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
B
BackSteinGotik12 Apr 2022 16:54Veltins schrieb:
Maybe to generalize: It’s less about what is financially feasible overall, although budget limits are of course set, and more about the sensible approach. I find it difficult to prepare financing for the entire project under time pressure (land), especially when the costs related to the house are hardly reliably estimable. Hence the idea to possibly secure the land first. That would remove the time pressure, and the “major” financing would then concern the house project. First, have the discussion with the general contractor today – then you will have a (lower) financial framework. If that is still manageable for you, you can proceed; you are well prepared.
If it already seems completely unrealistic, it would also be okay to pull the plug now and look for a Plan B over the mentioned 5 years, which allows every child a suitable room. The equity capital is still available.
Otherwise, a middle-ground approach – buy the land from equity if possible, possibly finance part of it flexibly, and then calmly carry out the planning and see what develops over the next few months. Everything is just starting – in a few weeks, pallet production will likely end because the special nails can only be sourced from Russia. So everything will have some impact on a starting project. Interest rates have already changed a lot, and they may now stabilize, so your pressure may not increase too much.
BackSteinGotik schrieb:
No, of course not – prices can never fall, interest rates can never rise, and thanks to TINA, prices will increase forever. History alone already shows this, it has been like this for 500 years.Interest rates are still low in the long term. There were times with rates over 10%, and even then prices rose. The only time people received less money for their homes was with the rundown properties in the East. But those properties were never worth the money and their value did not really fall; instead, they were sold at too high a price to gullible buyers. The possibilities for detached houses are limited politically or due to space, and there will always be demand for them. You don't really believe that the refugees from Ukraine will all return. More are likely to come from neighboring countries, who are now also afraid, or who are already here as temporary workers and are now bringing their families.Veltins schrieb:
(3) Give up on the land, since at the moment a project of this scale, with costs approaching one million, is economically feasible but becoming increasingly difficult. Conversely, this also means that building is off the table, as there will be no land available in our preferred area for the foreseeable future.
Are you so limited in terms of location that no other houses or building plots are possible? That would mean a village or a very small neighborhood.H
HansDampf8812 Apr 2022 17:25Grundaus schrieb:
Interest rates are still relatively low in the long term. There were times with rates over 10%, and even then prices continued to rise. The only time people got less money for their homes was with the poor-quality properties in the Eastern regions. But those properties were never worth the money and didn’t actually lose value; rather, they were sold at an inflated price to unsuspecting buyers. The possibilities for single-family homes are limited either politically or due to space constraints, and there will always be demand for them. You don’t really believe that all the refugees from Ukraine will return, do you? More are likely to come from neighboring countries who are now also afraid, or who are already here as temporary workers and will now bring their families over.That argument “interest rates were 10% before” always comes up. Sure, but in the past construction costs and property prices on one side and incomes on the other side never drifted so drastically apart within three years as they have now. Do you really think that anyone, except the top 1%, can afford to buy property at the current prices with 8% interest rates? I don’t see it happening…
11ant schrieb:
Conclusion: If I were you, I would complete the land purchase under the current circumstances and start a new thread here (linked), where the conditions of the plot (and also the one originally planned) and the house design are presented. Then we can work together to identify where the building project has potential for cuts or downgrades to ease the financing.Thanks, that’s also the direction I’m leaning toward. I will actually finance part of it with a loan, since my return on equity is significantly higher than the current loan interest rates. At the same time, some equity will remain for the house itself. My advisor suggested not putting all my equity into the land purchase, even though I could.
Grundaus schrieb:
Are you so limited in terms of location that no other houses or building plots are possible? That would mean a village or a very small district.Actually, I’m restricted to a single district, yes. Either build here or not at all.Thanks to everyone for the advice. Please don’t let the thread drift into a general discussion about bubbles, interest rates, and immigration. That would be a shame because the basic considerations and objections are really valuable. They help to think through all perspectives.
B
Benutzer20012 Apr 2022 20:22HansDampf88 schrieb:
Do you think that anyone, aside from the top 1%, can still afford property at current prices with 8% interest rates?Yes, if houses are built again in a practical and modest way. 120 sqm (1300 sq ft) is enough for a family. But this discussion has been had here many times, and most people insist on certain house sizes, etc...