Germany's Election: Industry looks for certainty as coalition talks begin

By Dr Alexander Wachter - Tuesday, September 26, 2017 15:00

German politics is all about coalitions, and a conservative-liberal coalition is what the real estate industry had clearly hoped for in the federal electoral vote. This wish will probably come to pass, but in a slightly altered version and with some nightmare elements, writes Alexander Wachter, editor of CoStar's German sister publication Thomas Daily News.

Sunday night’s German election result ended with the CDU/CSU and the SPD still the two largest parties in the Bundestag, but with both smarting from a significantly reduced slice of the vote and with the re-elected Chancellor Angela Merkel now beginning complicated negotiations to form a coalition government that is able to operate effectively.

The Far Right AfD took 12.6% of the vote, meaning it has passed the 5% threshold for a parliamentary place and has entered the Bundestag for the first time. The Liberals (FDP) returned to the Bundestag with 10.7% of the vote.

As a few votes are missing for Angela Merkel's CDU to form a government with the Liberals (FDP), the Green party is going to have to be brought on board as well. This is where things will get complicated, especially in all real estate related matters.

Take the most prominent piece of property legislation of the last four years, the so called “rental brake”, which was meant to establish a new form of rent control in overheated residential markets. FDP proclaimed it wants to get rid of the rental cap, whereas the Greens said they would extend the disputed rent control and abolish all exceptions to the regulation.

There are more examples of diametrically opposed views between FDP and Greens in real estate related matters - such as write-offs for refurbishments and energy efficiency standards. It is impossible to predict what the policies of the new government will be, just as it is impossible to predict who in this new government coalition will decide on what issues.

But it is even unclear if this coalition will ever come to be. This is the bigger question raised by this election. Coalition options are limited and re-elections are not an option, because of the right wing populists who have changed the political landscape with their sweeping first time entry into the Bundestag.

What real estate professionals fear more than concrete measures from the new government is that an unfamiliar element of instability could be introduced into German politics. The last thing the German property market needs is any doubts concerning its safe haven image.

What does the industry think?

  • Andreas Mattner, President of the German Property Federation ZIA: “Like all other business sectors, the property sector depends on a quick return to day-to-day political life. Our business has to master enormous challenges. Affordable housing and construction, the energy transition in the building sector, digitalisation in our sector. In light of this, political inertia is not the right path.”
  • Jürgen Michael Schick, President of German real estate association, IVD, said: “A few days ago, the Chancellor strictly rejected a tightening of the rent brake. She also wants to work to improve the conditions for new construction. We will hold her to her word.”
  • Kruno Crepulja, CEO of Instone Real Estate Group, hopes that CDU/CSU and FDP will prevail against the demands of the Green Party for strict regulation. The new federal government must focus on slimming laws and standards and reducing bureaucracy, and on introducing uniform regulation at the federal level, he says. It is important, he states, that the real estate sector receive easier access to construction land. In addition, the creation of living space through structural expansion in the inner cities should be simplified.  
  • Jacopo Mingazzini, Managing Director of Accentro Real Estate AG: "In the past four years, the grand coalition tackled housing shortages with various regulatory measures. They have, of course, caused nothing but upset for the residential sector. The only thing that will help solve housing shortages is new supply. For this, we need more land for development, faster building permits and, above all, political will. More deregulation and less symbolic policy is therefore what’s required.”
  • Antoinette Hiebeler-Hasner, Partner at Vistra, said: "The parties disagree on many controversial questions like land transfer tax, financial market regulation, or the rent brake. The result will be compromise on many issues.”
  • Esfandiar Khorrami, Attorney and Partner at Bottermann Khorrami LLP, said: “In the coming years, the EU will initiate further regulatory legislation that concerns the financial and real estate sector. I expect that a coalition of CDU/CSU, FDP, and Green Party will use sound judgement in implementing further market interference and not create unnecessary bureaucratic hurdles.” Khorrami also hopes "that the FDP will prevail with its demand for a more relaxed housing credit regulation."
  • According to the rating firm Feri, the election will have “new and complicated repercussions”. In particular, the firm says the election result has significantly limited the German government’s leeway in European politics. “The risk spreads in European sovereign bonds, but also the Euro itself may once again come under pressure,” says Heinz-Werner Rapp, Managing Director and Chief Strategist at Feri.
  • Thomas Zabel, head of German Residential Development at JLL: “Yesterday's election results have no influence on Germany’s appeal as an investment location as neither large party will deter international investors. For that to happen, either ‘Die Linke’ or Alternative für Deutschland would have to be considered possible coalition partners.”
  • Olivier Vellay, M&G Real Estate’s Head of Investment for Continental Europe commented: “The result of a CDU victory and a historic fourth term for Chancellor Angela Merkel will mean business as usual for the German commercial property market. The German electorate has voted for a continuation of the strong economic performance achieved under Merkel to date, with a record budget surplus, employment growth and tax cuts likely to lead to increased consumer spending. German employment growth has outstripped all of the other continental Europe markets with the exception of Luxembourg over the last four years, pushing office take up to record heights and driving strong rental growth. At the same time, the lack in supply of new office developments and the record low vacancy in the big 7 cities is likely to remain unchanged in the medium term. “Finding value remains a challenge for investors looking at the German market with prime yields across each of the sectors having reached cyclical lows and generally the keenest in Europe. Non-CBD submarkets may provide the answers for investors in search of attractive pricing, which is where we continue to look for opportunities having deployed almost €300m in Germany in 2017 to date. Our strategy in Germany is to continue to use our strong understanding of local market fundamentals to identify rental growth hotspots, which will be key in driving higher returns across each of the sectors. The populism movement appeared to be gaining momentum across the developed world earlier this year, but the Dutch and French election outcomes suggest that the Eurozone has taken a different turn.”

 Alexander Wachter, Editor in Chief, Thomas Daily News

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