Financial expert Michel Anter warns of impending bankruptcies in the real estate sector and explains the reasons for the current malaise.

Financial expert Michel Anter warns of impending bankruptcies in the real estate sector and explains the reasons for the current malaise.

According to a report from www.nzz.ch, the German real estate market is in big trouble. Due to a dramatic turnaround in interest rates, many projects are at risk of collapse, and bankruptcies among project developers have multiplied since the summer. Interest rates have quadrupled in the past two years, construction costs have risen massively and inflation has skyrocketed. All of this has led to real estate prices now falling significantly, after they had previously risen continuously and sometimes very sharply for over twelve years. As a result, real estate developers who have financed at too high a risk are particularly in distress. The wave of bankruptcies is likely to continue for a while, especially for projects that need refinancing.

The massive increase in interest rates and the skyrocketing construction costs have ensured that the expected sales prices of many properties have fallen and follow-up or interim financing has become much more expensive. In many ongoing real estate projects, the project developers' equity has now been lost. The mezzanine lenders are also threatened with very large losses and even total failure.

The main difference between residential and commercial real estate is the exit. In the case of residential real estate, the individual apartments are sold, while in the case of commercial real estate the different areas are rented out and at the end the entire project is sold. The financing of such projects consists of the real estate developer's equity and various forms of debt capital. The first-tier lenders, often banks, are better protected, whereas the subordinated funds often come from specialized investment funds, insurance companies, pension funds or pension funds.

The immense problems on the real estate market lead to construction standstills, which can lead to enormous increases in costs and damage to the building. Developers large and small are struggling with the same problems, and banks sitting on half-finished buildings are suffering financial losses. The entire industry is affected by this crisis and the effects could last for a long time.