LightFieldStudios/Envato
Charles Kingston, CEO & Editor, REFIRE Ltd.
As the dust settles after the state elections in Thuringia and Saxony, and with Brandenburg voting on September 22nd, it’s clear that Germany stands at a critical juncture—not just politically, but economically and socially as well. The rise of the far-right AfD (Alternative für Deutschland) and the extreme-left BSW (Bündnis Sahra Wagenknecht) in these states is sending shockwaves through the political landscape. What does this mean for Germany as an investment destination, and for our REFIRE readers in the real estate sector?
These elections are far from a mere local affair; they are a clear indicator of Germany's shifting political landscape. The fact that the AfD is leading in both states, with the BSW not far behind, signals a profound discontent with the traditional political establishment. For investors, especially those from abroad, this raises immediate concerns. The question is no longer just about whether the AfD or BSW can govern effectively, but rather, what kind of Germany will emerge if these parties gain more influence.
It’s tempting to downplay the rise of these parties as a temporary reaction to economic and social frustrations. However, when nearly half of the electorate in these states is turning to the extremes, it’s hard to dismiss this as mere noise. The AfD’s strong anti-immigration stance and scepticism towards international trade could create an environment far less welcoming to the foreign investment that has been a cornerstone of Germany’s economic success. Meanwhile, the BSW’s socialist policies, including more state intervention in housing, could deter investors seeking stability and market-driven growth.
The implications extend beyond Thuringia and Saxony. If the AfD and BSW continue to gain traction, other regions could see similar political shifts, particularly in areas facing economic hardship or demographic decline. This could lead to a fragmented national policy landscape, with regions pursuing populist or protectionist policies that clash with Germany’s broader economic goals. Investors could face a patchwork of regulations, with each state adopting different approaches to real estate, taxation, and business operations, complicating strategies and increasing risk.
Germany as a 'Wirtschaftstandort'
Germany has long been seen as a safe haven for investors—a stable economy with a strong legal framework, reliable infrastructure, and a skilled workforce. The Thuringian AfD boss Björn Höcke's malevolent recent comments aimed at the Mittelstand, the very backbone of Germany's postwar success, sent shivers down Germany's collective spine and, in themselves, genuinely threaten Germany as an investment location. As Andreas Konschak, Site Manager at Siemens Energy in Erfurt, pointed out, “When we walk through the city with customers from Asia and pass AfD election posters, you find you're already having to explain yourself.” This sentiment is echoed by many in the business community who worry that political instability could make Germany less attractive to foreign investors.
A recent study by the Institute of German Business (IW) revealed that only 13% of the 900 managers surveyed in Eastern Germany see economic opportunities in the long-term rise of the AfD. This scepticism is not limited to domestic investors; international stakeholders are also voicing concerns. The presence of extremist political forces could lead to heightened scrutiny and a potential slowdown in foreign direct investment. For the real estate sector, this could mean fewer transactions, reduced liquidity, and lower property values—particularly in regions perceived as politically unstable.
Already, there are signs that international investors are reassessing their strategies in light of these political shifts. Some are pulling back from planned investments in the East, wary of potential regulatory changes or social unrest. Others are diversifying their portfolios, spreading investments across more politically stable regions to mitigate risk. This cautious approach could slow the flow of capital into Thuringia and Saxony, stunting economic growth and exacerbating the very conditions that have fueled the rise of extremist parties.
The Significance of the Eastern German States
While the economic might of Thuringia and Saxony pales in comparison to powerhouse states like Bavaria or North Rhine-Westphalia, these regions are far from insignificant. Saxony, for instance, boasts the highest GDP in the former East Germany, with robust growth in recent years. Thuringia, though smaller, has also shown resilience, with industries like automotive manufacturing playing a crucial role. Yet, despite this progress, both states face significant challenges, particularly in demographic terms. An aging population and a shrinking workforce make these regions heavily reliant on immigration—a factor that the AfD’s isolationist policies directly threaten.
Property prices in Thuringia and Saxony have traditionally remained well below the national average, offering relatively affordable options for buyers. However, the political uncertainty injected by these elections could disrupt market dynamics. In major cities like Dresden and Leipzig, which have seen significant growth in rental prices, investor confidence might waver, leading to a potential slowdown in new developments and transactions.
What Do the Parties Stand For?
What real estate policies do the parties represent? The AfD’s platform includes proposals to reduce building regulations and lower taxes, which on the surface might seem attractive to investors. However, their broader nationalist and anti-globalization stance raises glaring red flags. The BSW, on the other hand, advocates for increased state intervention in housing, including the creation of state-owned housing associations and tighter rent controls. Sadly, we have enough experience to know that while these policies may aim to address housing shortages, they will also stifle market activity and deter private investment.
The traditional center-right CDU and the pro-business FDP offer more market-friendly policies, such as reducing bureaucracy and promoting digitalisation in construction. Yet, their influence is waning in these regions, making it harder for them to counter the populist tide.
For investors, this is a moment of strategic reflection. Diversification is more important than ever. REFIRE would recommend investors with a heavy weighting in these politically volatile regions to consider broadening their portfolios geographically while keeping a wary eye on developments. The political landscape is shifting, and that requires a more nuanced approach.
But it’s also important to remember that Germany’s legal and economic framework, its infrastructure, and its skilled workforce all remain robust. The market fundamentals—location, demand, and economic growth—will continue to be the bedrock for investment decisions. However, investors should brace for more intensive engagement with local authorities and policymakers, as navigating the increasing complexities of these regions will require deeper local knowledge and stronger partnerships.
The rise of the AfD and BSW is not just a political phenomenon; it’s a signal of deeper socio-economic shifts that will likely have long-term implications for the investment landscape. As these parties gain influence, the risks for investors increase, particularly in regions where populist policies could upend traditional market dynamics. Yet, and we repeat this, Germany’s underlying strengths remain, and those who can adapt to the changed political environment will find opportunities even in this uncertain terrain. Our job at REFIRE is to help you to identify them. We're on the case.
