, has filed for insolvency proceedings, along with one of its project companies linked to the development. The opening date’s now in doubt.
It’s yet another blow to a property market that’s reeling from the end of the cheap-money era, but it also shows who’s most vulnerable to the shakeout. While investor fears during the current real estate crisis have centered on landlords, the travails of Gerch and its ilk show that developers — the firms that own the building projects — are the ones in imminent danger.
“Project developers are struggling with the increased construction costs, increased interest rates and the drop in prices,” says Marlies Raschke, cohead of restructuring and insolvency at law firm Noerr. “We’ve seen several of them filing for insolvency in the last weeks and we expect more.”
Alongside Gerch, Munich’s Euroboden, which touts star architects such as David Chipperfield among its collaborators, is in preliminary insolvency proceedings. Project Immobilien Group also filed for insolvency in August along with many of its project companies, with some of the work being tendered for new contractors, according to a spokesperson for the preliminary administrator. The three firms didn’t respond to requests for comment.
Developers around the world face similar woes. In Australia, Porter Davis is among homebuilders that have gone into liquidation this year after surging costs and falling demand.
In Sweden, a rise in bankruptcies has been driven by a construction slump, while in Finland housing starts could plunge to levels not seen since the 1940s, according to the country’s construction lobby.
It’s a rapid change in fortunes after the years of rock-bottom interest rates, when money poured into property as investors hunted for yield. Developers like Gerch could comfortably load up projects with cheap debt and sell into a market where prices just kept rising.
The mood’s very different now. German real estate transactions for offices are at their lowest point on a 12-month rolling basis since at least 2014, according to property firm Savills.
Vonovia SE, a big landlord, warned in its financial results that new construction developments are “barely viable.”
“The speed of correction is significant,” says Henning Koch, boss of Commerz Real, one of Germany’s biggest property investors. “The recession in the German real estate market started one and a half years ago and now in the last 2-3 months we’ve seen more and more developers go bust.”
Developers are particularly vulnerable because of a collapse in land values, which makes projects riskier. As interest rates have soared, investors have demanded higher rental yields to compensate, which in turn pushes down the price they’ll pay for a finished site. Construction costs are also spiraling and developers are having to put more money aside for unexpected expenses
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Follow Us/bnn/media/media_files/77bd2d6561e3cdc745e649f97a7100efce76230a993928c8470db56bb8f04d5c.jpg "Corestate's Downfall: A Case Study of German Real Estate's Excesses and Crises")