Lars von Lackum, the CEO of LEG Immobilien, the second-largest residential property group in Germany, has issued a warning regarding the impact of recent interest rate hikes on the construction industry. Speaking to the Handelsblatt, he stressed that the rising rates particularly affect those hoping to build.
The financing costs are becoming more expensive for private home builders, meaning many prospective buyers may not be able to afford houses as originally anticipated. Furthermore, professional property developers face increasing complexity in their financial calculations. “These calculations are shaky, simply put. This is bad news for new construction,” Lackum stated.
He pointed to a recent rise of approximately 100 basis points in interest rates. LEG itself will also experience higher financing costs starting next year. Since the group needs to refinance about one billion euros annually, the CEO forecasts an additional yearly cost of roughly ten million euros. While he characterized this for LEG as “unpleasant,” he stated that it is manageable.
Lackum also noted negative consequences already visible in the transaction market. After a strong performance in the first half of the year, the volume of transactions has leveled off at last year’s level over the last nine months. He described the market as losing momentum and expects a decline compared to the previous year overall. Big real estate deals are expected to remain rare.
Finally, he cautioned that, following the debate about nationalization in Berlin, the conditions for all mortgage borrowers across Germany could deteriorate. Lackum warned that if the risk premiums on secured bonds rise significantly-due to the principle that the land charge in Berlin might lose its value-then all loan recipients of mortgages would ultimately incur the costs.
