German construction ‘nears collapse’, awaits state support impact

Germany’s construction industry continues suffering from a slump in demand for apartments and residential housing, which is putting pressure on construction material and labour pricing.

According to national construction federation Hauptverband der Deutschen Bauindustrie, the price for new constructions in August this year saw a downturn for the first time since 2020. The federation also notes a shift of activity from newbuilding to complementary works in existing buildings. The considerable decline in orders and permissions for new buildings has a direct effect on pricing for all services. “Companies are making price concessions to keep their staff in work,” says Bauindustrie managing director Tim-Oliver Müller.

“If prices continue not to cover the costs any more, a wave of bankruptcies could be looming,” he warns. In fact, cases of bankruptcies in the first half of 2023 rose by about 40% year-on-year. Revenues no longer cover costs. One of four companies active in new residential housebuilding are not breaking even, which is the highest ratio since 2011. In the first eight months of the year, the number of permissions issued for residential units fell by 28% in comparison with the first eight months of 2022.

The downturn is tracing through to ancillary trades which depend on construction. “Construction is a key sector for all trades, and it is just about to completely collapse,” warns Jörg Dittrich, president of the German Confederation of Skilled Crafts and Trades (ZDH).

Consumers are scared off by skyrocketing prices for real estate over recent years, rising interest rates for loans, and too much bureaucracy. Federations keep calling on the government to facilitate procedures and to deliver incentives. They appreciate that a recent measure, the “Construction Package” (Baupaket), points in the right direction.

However, one buyer of construction materials including reinforcing steels warns it will take time until the measures takes effect. “It is a good gesture and will have a positive impact, but for another half a year we will not see movement,” he tells Kallanish.

German rebar mills recently dared to announce a hike in base prices, four months after they bottomed slightly above the line of €300/tonne ($319). Most deals will have been done at around €320-330, which plus size extra of €265 translates to a delivered price of €585-595/t. Following a buying spree in late September, mills are now utilised and trying to fetch €350/t or more for new orders. It remains to be seen if the elevated prices will be upheld in the next buying wave, presumably in December or January.

Observers in both Germany and Austria tell of a fierce price war among benders of rebar, which are selling at lower than intake prices, thereby confirming the concerns expressed by German industry representatives.

Christian Koehl Germany