Property purchase / financing in the current situation - yes / no?

Dear all,

I have been reading along here for quite some time. Now I would appreciate your assessment of the following topic: Together with my partner, I applied for a plot of land for a single-family house in a development area in November 2021, after receiving the green light for the ownership project in a discussion with our two house banks. Contrary to our expectations (plots were allocated according to criteria, of which we only fulfill one), we now received the opportunity at the end of May 2022 to reserve one of the plots. The cost for the plot is 89,610 euros (for 618 sqm) + additional costs (approx. 6,000–7,000 euros). Since the reservation period expires at the end of June and we have not yet planned a concrete project, we would initially only buy the plot in order to later calmly start planning and building. According to the draft purchase contract, construction must be "started" within 3 years from August – so there is still some time.

Unfortunately, the interest rate and construction cost situation has drastically changed since November 2021. In addition, new construction projects are currently hardly calculable due to the lack of fixed prices, so we would actually like to wait and see how the situation develops, so as not to find out during construction that the project is financially overwhelming us. At the same time, the plot has the optimal size and location for us – 15 km from the nearest large city where we both work. Moreover, the plot is cheap at 145 euros/sqm compared to prices called for in other municipalities around the city (elsewhere the sqm price starts at 200–250 euros/sqm). The ratio to the standard land value is also favorable: in the neighboring development area, it is already 140 euros/sqm. In short: the plot is ideal, the interest rate and construction cost situation is not.

The question now is whether we should take the risk of buying the plot first in order to build at a later date. We do not expect the interest rates to fall but hope that construction costs will stabilize and at least become calculable again. In addition, we would continue to save equity.

Our current situation is as follows:
- She: 28 years old, He: 30 years old
- No children, planned: max. 1 in about 7 years
- Household net income: 5,300 euros, He: 3,300, She: 2,000 – He: lifelong civil servant (with foreseeable salary increases), She: part-time employee in the public sector (currently no full-time possibility; A13 civil service career path sought)
- Equity: 40,000 euros, which we have saved since October 2019. During this time we also paid off student loan debts (Bafög) in a lump sum (approx. 10,000 euros), previously we studied.

The risk we would take if we buy the plot now but could no longer develop it because of the current situation is the loss of taxes and interest if we return the plot to the municipality. This amounts to approx. 18,000 euros – a considerable sum, which is why we are considering whether to buy the plot now or give up the reservation and postpone the ownership project indefinitely (or forever).

Best regards!

I would carry through the project but not build a forever and ever best dream house of all time in XXL and all that schischabumm.

The plot of land is often the most difficult part of building a house. So take it and wait, you can definitely build something affordable of normal size on it.

Would take it as well. Even though 3 years until construction seems very long, time passes very quickly. So it’s best to start planning right after making the decision.

Our demands are not huge either. About 130-140 sqm is enough, without any frills. We are just afraid of a very high monthly rate, since we would have to finance most of it. And here in the forum, huge amounts are called for EFHs.

The alternative would be to look for existing properties and hope that they become cheaper. I have been observing the market for more than a year and currently see that many houses are repeatedly listed in the region – however, without any noticeable price correction downwards. Additionally, existing properties have not been an option so far because 10% of the purchase price as incidental costs is often too high for us. Most houses with an acceptable standard here go for 400,000-600,000 euros. The question is whether this will change to our advantage due to the changed interest rate situation or whether existing properties will remain at a high price level. For us, however, only a house with new-build standards (from 2010) would be considered, definitely not a major renovation project.