A storm is brewing: Slump in German housing construction worsens, UK home builder shares tumble

A storm is brewing: Slump in German housing construction worsens, UK home builder shares tumble


Ifo's head of surveys says higher interest rates, drastic rise in costs are choking off new business

BERLIN/LONDON (Reuters/Web Desk) – The downturn in Germany's residential construction sector intensified in July, according to a survey published on Monday, which showed a record number of companies complaining about dwindling orders in the sector.

On the other hand, UK homebuilder shares tumbled on Monday, set for their biggest one-day drop in over six weeks, led by a 14.9 per cent fall in Crest Nicholson shares which plunged after the residential house builder cut its full-year profit view.

These developments reflect a deeper crisis brewing for the property sector in the world as companies accounting for 40 per cent of home sales have defaulted in China since the debt crisis unfolded in mid-2021.

It has led to many unfinished homes, unpaid suppliers and creditors who are not only financial institutions but also ordinary folks who bought wealth management products linked to trust financing.

Read more: China's government tries to defuse economic fears after real estate developer's debt struggle

As far as Germany is concerned, the Ifo economic institute said the percentage of companies suffering from a lack of orders grew to 40.3pc, up from 34.5pc in June and just 10.8pc in July 2022.

"A storm is brewing. Following many years of expansion, now higher interest rates and the drastic rise in construction costs are choking off new business," said Klaus Wohlrabe, Ifo's head of surveys.

While the percentage of construction companies complaining about cancelled orders eased somewhat in July to 18.9pc, that was still well above the long-term average of 3.1pc.

Many companies are getting by on order backlogs, Ifo said, but its survey showed 10.5pc of companies in the sector reporting financial difficulties - double the figure a year prior.

Read more: Germany's property sector is in the dumps. Should we care?

Data released last week showed a 27pc fall in building permits for apartments in Germany in the first half of 2023 as the cost of building rises and the European Central Bank raises interest rates to fight inflation.

And in the United Kingdom, an index of London-listed homebuilders was down 3.2pc by 7:25 GMT on Monday. It underperformed the FTSE 350 which was up 0.1pc and was on track for its biggest monthly drop since last September.

Crest Nicholson lowered its annual profit expectations in the wake of challenging trading conditions as high interest rates and sticky inflation drove homebuyers away.

Separately, on Monday an industry survey showed asking home prices in Britain fell sharply this month as rising mortgage costs caused sellers to lower their expectations of what they can get for their properties.