A mood of crisis on the real estate market, falling prices and now requirements for climate-friendly heating: The federal government’s heating plans are causing owners of properties in need of renovation to frown – and at the same time unsettling potential buyers. If the worst of the energy crisis with high costs for gas and electricity seems to be just over, now there are concerns about a loss in value and expensive investments, for example in old heating systems.
Realtors are observing that it is no longer just the increased interest rates that concern people. “The new requirements and refurbishment obligations for buildings are increasingly preoccupying prospective buyers and prolonging the brokerage of real estate,” reports Daniel Ritter, managing partner at the Frankfurt broker Von Poll.
Older existing buildings with low energy efficiency are having an increasingly difficult time. “We are therefore observing declining demand in this segment, also because the costs for renovations are difficult to calculate due to increased prices for craftsmen and supply chain problems,” says Ritter. Especially for houses in need of renovation with large plots of land in B and C locations, prices fell by between 10 percent and 30 percent.
Ritter: The need for advice is growing
The general energy discussion does the rest for the restraint, says Ritter. “How to deal with the existing gas or oil heating? Is an air heat pump sufficient? Where and when are there subsidies? Can I get a new heating system and the right tradesman at all?” The need for advice has grown.
According to the federal government’s legislative plans, from 2024 every newly installed heating system should be operated with 65 percent renewable energy. Then, for example, heat pumps, solar thermal systems or hybrid systems consisting of heat pumps and gas heating have to be installed. Existing oil and gas heaters can continue to be operated, broken heaters can be repaired. If this is not possible, transitional periods should facilitate the exchange. The law means an end to installments for conventional oil and gas heating in this country. The exchange is to be funded by the state.
The plans have unsettled buyers and owners of existing properties, says Mathias Wahsenak. He is spokesman for the management of LBS Immobilien GmbH in Potsdam, whose business area extends from eastern Germany to Thuringia. “The interaction of increased interest rates and the uncertainty of what costs buyers or owners will incur when replacing a heating system has triggered a noticeable reluctance to buy.” The lower demand inevitably increases the pressure on purchase prices, which have already fallen by 10 to 25 percent in many places. The certified sales prices often deviated significantly from the offer prices.
Owners are concerned
According to the Federal Statistical Office, in the fourth quarter of 2022 residential real estate had already become cheaper by an average of 3.6 percent compared to the same quarter in the previous year – the first price drop within a year since the end of 2010. It was even down 5 percent compared to the previous quarter.
Now the requirements for replacing the heating system are likely to increase the downward pressure – this is also fueling concerns among owners: Especially when it comes to older properties, possible upcoming investments have to be priced in, explains a spokeswoman for the Haus owners’ association
The German Real Estate Association (IVD) also sees increasing pressure on the market. In addition, there would be more demanding financing, according to the association, which represents brokers and experts, for example. “The need to talk about all these topics will continue to increase,” says IVD Vice President Dirk Wohltorf. Older residential buildings from the 1950s to 1970s pose a particular challenge.
Location continues to be of the utmost importance
Wahsenak from LBS Immobilien in Potsdam says that the importance of the energetic state of a building has grown significantly. Well-refurbished existing properties or more recent used properties are more stable in price than unrenovated properties. “In all the discussions about the decarbonization of the building stock, however, it must not be forgotten that the energetic condition of the building is still only one criterion by which the value of a property is measured.” The location is still of the utmost importance – according to the old saying “location, location, location”. In very attractive locations, a poorly renovated property will continue to retain its value significantly in the future than a well renovated property in an unattractive location.
After all: For buyers, the need for renovations can pay off as an advantage in price negotiations. Potential buyers use the need to invest as a means of exerting pressure, observes Ritter from Von Poll. “Whereas in the past the energy certificate and the energy values were of secondary interest as part of the sales process for real estate, prospective buyers are now directly requesting the relevant information in order to use the associated investments as arguments for their price negotiations.”
The banks also look much more closely at the energy certificate than they used to, says Ritter, which could be an advantage for modern buildings. “Some are even beginning to offer small discounts on particularly energy-efficient properties.”
