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
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
W
WilderSueden12 Apr 2022 20:42Benutzer200 schrieb:
Yes, as long as the construction remains practical. 120 sqm (1,292 sq ft) is enough for a family. But this discussion has come up here many times, and most people insist on larger house sizes, etc... Even with 120 sqm (1,292 sq ft), prices are too high. We've already discussed this. Even your standard row houses are unaffordable for average people with an 8% interest rate. An 8% interest rate quickly translates to about a 10% mortgage payment.
For a house on your own plot, I can’t see budgets below 500,000 overall in this area anymore, unless you do significant self-work on an expensive trade. Even in rural areas, the first 100,000 goes for the land, kitchen, additional costs, landscaping, and with the remaining less than 350,000, you can build the house. It’s now difficult to find move-in ready homes for significantly less than 3,000 €/sqm (279 $/sq ft).
I understand that people here often build way too large and luxurious. But I also see what we are losing out on for a good 130 sqm (around 1,400 sq ft) — which I think is enough for two children as well. Focusing only on size ignores the fact that the mortgage with interest rates makes homeownership unaffordable for many, except for those taking on risky financial commitments.
Back to the topic. I find it hard to give you the best advice. If you are happy with renting as it is, I wouldn’t necessarily push you to move out. On the other hand, finding good rental apartments or houses is also very difficult. So, I would agree with 11ant: make a firm decision first, and then see what you can build on it.
H
HansDampf8812 Apr 2022 22:34Benutzer200 schrieb:
Yes, as long as the construction remains practical. 120sqm (1300 sq ft) is enough for a family. But this topic has been discussed here many times, and people often insist on much larger house sizes... Exactly … 120 x 3000 already puts you at 360,000 euros. Add 100,000 euros for the land, then about 15% additional costs, and you’re around 520,000 euros. Then you still need to buy a kitchen, furniture, and cover some other expenses—so you’re looking at about 550,000 euros in total. Now, if you’re in your early to mid-30s and have managed to save around 150,000 euros, which is already very good, you still need to finance 400,000 euros. And that’s assuming an interest rate of 8% just as an example. With a 1% repayment rate, that means a monthly payment of 3,000 euros. Be honest, is that something the average person can afford? I’m convinced that interest rates will impact prices, even at around 3%, which we are likely to see by the end of the year. Demand will simply decrease.
B
Benutzer20012 Apr 2022 23:21WilderSueden schrieb:
8% interest is unaffordable for ordinary people. An 8% interest rate quickly means about a 10% amortization rate. HansDampf88 schrieb:
just taking the 8% at face value. Guys, keep things realistic. I personally experienced 8% interest rates myself — very briefly in the mid-1990s. That was an extreme peak, never seen before or since. The average interest rate over the years is about 4% — nominal, not real.
And when you consider the average — which neither I nor any experts see anywhere near 8% plus 1% repayment — it’s more like 4% plus 1% (or 2%).
HansDampf88 schrieb:
Yeah, exactly… 120 monthly payments of 3,000 puts you at 360,000 dollars. Add 100,000 euros for the plot of land, then about 15% additional costs, and you’re already around 520,000 euros. Then add a kitchen and furniture and some extras here and there, and you’re at 550,000 euros.
Now you’re in your early to mid-30s and have diligently saved 150,000 euros, which is very good. You still need to finance 400,000 euros, And with that, your figures are pretty much average. 400,000 euros will cost around 1,700 euros per month +/- a bit. Rental costs are often already that high today. So as an average person, you can still build reasonably well.
B
BackSteinGotik13 Apr 2022 00:00Benutzer200 schrieb:
Guys, let’s stay realistic. I personally experienced the 8% inflation briefly in the mid-90s. That was an absolute peak—something that never happened before or since. Never trust any statistics you haven't manipulated yourself 😉 — a quick look at the 1980s clearly shows there were even bigger spikes, around 10% to 12%.
So, which decade does our current inflation remind you of again? 😉
W
WilderSueden13 Apr 2022 08:58Benutzer200 schrieb:
Guys, let’s keep things realistic. I personally experienced the 8% interest rates briefly in the mid-90s. That was an extreme spike—something that never happened before or since. The average interest rate over the years has been about 4% nominal, not adjusted for inflation. You were the one who jumped on the 8% figure and said that you’d just have to build 120 square meters (1,290 square feet) then. At the same time, you’re sharing prices from apartment complexes that are already well above €2,500 per square meter (about $230 per square foot).
I also don’t think we will get anywhere near 8% again anytime soon, but the mentioned €400,000 at €1,700 per square meter (about $158 per square foot) at 2.5–3% interest already implies a term well over 25 years. For example, that estimate assumes you can get a plot of land for €100,000. In many areas, you won’t even find a row house plot that cheap (200 square meters / 2,150 square feet at €500 per square meter / about $46 per square foot).