Conversion Housing Refugees Could Boost Property Market

The need for refugee housing presents lucrative possibilities in Germany's real estate market, experts say, as previously undesirable properties may now be converted.
A family of asylum seekers outside migrant housing in the southwestern German city of Tübingen.

Many Germans fear the demand for affordable housing will spike because of the country’s refugee crisis. But those concerns are just one side of the supply-and-demand coin. As to the supply side, many real estate experts aren’t fretting nearly as much.

The flood of asylum seekers into Germany – and Europe as a whole – is rated by more than a third of investors in real estate financing as “positive” or “generally positive,” according to a survey by consultants at Ernst & Young. Only 22 percent of realty investors expect a negative impact, the survey revealed.

Because of the refugee situation, properties doomed to stand empty for years have suddenly become attractive to commercial property financing. Office buildings built in the 1960s and 70s that aren’t in prime locations could now be converted into housing, according to the consultancy.

I expect a yearly demand of 400,000 new apartments in Germany. Rolf Buch, chief executive, Vonovia

“Conversion” has become the magic word.

Since residential properties in urban locations provide much higher rates of return than commercial properties at the moment, the additional demand for housing is stimulating the real estate market. And that's on top of the boom that has already been going on for years thanks to the European Central Bank’s zero interest rate policy, which has fueled the chase for profitable returns in real estate.

But Vonovia, Germany’s largest residential property manager, seems a bit less optimistic than investors. Vonovia chief executive, Rolf Buch, says the country isn’t prepared for the impact on the housing sector triggered by the huge influx of refugees, which exceeded 1 million in 2015 alone.

“I expect a yearly demand of 400,000 new apartments in Germany,” Mr. Buch said last Thursday at a media briefing about the annual survey.

Registered Refugees in Germany asylum seekers-01


The refugees who arrived in the fall won’t spark higher demand for housing until about a year goes by, he said. That's when the market will feel increased pressure on the sales price for residential properties, which at the moment isn’t that pronounced, he added.

Vonovia wants to seize the opportunity and create new residential space by adding floors to existing buildings and also starting construction on empty lots the firm owns. Mr. Buch said the aim was to create affordable housing.

He introduced the concept of prefabricated concrete buildings into the discussion. Because of the role they played in communist East Germany's housing strategy, the unappealing concrete towers have a bad reputation in Germany. Still, they are quick, cost-effective and sensible in a way, Mr. Buch said. In fact, Vonovia is using this prefab construction method in its new office complex, he pointed out, adding that it’s easier to build multi-story residential blocks than using other alternatives.

Mr. Buch compared the concept to car making. High-quality cars from Daimler, BMW, Audi and others aren’t individually produced but rather built on assembly lines. The same is possible for apartments made with pre-fab materials. That’s the only way to create many apartments quickly, he said.

Overall, there is “a very clear trend that is being aggressively financed” in the German real estate market, said Nico B. Rottke, a partner at Ernst & Young.

Ranking highest are the loan-to-value ratio in commercial properties at about 75 percent and in residential properties at 85 percent. The loan-to-value ratio is the term used for the share of the object’s value in percent financed externally through loans.

These values could even increase in the future.

“The market is adapting to the higher loan-to-value ratio through the increased use of alternative financing instruments,” Mr. Rottke said.


Peter Köhler is a Handelsblatt editor in Frankfurt, reporting on banks, private equity firms, venture capital and corporate funding. Robert Landgraf is Handelsblatt's chief correspondent for the financial markets. To contact the authors: [email protected] and [email protected]