What is the right thing in this situation?

Your answer is correct.

The traffic sign indicates that the road ahead narrows and oncoming traffic has the priority to pass first. The red arrow pointing upward means that you must give way and allow vehicles coming from the opposite direction to go through the narrow passage before you proceed.

In German traffic rules, when you see this sign, you must wait for the oncoming car to pass before you enter the narrow section. This ensures safe and orderly passage in tight spaces where two vehicles cannot pass side by side simultaneously.

So, your choice to wait and proceed only after the oncoming car has done so is the right action.