Start a construction project, buy only the land or wait?

Hello everyone,

we find ourselves in the following dilemma: For 7 years my wife and I have been searching more or less intensively for a plot of land. We are very limited when it comes to location. In the usual public allocations, despite having two children, we mostly fall through the point system for the allocation of building plots. Now, I was able to secure the contract for a plot through a concealed bidding process with the following data:

- 650 m2 in a prime location.
- High requirements for the construction project: solar requirements, extensive greening of roof areas, decentralized rainwater retention, etc.

Problem: The current situation with exploding interest rates, general contractors who can no longer and do not want to build at a fixed price despite a fixed price contract, disappearing KFW subsidies. We (dual earners, one civil servant) can still afford the project, but we have to initiate the next steps within the next 2 weeks.

(1) Kick off the overall project with appropriate financing. Financing confirmation is available, but what the project will ultimately cost is hardly realistically estimable. The discussion with our general contractor is happening today. The house is 95 percent fully planned (as of summer 21).

(2) Due to raw material shortages, lack of subsidies, etc., initially just secure the land and buy time. The problem I see less in the missed repayments, but in the interest rate development and the requirement to build on the land within 2 years. The horizon to buy time is therefore limited, although I hope that the raw materials (price) issue at least stabilizes in a few months. In addition, there may be new KFW subsidies in 2023 for very sustainable construction, which we are aiming for.

(3) Give up the plot, since at the moment such a project of this size, approaching one million, is economically feasible but becoming increasingly difficult. This also means, conversely, that the topic of building is off the table, as there will be no more plots available in our desired area for the foreseeable future. Why am I considering option three? Until last summer, a planned plot cost 120k less, easily another 100,000 km currently arise due to higher interest and the loss of KFW repayment grants.

I am usually very rational, but decisions under time pressure are never good. At least the decision whether to finance only the plot for now, or the entire project, is currently troubling me a lot. And my wife is getting dizzy with the numbers, even though we can still afford it responsibly. But the question is at what cost.

I am grateful for any tips. Maybe there are builders in a similar phase.

Thanks and regards

Option 2. The interest rates will, if at all, rise moderately in the next two years, rather stagnate. The raw material shortage will somewhat normalize again and thus also the prices. And furthermore, time pressure is never a good advisor.

Hello,

we built last year in the Greater Munich area and the costs were already dizzying for anyone not from a big city.

We are very happy in our own house and in hindsight, it has become clear that it would be EVEN much more difficult now. Of course, you don't know that. But you already have 2 children who can use the house now, so the aspect of "waiting" doesn't sound reasonable to me. Especially since you only have 2 years.

As long as you can afford it, I would start the construction. But only if the project of owning a house is very important to you. In terms of return, I don't see an advantage, but emotionally it can still make a big difference.

Build. It is not getting cheaper.

You seem to have a good income and can probably afford some additional costs or delays. Then I would start now. If it is rather tight and +100,000 € would financially break you, I would not start anything at all in the current situation. You don’t even know what will happen in two weeks .....

How exactly is your construction obligation structured? What exactly do you have to have built by when?

As for the material shortages, that will certainly normalize again. The crucial question, however, is at what prices. LNG is significantly more expensive than Russian pipeline gas, and everything further down the chain will accordingly remain more expensive. Just as an example. Other raw materials and intermediate products are of course also affected. I would therefore not assume that prices will fall back to the level of a year ago. There are simply a lot of political wishes and constraints at play here. The issue of skilled labor shortages will certainly not get better either, after all, there is a desire to renovate rows of old buildings with heat pumps.

I would only speculate to a limited extent on new subsidies. Basically, new construction will no longer be funded so absurdly as it has been in recent years. I would expect 10-20k, which hardly makes a difference in your overall budget. Accordingly, I would not wait for a subsidy that is currently not even clear whether you qualify for it or what additional measures are necessary.

I would also like to bring up the topic of lifetime at this point. How old are your children? Every year you wait will subtract from the time you spend together in the new house. Since you have almost finished planning the house, I tend to advise building as quickly as possible. Provided that you are financially able to withstand further price increases.