Friedrich Merz, leader of Germany's Christian Democratic Union (CDU), was elected Chancellor on May 6, 2025, following an unprecedented two-round voting process in the Bundestag. In the initial round, Merz secured 310 votes, falling short of the required 316 for an absolute majority. This marked the first time in post-war German history that a chancellor candidate failed to achieve the necessary votes on the first attempt. In the subsequent round held the same day, Merz was elected with 325 votes.

Merz's election followed the CDU/CSU alliance's victory in the February 2025 federal election, where they secured approximately 28.5% of the vote. The far-right Alternative for Germany (AfD) achieved a significant second-place finish with around 20.5%, while the Social Democrats (SPD) received just over 16%, marking a historic low.

After the election, the CDU/CSU formed a coalition government with the SPD. The coalition agreement, announced on April 9, 2025, outlined plans to stimulate economic growth through corporate tax cuts and reduced energy prices. The coalition also committed to strong support for Ukraine and increased defense spending.

Merz, 69, has a political career dating back to 1989, including serving as a European lawmaker and leading the CDU/CSU parliamentary group. His election as Chancellor marks his first time holding this office.

The initial voting setback highlighted internal divisions within the coalition, raising concerns about the stability of Merz's government. Critics, including members of the AfD, pointed to the incident as evidence of the new administration's fragility.

Merz's tenure begins amid a complex political landscape, with challenges including addressing economic stagnation, managing immigration policies, and navigating relations with both European partners and the United States.

The coalition agreement includes several key initiatives impacting the real estate industry:

• Rent Control and Tenant Protections: Prolongation of the rent price brake (Mietpreisbremse) for new lettings by four years, through the end of 2029.

• Building Law Reform: Introduction of a “construction turbo” (Bauturbo) and simplified noise protection regulations within the first 100 days of the new government’s term.

• Municipal Preemption Rights: Measures to prevent circumvention of municipal preemption rights (Vorkaufsrechte) through share deals.

• Ban on Condominium Conversion: Extension of the ban on converting properties into condominiums in distressed housing markets for another five years, through end of 2030.

• ESG Initiatives: Repeal of existing heating law (Heizungsgesetz) and introduction of more technology-neutral provisions into the Buildings Energy Act (Gebäudeenergiegesetz).

• Tax Incentives and Public Subsidies: Establishment of a specialized investment fund for housing construction, combining private capital with public guarantees (e.g., via the Kreditanstalt für Wiederaufbau – KfW).

The CDU/CSU and SPD agreed on a package of financial measures for defense and infrastructure, including:

• Defense Spending: Exemption of defense spending exceeding 1% of GDP from the debt brake mechanism.

• Infrastructure Fund: Establishment of a special off-budget fund worth €500 billion over ten years, with €100 billion allocated to federal states and municipalities.

• Debt Brake Reform: Raising the debt brake for federal states to 0.35% of GDP.

Merz's proposed five-point strategy on immigration includes:

1. Instituting permanent border controls with neighboring countries.

2. Speeding up deportation processes for asylum seekers whose applications are denied.

3. Deporting individuals without legal status from conflict regions like Syria and Afghanistan, as well as migrants who have committed major crimes.

4. Suspending the ability of certain migrants to reunite with their families in Germany.

5. Ending voluntary migration programs altogether.

These measures face considerable legal challenges, as they may conflict with European Union regulations and international standards.

Merz's election and policy proposals have significant social and political implications:

• Coalition Dynamics: The initial voting setback and internal divisions within the coalition raise concerns about the stability and effectiveness of Merz's government.

• Rise of the AfD: The AfD's strong performance in the federal election positions it as a significant opposition force, potentially influencing the political landscape and policy debates.

• Economic Impact: The proposed economic measures aim to stimulate growth and investment but may face challenges in implementation and effectiveness.

• Immigration Debate: Merz's hardline stance on immigration has sparked controversy and could impact Germany's international reputation and relations within the EU.

As Merz embarks on his chancellorship, he faces the formidable task of uniting a fragile coalition, implementing ambitious policy initiatives, and addressing the pressing economic and social challenges confronting Germany.