Three generations of Gulf Arabs have been enraptured with German luxury auto brands like Mercedes, BMW, Porsche and Audi.
But please, please, do not fall in love with German homes or CRE as the Fatherland faces the mother/mutti of all property meltdowns.
New construction starts have plunged a ghastly 50% in H1 2023. Hundreds of property developers, squeezed by the sharp spike in borrowing costs, and a collapse in mortgage demand, have filed for insolvency.
For the first time since the collapse of the Berlin Wall and Chancellor Kohl’s bailout of the DDR’s ostmark, Germany is once again “the sick man of Europe.” A victim of stagflation as exports collapse, the industrial sector reels from the loss of cheap Russian gas, defense spending surges due to the Ukraine War as the Bundesweir re-arms for the first time since the 1930s.
To add insult to injury, Das Auto, 18% of German GDP, is assailed by cutthroat competition from cheap Chinese EV venders.
German home prices have fallen 7% from their June 2022 peak while building material costs have soared at least 10%. This is a disaster for the economic colossus of Europe. One third of the EU GDP, where home-ownership rates are below 50%, there is no way Germany can even build half of the 400,000 homes it needs to relieve a chronic housing shortage. Vonovia, leprosy on the Frankfurt stock exchange, has halted all new construction and written down the value of their property portfolio by untold billions of dollars.
The Gulf’s epic boom and bust cycles have taught me that the cockroach theory holds true in property development. An initial write off is only the tip of the iceberg as millions of more cockroaches will appear from the woodwork.
Expect a surge in social unrest in cities like Berlin/Cologne, which have huge immigrant gastarbieter populations, living in cramped apartments with no rent control at a time when rent will surge higher and the jobless rate will explode.
I see a 25-30% hit in this German property cycle and the divergence in economic growth with the US means the euro is headed down to 1.02 – this makes German property a double loser and the Saudi in the Audi should not touch German homes and offices with a barge pole. I am stunned to see a number of Sharia compliant institutions trying to offload overpriced commercial property on unwary private clients.
This is an abuse of asymmetric information so common in Gulf finance and the lack of ethics stinks. Achtung, baby!
Relying on a property broker to advise you on the property market is akin to relying on a second hand dealer in Ajman as you buy your first BMW seven series Beamer for a mere 30,000 dirhams. “Register your interest jaldi, jaldi! – special price just for you habibi” now that you bought your “iconic” apartment with a 1/16th bathroom view of the fountain.
It saddens me that 20% of Germans will now vote for the neo-nazi far right AfD. The property crash will only add to the angst.
Also published on Medium.
