1.3 | The one in which we talk about a truth that hurts
What do Oprah and the global supply chain have in common? I’ll try and explain …
Not to be annoying, but …. here’s the survey link I mentioned. It’s only 11 questions and won’t take longer than 7 and a half minutes to fill out - so we’d love to hear from you! Thank youuuuu :)
So Oprah and her luscious California garden (we should call it “estate” I guess, by the sheer size and splendor of that thing) have had a moment again. You know, that insane Eden of green and shrubbery and white roses, draped in an arc (or five)? Yeah, Adele sat down below said arcs to talk about her life or music or something else entirely - I have to admit I didn’t actually watch it. Adele was doing promo for her new album is the bottom line, Oprah interviewed her and the whole thing got enough (internet) attention that I, liking Adele’s music but not being a superfan by any stretch of the imagination, have seen several images of the event. Where is she going with this you are asking yourself? Shush, I’ll get there.
You know why we have seen Oprah’s garden before, in another heavily televised event? Right, now you know where I am going with this. Royals. Or royal adjacent one might have to say these days, given that Harry and Meghan very publicly stepped away from the trials, triumphs and tribulations of being royal, to lead “a simpler life”. Side note: if that “simpler life” includes friends like Oprah and roses formed in an arc - sign me up. Anywho … Harry and Meghan, former Duke and Duchess of Sussex sat in that garden, and clearly they must have said things even more explosive than what Adele chose to share - because that thing made headlines with a capital H. And yes, I watched at least parts of it, so 100% more Oprah-backyard-content than now, with the Adele rerun. The one thing coming from that interview that I still can’t stop thinking about, all these months later? An unlikely contender, I know, but to me still one of the funniest memes of all time.
And with that, welcome to Rente aus Stein and our “Beginning of the year” Trend Watch, trend 2. I have finally gotten the intro out of the way and around to what I want to talk about. I know, I know … if you have read this newsletter for a while you know that I have had some random intros … and this one might take the cake and I apologise but that meme … and that ship … are actually pretty closely connected to what I think will be the second biggest trend or, more precisely, issue shaping our shared real estate future. Hell, that ship and what it stands for will probably shape our lives, well beyond any real estate. I am, duh, talking about supply chain issues - and Oprah and Adele and the almost-royals were just a way to get there, with a hint of glamour that supply chain issues very rarely possess.
All jokes aside, the headline here is pretty clear: everything will be more expensive this year, and that very specifically also affects the construction and real estate industry. Thus, our trend number 2: Hold on to your purses, price increases are here to stay and will have knock-on effects as well.
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Sure, it’s not a new trend, we have seen prices rise for quite a while now and Statistisches Bundesamt, the Federal Statistical Office of Germany and, thus, the grandmaster of all numbers, tells us how much exactly: price increases have reached a level last seen in 2007, when value added tax was increased from 16% to 19% percent. The year over year increase for prices of conventionally built apartment complexes has reached a staggering 6.4% as of May of last year. A weird conundrum of the whole story: there’s twice as many apartments being built now compared to just a decade ago. You would think that adding this kind of supply to the market would result in decreasing prices. Instead, what seems to be happening is that the massive increase in building projects actually results in a shortage of supplies, making things more expensive, rather than less so. It’s a crazy, crazy world.
So what else is contributing to prices rising and rising? A couple of reasons, really, forming a perfect storm of very expensive buildings:
Because of a global increase in demand, base materials needed for construction - think timber, steel and insulation materials - are way more expensive than in previous years. Despite the Chinese development sector being in a bit of a crisis, apparently they still buy up whatever they can. Supply chain issues around the world are not helping in meeting an increased demand, clearly (there it is again, the ship). One crazy number to give you an example: woodwork and joining in Germany has increased by more than 28% compared to the previous month in May 2021. Gasp
But it’s not just materials making a construction site a valuable undertaking: the global staff shortage that we have read about for sectors like trucking and gastronomy has befallen construction as well. Skilled construction workers are in such high demand that wages have gone up on average, increasing the cost for construction overall
And as if those two factors were not enough, here’s a fun little German curveball for you. Earlier this year, the German government passed a new sustainability law (as needed as it is welcomed by me, personally) and part of that is “carbon emission fee” for all types of dwellings. It’s pegged to be 25 Euros per tonne for now with a planned progression up to 55 Euro per tonne by 2025. Half of those costs, at least that’s the current plan, will have to be covered by landlords
So while it’s clear that eggs, bread, gas and your haircuts will be more expensive next year - this is a real estate newsletter, so we don’t really care for those things. Your buildings, though, and properties you don’t build but still want to buy will also get much more expensive - which, whether you want to call it a trend or not - certainly is a factor to consider as you embark on your real estate journey alongside us.
Here’s a couple of things this could mean - because, as you know, we are not here to simply report the facts. Trends alone, we leave to Vogue. We want actionable takeaways, correct?
Well, for one - you could consider printing a house? Experts actually do believe that the unseen price increase in conventional building techniques could be a boon for the still nascent technology that goes about things, well, differently
If that’s not really your thing (I mean, I can’t even get my inkjet printer to reasonably function most of the time) - higher expenses on the most basic level mean that you will have to plan on rising prices and, thus, a higher need for capital
While everyone thought that interest rates would go up, the European Central Bank actually refuted that assumption. But even if they walk back their own promises - it seems highly unlikely that there will be a massive jump, heaving interest rates back to the level they were in the past. Money will remain cheap
On a very practical level, you might lose some money when there’s tenant turnover, at least if you are planning on renovations in between (which has always worked well for us). With less skilled labor available, handymen and -women are busy, and wait times are getting longer. Prepare to be patient in your renovation endeavours and make arrangements ahead of time if possible. This also means that building up a network of people you regularly work with and trust (as mentioned here) becomes more of a necessity - with moving into another city for real estate purchases becoming more risky for that same reason as well. We’ll keep you posted as we brave exactly that challenge in the months to come
There you have it friends, our second big prediction for the year to come. I know it’s not what everyone likes to hear - but the good news is, none of what we discussed means that the red hot real estate market is going to cool off anytime soon. So go get that house! It’s fine if it doesn’t come with an elaborate backyard, Oprah style. You can always stick a little arc of roses on the balcony - just don’t expect any Armani-clad royals to sit under it anytime soon.
Next week, on Rente aus Stein: we are finishing our crystal ball gazing with the last of our three big predictions for real estate in 2022 - maybe some good news to finish it all off?
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Disclaimer: We are not lawyers (sadly) and as such can’t give you legal and/or tax advice. We are simply telling our story in the hope that it’s inspiring to you.