Construction project on hold - keep the property or sell it?

Hello everyone,

I have been a guest in this forum for quite some time now and I am finally at the point where I would like to gather various opinions from other forum members.

In July last year, we bought a plot of land with 400 sqm for €750 per sqm (yes, I know, small..). We financed this plot with an interest rate of 0.9%. Since a two-family house was planned/was planned on this small plot, the planning took some time as several appointments at the municipality etc. were necessary.

Now, with the plan finished, we are facing the current chaos in the construction industry.

Exploding construction costs, seemingly daily rising interest rates, and inflation. If I had known what awaited us this year, I would have.. yes yes, would have, could have. No chance!

So here we stand, the plot financed at relatively good conditions, but in a construction industry situation that personally tells me “do everything, just don’t build now.” Apart from the exploding prices, I am more deterred by the material shortage that could lead to unpredictable delays. I have no desire to terminate my apartment lease because I plan to have the house ready to move into within the next 3 months, only to end up with no roof over my head.

Now some will say “yeah, cool, plot financed at good conditions, great in times of inflation!” but I view that a bit critically. For one, the plot at €750 per sqm was no bargain. Currently, due to a lack of plots, the sqm is sometimes traded at €1000, but I attribute that more to a small “bubble” created by people who now want to secure the relatively good conditions and practically buy everything they can find.

Furthermore, it should become significantly harder next year for the “average person” to finance a property, I have read something about new regulations etc. Coupled with already rising interest rates, I personally fear that the real estate market will at least soften somewhat and that the land value will also change accordingly, which brings us to my question:

I know this is partly crystal ball gazing, but I would still like to see what some people have to say about it.

How do you see it? Do you think the land value will be spared from possible “crashes”?

What would you do in my place? Keep the plot, pay it off, and just observe how things develop in the next few years and maybe simply wait for the right moment to build?

If you ask me, I believe it would be sensible to sell the plot as soon as possible, since there are still enough people willing to build. I expect the plot to lose value starting next year precisely because of the new regulations and rising interest rates. The plot is only interesting for a family and they will find it significantly harder starting next year.

I would appreciate a lively exchange and thank you in advance for your attention!

Best regards

Hello,
I am right in the middle of planning the building application. Unfortunately, despite the fixed price guarantee, I received a letter that the construction company wants to adjust the price and the construction time. It is really difficult at the moment, I doubt it will get better. I have the feeling that waiting makes little sense. I think land will always sell well, even in the future, there are too few of them. Instead of 50 potential customers, you then have 25. You only need one, you will find him. There are always couples who have inherited an apartment, etc.
Only they can probably afford something at the moment.

From next year on, it will supposedly become much harder for an "average person" to finance a property; I have read something about new regulations, etc.

Nope.

What do you think? Do you believe the standard ground value for plots will be spared from any "crashes"?

I expect no crashes at all. Maybe in the absolute boom regions prices will come down a bit (as we've been seeing for some time in Düsseldorf, for example), but that's not a crash. Besides, if there were crashes, then of course the land price would also go down.

What would you do in my place? Keep the plot, pay it off, and just watch how everything develops over the next few years and maybe simply wait for the right moment to build?

You never catch the right moment.

If you ask me, I think it would be sensible to sell the plot as soon as possible since there are still enough people wanting to build now. I expect the plot to lose value from next year due to new regulations and rising interest rates. The plot is only interesting for a family, and they will have a much harder time from next year on.

Since there are no new regulations, you're on the wrong track. The question is whether you want to own property or not. I also don't see any price drop for plots — if anything exists in Germany, it is liquidity. And liquidity always likes to flee into real assets. That was the case in recent years and will continue to be so.
If you want to own a home, then build. If you actually have no interest in it, then sell the plot, pay your taxes on the profit, and be happy about it. However, if after half a year you get the idea to build again, it will at least be significantly more expensive financing-wise than at the time of your plot financing. You can already double the interest rate now.

Do you still want to build? Is the plot in a location favorable for you? Do you have an obligation to build? (That is often the case in new development areas) Do you feel comfortable in your current living situation or is it foreseeable that you will need something else soon? (because of children or because the neighbors are annoying or or or)

I also find the situation difficult. We have a new development area nearby that is about to start, which we had been considering... But by now I almost hope that it will be delayed for quite a while before it goes on sale.... If the prices were somewhat predictable (if necessary at a high level) that would be one thing, but right now everything feels rather unpredictable.

My first idea would probably be to try anyway, to redefine the financial framework for myself in the current situation and see if building would still be possible. Probably in a scaled-down form compared to the original wish. But there are many ifs and buts, depending on how your own situation currently looks.

Since the new guidelines do not exist, you are on the wrong track.

There was an article on Zeit today that the Bundesbank is considering prescribing higher capital requirements or something of that sort. But whether that will actually happen is still very much up in the air.

I would not give up any more land, especially not if it is financed cheaply, the financing does not burden you, or you need the money for something else. We bought a piece of land at the end of last year, have just discussed the preliminary draft with the architect, and will carry out our construction. If it takes longer, then so be it; if it becomes more expensive, we will have to save somewhere or find another solution.