Immobilienmarkt: Neubauwohnungen lohnen sich für Vermieter nicht – oder doch?

In Düsseldorf's Flingern district, a former building is being demolished to make way for ten new apartments and two apartment buildings. The demolition is already underway, with rubble piling up in the courtyard. The first new apartments are expected to be ready for tenants by the end of 2028. Prices range from €289,000 for a 34 square meter unit to €1.15 million for a 125 square meter unit.

According to the developer, rents for similar new builds hover around €26 per square meter per month, which is quite high even for Düsseldorf. The current rental market only goes up to €17.35 per square meter. Expensive apartments like those in Flingern are still being built, but affordable options for middle-class buyers are scarce.

The German government aims to build 400,000 new homes per year, but has fallen short of this target in recent years. The reasons for this are varied, with multiple incentive programs only applicable to specific projects and laden with conditions, changes in conditions creating confusion, regulatory hurdles slowing down projects, and most significantly, skyrocketing costs for construction and financing.

Developers need investors willing to put money into real estate projects, but due to higher construction costs and loan interest rates compared to a few years ago, many such projects are no longer profitable for investors. Buying a flat to rent it out is often no longer a profitable venture. Now, it requires sophisticated strategies for such investments to still be worthwhile.

Why is building new homes turning into a money-losing venture for investors? In Germany's five largest cities, rental yields for new apartments fall below four percent, considered the minimum for renting to be worthwhile. "With construction costs in Munich of €5,000 or more per square meter, only 3.5 percent gross rent yield is realistic," says Sven Keussen, head of investment real estate at Rohrer Immobilien.

This is not enough to cover financing costs. A property as an investment only makes sense with sufficiently high rents. However, demanding higher cold rents to improve the yield is currently hardly possible. The high energy and service costs have driven up heat rents so much that living has become very expensive for many tenants.

Delays and slow sales are stressing the new build market. Visibility of the crisis in building comes from the slow marketing of residential real estate. Lothar Schubert observes this phenomenon in Hamburg, where projects in the HafenCity area are concerned. Traditionally, up to 40 percent of apartments were sold before construction even began.

"Today, it's zero percent." Schubert, who used to oversee numerous new builds with developer DC Developments, now runs DCD Services. When a real estate project goes awry and cannot be continued, Schubert and his team intervene to restructure and make it viable again. With interest rates low, investors often received enough rental income to cover loan interest and repayment.

Today, Schubert says, investors would need to rely on property value appreciation to offset losses. This makes buyers hesitant. Schubert recommends a different model: "We offer all the apartments we cannot sell for rent instead." He advises developers to calculate their new build projects in a way that renting the apartments also pays off, which requires a long-term business model and more equity.

"But I have a safety net if things go wrong." Schubert believes the Hamburg HafenCity model, where almost all 62 apartments in the BEAT Tower are almost ready for tenants, shows that this model works. The tower, with 114 square meter apartments with Elbe or harbor views, costs around €1.95 million per unit. However, despite being almost ready for occupation, the apartments remain unsold, just like most of the other units in the tower.