The current construction loan interest rate of approximately four and a half per cent is a crucial factor for many market participants when considering residential property. However, a comparison with the historically low interest rates of 2020 and 2021, which were sometimes below one per cent and already achievable for very good financing by the end of 2019, leads to a misjudgment of the market situation. This period did not represent normality but an exceptional situation. Historically, long-term construction loan interest rates were around ten per cent in the early 1980s and about six per cent around the turn of the millennium.
The VON POLL IMMOBILIEN experts emphasise the return of interest as a relevant factor and analyse the limits of a wait-and-see attitude. A central question is not whether low interest rates will return, but what happens if this is unlikely. Global developments such as the pandemic, supply chain issues, deglobalisation, geopolitical conflicts in Ukraine and the Persian Gulf have triggered a spiral of rising costs, inflation, and government debt. This is manifesting in global bond markets, as Daniel Ritter, managing partner at VON POLL IMMOBILIEN, explains.
Growing Financing Needs and Property Valuation
Global financing needs for defence, health, social services, infrastructure, energy transition, education, digitalisation, and housing construction are increasing. A construction loan interest rate of five or six per cent is conceivable in this context, although not reliably predictable at present. A purchasing decision should therefore not be primarily based on the assumption that property financing conditions will soon return to 2020 levels. The new interest rate situation brings decisive factors more sharply into focus, which often had less weight during the years of extremely favourable financing. These include the long-term affordability of the monthly instalment, the energy efficiency of the property, the quality of the location, and the general suitability of the property as a safe investment.
This market shift means that not every property that would have found a buyer during the low-interest phase can maintain its price in a similar way today. While in the low-interest years, an excessively high purchase price could often be cushioned by price increases and favourable conditions, today the property must convince with its core attributes: a good location, solid substance, efficient energy consumption, value stability, and a market-appropriate price. The altered interest conditions have also sharpened the focus on a property's energy efficiency. Daniel Ritter explains that with a high financing burden, less budget remains for high energy costs or refurbishments. Buyers therefore not only calculate the purchase price but also the future investment needs and ongoing operating costs more precisely. Properties requiring extensive renovation lose attractiveness despite lower asking prices, while modernised or new-build properties in good locations are significantly more popular. Demand is thus shifting towards high-quality properties in value-stable residential areas.
Property as a Tangible Asset and Location Factors
Despite rising costs and uncertainty, property remains an important and solid tangible asset. One's own home offers independence from rising rents, and loans genuinely lose weight with rising prices and incomes. This explains the search for tangible assets such as gold, precious metals, and property in uncertain times. However, property as 'concrete gold' is not a foregone conclusion. The preservation of assets is only guaranteed if the property is realistically valued, solidly financed, and in demand long-term. In addition to location, demography is increasingly determining long-term demand. Given an ageing population and an increase in single and two-family homes that will be sold or inherited in the coming decades, the supply in growing cities and connected regions will meet broad demand. In shrinking and structurally weak areas, however, this leads to a competition of many offers for fewer buyers, increasing price pressure.
Not every property will automatically become difficult to sell, but the location and condition of the house will be decisive in whether it remains in demand. For owners, the message is clear: time is no longer primarily a value driver; those unwilling to sell at the best possible price currently will likely not achieve it in the future. Especially in regions with growing supply, awareness of demographic reality is necessary. A well-founded assessment by property experts enables a realistic classification of location, target group, condition, and price. For prospective buyers, the path to homeownership does not become easier but clearer. Equity remains an essential prerequisite, and banks are scrutinising financing projects more comprehensively. Early assessment of one's financial framework and correct planning of ancillary costs by professional financing experts is therefore indispensable.
