Construction turbo idling: approval push, but financing gap stops new construction

Construction boom fails to take off: Why Germany’s new-build sector is stalling despite a surge in planning permissions

At first glance, the statistics look encouraging: building permit numbers are on the rise again in several regions. Yet in many places, construction sites remain at a standstill. As professional estate agents, we see every day why this „boom in permits“ has not yet translated into a construction boom – and which factors are now driving projects forward.

The crux of the matter: there is a funding gap between theory and practice, fuelled by rising construction costs, higher interest rates, more cautious lending and changes to funding conditions. At the same time, buyers remain cautious because the price and energy standards of new-build properties are stretching their budgets too far. The result: many projects are being postponed, redesigned or shelved – despite having planning permission.

Approval does not mean implementation: the implementation trap

Planning permission confirms compliance with planning law – but it does not finance a project. By the time the ground-breaking ceremony takes place, construction costs, equity capital, pre-sale figures, construction timelines and supply chains must all be secured. Between 2021 and 2024, material and labour costs have risen significantly, whilst construction loan interest rates have also climbed. As a result, many cost estimates from the low-interest-rate period are no longer viable. Property developers and project developers are faced with a choice: secure additional funding, revise their plans or put projects on hold.

Interest rate and cost pressures: when the balance tips

The financial turnaround is evident: whereas construction financing was previously estimated at around 1 %, 3–4 % p.a. is now the new reality. At the same time, construction costs have risen by double figures in some trades. This combination is affecting profitability – particularly for turnkey blocks of flats in average locations, where rents cannot be increased at will.

Banks, advance sales and risk premiums

Lending practices have also returned to normal – in other words, they have become stricter. Banks are demanding more equity capital, robust evidence of construction timelines and costs, and higher pre-sale rates. Key factors today include fixed construction contracts with clear price adjustment clauses, a convincing marketing strategy and robust controlling structures. Projects lacking these safeguards either face risk premiums – or are not given the go-ahead.

• Advance ticket sales: 30–50 % are often a prerequisite for financing the construction phase.
• Evidence of construction costs: Robust GU/GMP contracts rather than open standard prices.
• Buffer: 5–10 % Contingency reserve in the budget.
• Equity: significantly higher than in 2020/21, partly supplemented by mezzanine financing.
• Let/sale strategy: Target groups, price points and ESG strategy clearly defined.

Regulation and funding: striking a balance between conflicting objectives

Whilst stringent efficiency standards (GEG, EH40) do enhance sustainability, they also make implementation more expensive. Funding schemes (e.g. KfW) can help to counteract this, but they come with budgets, conditions and application windows that place demands on planners’ flexibility. Those who compare different options in the early stages of the project – such as timber-hybrid versus conventional construction, off-the-shelf building solutions, and building services standards – can reduce costs without compromising on quality.

Demand side: Price gap between new-build and existing properties

For owner-occupiers, the monthly instalment is the key factor. If existing flats in a comparable location are significantly cheaper per square metre – and catch up in terms of energy efficiency thanks to refurbishment packages – demand shifts elsewhere. Investors are also looking for returns: if the initial net yield on existing properties rises, new-builds must offer compelling value in terms of price or design (e.g. micro-location advantages, ESG compliance, savings on running costs).

Four ways to get projects back on track

• Partnership-based procurement: Early involvement of the main contractor, transparent costing, target price models – minimises additional claims and ensures bankability.
• Rethinking property logic: Seller-financed and leasehold models, deferred payment arrangements or profit-sharing schemes reduce the immediate capital requirement.
• Serial and hybrid construction: Prefabrication, timber/hybrid construction and modular building services reduce construction time and risk – particularly for terraced houses and blocks of flats.
• Marketing with a value proposition: Low running costs, smart floor plans, sharing schemes and charging infrastructure appeal to price-conscious buyers and boost the pre-sale rate.

Quick checks for developers, owners and buyers

1. Cost sensitivity: How does a +10 % construction cost affect the selling price per m²? Is the target audience still within reach at this price? If not, adjust the product or optimise the floor space.

2. Interest rate scenario: Assume a figure of 3.5–4.0 % rather than the desired assumption. If the return/rate holds up, the project is resilient enough.

3. Advance ticket sales: Which three measures will boost the sales rate within 90 days? Example: tiered pricing for first-time sales, equipment packages, and finance partners offering fixed-rate special deals.

4. Förder-Fit: Compare two options: EH40 (with subsidy) versus solid efficiency without a subsidy. It is the better net present value that counts, not the headline.

Conclusion: At present, the „Bauturbo“ rarely fails due to a lack of will, but rather because of the gap between planning permission and bankable implementation. Those who ensure cost certainty, actively meet financing criteria and market their projects in a way that appeals to the target audience will get projects off the ground despite headwinds – and create lasting value.