Will construction interest rates soon reach the unimaginable?

That was already said 3 years ago, I remember forecasts of 6, 7, 8% at the end of 2024...

The person who said that has disappeared from the radar just like those high interest rates…

If construction interest rates continue to rise, demand for construction projects will decline, or fewer projects will be built in practice - both for owner-occupied and investment projects. This leads to rising rents in existing properties. Of course not 1:1 and probably with a time delay, but anyone who cannot afford to build or buy their own property puts pressure on the rental market. How do the experts among you see this? This is just my theory.

We actually wanted to rearrange the types of investments and invest a bit in real estate to rent out, but if I calculate an 80% financing at 3.8% + 2% including non-reimbursable [Hausgeld], I put in hundreds of euros monthly. I don’t want to put in more equity; that only makes the calculation worse. The prices are simply too high for it to make any sense.

Of course not 1:1 and probably also time-delayed, but anyone who cannot afford to set up or buy their own place is putting pressure on the rental market.

Since we are not increasing, no. What is putting pressure on the market are renovation costs that lead to higher rents. Or rather the fact that in Germany we have enough living space, but a) in the wrong place and b) in partially too poor condition.

If construction interest rates rise further, demand for construction projects decreases or in fact less is built – both owner-occupancy and investment projects. This leads to rising rents in the existing stock.

That has already happened. What is still happening is the fact that by now everyone has gotten used to the interest rates again. The big problem in recent years was uncertainty. There is no building boom now. But those who always wanted to build now have security (regardless of whether interest rates are 3.5% or 4%). New construction projects are being adapted to the new reality.

The prices are simply too high for it to be worthwhile somehow.

Depends on where. You have to decide whether you want cash or a property that appreciates in value. I prefer cash. And you can find 5-8% yields everywhere – except in the metropolitan areas.
If I buy a 140 sqm apartment all-in including additional costs for under 200k and get nearly 1k cold rent, that is a factor of 12. A 6% yield. The place pays for itself. If I use 20% equity, that's a good deal. Rent from the authorities – there are also no problems with rent dodgers.

We actually wanted to reorganize the types of investments and invest something in real estate for renting...

That doesn't necessarily mean building. The ratio of purchase price + maintenance to rent is very individual depending on location and property. I no longer do this for other reasons. Tenant protection laws allow tenants to massively reduce the value of the property without landlords being sufficiently protected against it. These are the rules of the game that I do not want to play as a private person. For the founding of a management company with 25+ units, which can cushion this emotionally and financially better, I lack capital and will.

The one who said that has disappeared from the radar just like those high interest rates…

Banned and very much so! Or emigrated… to a country without internet.

If construction interest rates continue to rise, the demand for construction projects will decrease, or in fact less will be built—both for personal use and investment projects. This leads to rising rents in existing properties. Of course not on a 1:1 basis and probably with a delay, but anyone who cannot afford to build or buy something of their own will put pressure on the rental market. How do the experts among you see this? This is just my theory.

I am not an expert (far from it). I believe that when interest rates rose in 2022 from 0.x% to at times 4.x%, new contracts suddenly dropped off quite sharply. Since then, things have mostly been sideways (a bit up/down, but nothing as extreme now), and to me it looks like sooner or later expectations will settle again and planning will be adjusted to the new situation. As a layperson, I can’t really say much about the impact on rents. I suspect the influence of single-family home builders is rather negligible. What the large project developers do with multi-family houses probably has a stronger impact. But possibly it comes down to something similar: that short-term sharp increases are quite deadly, but once a level stabilizes, planning is done based on the new status quo... But who knows if construction interest rates will really soar to unimaginable heights or rather stay roughly where they are now—maybe a bit higher.