It is one of the largest government interventions in the real estate market, something the Republic has never seen since the post-war period. Compared to what is happening now, the bitter dispute over the rental cover in Berlin already looks like a side note of history: Germany prohibits tenants from nationwide from dismissing tenants who are unable to pay their rent due to the corona crisis. Landlords have to rent them up to three months’ rent by the end of June. If necessary, even more if the Aid Act should be extended until the end of September – which can happen.
The innovative corona virus has quickly set the property market in deep shock: the market for commercial properties (where tenants can now also withhold their payments) as well as for private purchase and rental properties. There are almost no more home visits, brokers are also registering short-time work, moving has become practically impossible, and both prospective buyers and banks are reluctant to make a decision at the moment – because nobody knows how long the virus will rage, the rest of the economy stand still and how great the economic damage will become.
The first effect will be felt by landlords in the coming weeks: their tenants, who are now holding their money together because of Corona and no longer want to pay their rent, will have up to two years after the crisis to pay off their debts without being canceled can. This will only be possible from July 2022 at the earliest, if rent liabilities still exist.
This is of course a blessing for tenants. However, state welfare could become a curse for the real estate market. Because for landlords, the expenses for property taxes, additional costs and loan repayments continue – unless they, too, let the loan installments paid by their banks. Then the banks are on fire – and it goes on and on: In the end, Corona could also change the entire real estate market dramatically.
A great uncertainty
How different the corona crisis is, “shows the perceived law that high uncertainty is good for the real estate sector,” says property economist Tobias Just. It was true even during the financial crisis and the euro crisis. And it gave the Federal Republic the most rapid housing boom of all time. But even this law “could tip over”, Just fears. That is, when confidence in the regularity of rent payments diminishes.
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“The decisive thing will be: What will happen in the near future on the earnings side, that is to say with rents?” Says Germany’s best-known real estate economist Michael Voigtländer from the Institute of German Business (IW). “If the expectations that buyers and owners have recently had on rental income change, it could have a greater impact on the real estate market,” he says.
Nobody can currently quantify how big they would be. Nor can it be estimated how many tenants will soon be unable to pay their rents due to the temporary closings and short-time work. And what the economy will look like after reopening – relatively unscathed or devastated by countless bankruptcies, closed businesses and high unemployment. The best scenario to assume is that the infection numbers will soon decrease, as in China. And the spook would have lasted only a few months.