ᐅ Start a construction project, buy just the land, or wait?

Hello everyone,

We find ourselves in the following dilemma: My wife and I have been searching for a plot of land more or less intensively for the past 7 years. Our location options are very limited. In the usual public allocations, despite having two children, we often don’t meet the points criteria for winning building plots. However, I was able to secure a plot through a blind bidding process with the following details:

- 650 m² (7000 sq ft) in a prime location.
- High requirements for the building project: solar installation mandate, extensive green roofing, decentralized rainwater retention, etc.

The problem: The current situation with skyrocketing interest rates, general contractors who no longer can or want to build at fixed prices despite fixed price agreements, and the discontinuation of KFW funding. We (dual-income household, one civil servant) can still afford the project, but we have to decide within the next two weeks how to proceed.

(1) Launch the entire project with appropriate financing. We have a financing confirmation, but a reliable estimate of the final project cost is hardly possible. Our meeting with the general contractor is scheduled for today. The house is 95 percent fully planned (status summer 2021).

(2) Under conditions of raw material shortages and lack of funding, secure only the land for now and buy some time. The issue is less about missed loan repayments and more about interest rate trends and the requirement to build on the land within two years. So the option to buy time is limited, although I hope that the raw material (price) situation will at least stabilize in a few months. Also, there might be new KFW funding in 2023 for very sustainable construction, which we are aiming for.

(3) Give up the plot, since a project of this scale, with a budget close to a million, is economically possible but becoming increasingly difficult. The flip side is that building would then be off the table, at least for the foreseeable future, as there are no plots available in our preferred area anymore. Why am I even considering option three? Until last summer, the planned plot cost was 120k less; currently, an additional 100k easily disappears due to increased interest rates and lost KFW loan repayment subsidies.

I am usually very rational, but decisions under time pressure are never good. At least the decision whether to finance only the plot initially or the entire project is causing me a lot of concern. My wife is getting dizzy looking at the numbers, even though we can still responsibly afford it. But the question is at what cost.

I would appreciate any advice. Maybe others here are in a similar situation.

Thanks and best regards

Option 2.
Interest rates will, if at all, rise only moderately over the next two years, more likely they will remain stable.
The raw material shortages will normalize somewhat, which will also affect prices.
Furthermore, time pressure is never a good advisor.

Hello,

we built our house last year in the greater Munich area, and the costs were already staggering for anyone not living in a major city.

We are very happy in our own home, and in hindsight, it has become clear that it would be even more difficult now. Of course, you can’t know that for sure.

Since you already have two children who can use the house, the idea of "waiting" doesn’t seem reasonable to me, especially since you only have about two years.

As long as you can afford it, I would start the construction. But only if having your own home is very important to you. I don’t see any financial advantage, but emotionally it can definitely make a big difference.

Building. It is not getting any cheaper.

You seem to have a good income and can probably afford some extra costs or delays. In that case, I would start now.

If your budget is tighter and an additional 100,000 euros would cause serious financial strain, I would not start anything at all under the current circumstances. After all, no one knows what will happen in two weeks...

How exactly is your building obligation defined? What exactly do you need to have completed and by when?

Regarding material shortages, this will likely normalize again. The key question, however, is at what prices. LNG is significantly more expensive than Russian pipeline gas, and everything further down the supply chain will also remain correspondingly more costly. That’s just one example. Other raw materials and intermediate products are affected as well. Therefore, I wouldn’t expect prices to return to the levels seen a year ago. There are simply many political factors and constraints at play. The shortage of skilled tradespeople will probably not improve either, especially since there is a strong push to retrofit many older buildings with heat pumps.

I would only moderately count on new subsidies. In principle, new construction will no longer be supported as generously as it was in recent years. I would expect incentives around 10,000–20,000 (depending on your currency), which will hardly impact your overall budget. Accordingly, I wouldn’t wait for subsidies that are currently uncertain, especially concerning whether you qualify and what additional measures might be required.

I would also like to raise the topic of lifetime. How old are your children? Every year you wait will reduce the time you can spend together in your new home. Since you have already almost finalized the house plans, I lean toward building as soon as possible—assuming you are financially able to handle any further price increases.