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How real estate in Germany has rocketed in the pandemic

Many industries have suffered in the pandemic, but Germany's real estate market is thriving, a new report shows.

Apartments in Hamburg's Eimsbüttel area.
Apartments in Hamburg's Eimsbüttel area. Photo: picture alliance/dpa | Marcus Brandt

While restaurant owners, retailers and cultural organisers have been feeling the burden of the pandemic in Germany, at least one sector of the economy has come through relatively unscathed: residential real estate.

The price dampener feared at the beginning of the pandemic did not materialise last year, in fact, quite the opposite happened: purchase prices increased at an above-average rate.

Since a low point in 2009, homes have more than doubled in cost. A report by the Council of Real Estate Experts (Immobilienweisen) presented earlier this week puts the price increase since then at 146 percent, reported German newspaper FAZ on Tuesday.

READ ALSO: The German cities where property prices are soaring

What did the report find?

In 2021, condominiums rose in price by an average of 14.3 percent nationwide, to €3,140 per square metre, according to the report. Compared to the previous year, the price increase has intensified: from 2020 to 2021, the increase was 11.2 percent.

Prices for homes in eastern Germany have recently risen more strongly than in the west. Large cities in the east – excluding Berlin – recorded an increase of 19.6 percent last year to a price per square metre of €2,621. In western cities prices rose by only 12.5 percent, although the level is also significantly higher at €4,096.

READ ALSO: Why Frankfurt could have the biggest housing bubble in the world

What about rents?

Rents also rose, but not at the same rate as real estate. According to the real estate experts group, they went up by 3.7 percent to an average of €8.46 per square metre. The authors of the survey observed the strongest increase (4.1 per cent) in asking rents in western German districts to €8.27.

In the so-called ‘A-cities’ – Berlin, Düsseldorf, Frankfurt, Cologne, Hamburg, Munich and Stuttgart – new leases rose by 2.7 per cent to an average of €12.27 per square metre.

Berlin continues to be an outlier, with asking rents rising by 4.7 per cent to €9.70 on average. The absolute front-runner is still Munich, with rents averaging a shocking €16.99 (plus 2.6 percent).

READ ALSO: Why rent prices in major German cities are starting to fall

The number of new-build flats in Germany is rising, but it’s not near the current targets.

Flats in Cologne.

Flats in Cologne. Photo: picture alliance/dpa | Federico Gambarini

After around 306,000 flats completed in 2020, the real estate report estimates the number of new-builds for 2021 to be 315,000.

Germany’s government has pledged to increase the annual number of new builds to 400,000 per year, but experts say that will be difficult to reach.

Housing is a major social problem in Germany, especially in cities. 

According to a study from last year, around 4.1 million households in Germany’s big cities have to fork out more than 30 percent of their net income on rent, including utilities and heating.

Among social scientists and real estate experts, a rent burden ratio above 30 percent of household income is considered problematic, especially for households with lower incomes.

Many landlords don’t allow people to rent a flat if they reach this threshold because they doubt that tenants can afford their flats long-term under these circumstances.

The study released in 2021 and funded by the Hans Böckler Foundation, also found that around 2.2 million households in the 77 major German cities have to spend at least 40 percent of their income on rent, and for just under 12 per cent – or almost one million households – more than half of their take-home pay goes on rental costs. 

On average, tenant households in large cities pay 29.8 percent of their income for gross ‘warm’ rent (rent including associated costs like electricity and gas).

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How people in Germany are struggling with rent hikes

Germany's extremely high inflation rates are causing headaches for tenants whose monthly rent is linked to the Consumer Price Index (CPI).

How people in Germany are struggling with rent hikes

Inflation in Germany recently hit a 40 year high at 7.4 percent – and experts warn it will increase further. 

Along with soaring energy prices, many everyday grocery staples, like milk and bread, have gone up in price significantly. 

But some tenants in Germany face another hurdle – rents that are linked to inflation. 

Some landlords or property companies include clauses in contracts for the cost of rent to go up. They can include a Staffelmiete (stepped rent) which means the rent increases gradually over time (but there are limits).

An Indexmiete (index rent) clause in rental contracts means the rent is based on the Consumer Price Index set by the Federal Statistical Office (Statistisches Bundesamt) and may be increased in line with the cost of living in Germany. The rent increase can happen once per year.

READ ALSO: Why tenants in Germany could see bigger rent increases this year

Given the strong competition for housing in many of Germany’s cities, such as Munich and Berlin, tenants often sign contracts despite the rent hike clauses. 

But nobody could have predicted how bad inflation would get this year. Energy prices in particular have rocketed since Russia’s brutal invasion of Ukraine which started on February 24th.

Now some tenants’ associations in Germany are demanding that Index-linked rents be capped. 

The need for advice on index-linked leases is increasing, Anja Franz, lawyer and spokeswoman for the Munich Tenants’ Association, told regional broadcaster BR24.

In the past years – when inflation was very low – rents like this only ever rose by one to two percent, and tenants had very few problems with this. At the moment, however, tenants are facing increases of 7 to 10 percent on their monthly rent.

Adding to the problem is that landlords who have not increased the Indexmiete in the past years can add the inflation rates from that time on top of current hikes – creating huge increases. 

However, landlords can also choose to wait to increase the rent, and only refer to the index figures published by the Federal Statistical Office next year or the year after.

READ ALSO: Altbau vs Neubau: What’s the difference and which should I rent in Germany?

What’s happening in Bavaria?

Bavaria is known for having some of the most expensive rents in Germany.

In many Bavarian cities and districts, landlords are likely to use the options available to them to increase rents, according to Rudolf Stürzer, chairman of the Haus und Grundbesitzerverein (House and Landowners Association) München. That’s because up until now index rents haven’t been lucrative for landlords. In the last 10 to 15 years, the index rose much slower than the market rent. Now that’s changed.

The Mieterverein München (Munich Tenants’ Association) advises those affected to first check whether the calculation is correct when they receive notice of a rent increase from their landlord or housing company.

Furthermore, tenants should check the time interval since the last rent increase. A waiting period of at least one year from the previous rent increase applies.

A man hangs up his keys in a Berlin apartment

A man hangs up his keys in a Berlin apartment. Photo: picture alliance/dpa/dpa-Zentralbild | Kira Hofmann

In principle, tenants who have signed an index-linked rent are bound by this clause. If the landlord demands an effective rent hike, it must be paid.

The Munich Tenants’ Association estimates that three to five percent of its members have index-linked tenancy agreements. In the past, the association even advised that people to sign these contracts – but now they advise against it.

The Haus und Grundbesitzerverein believes that index-linked rents have already been agreed for two-thirds of all new contracts in Munich.

The tenants’ association says index-lined agreements become a bigger problem when the initial rent set is already high. 

They are calling for specific legal upper limits for index-linked rents to be set in Germany to avoid overburdening tenants.

Under standard tenancy agreements rents can rise by no more than 20 percent over three years. In Frankfurt am Main and other places were the rental market is competitive, this cap has been reduced to 15 percent.

The traffic-light coalition wants to reduce this further to 11 percent nationwide, which would mean an increase of less than four percent per year.

The German Tenants’ Association (DMB) also recently slammed the fact there are no cap limits for index-linked rents.

Lukas Siebenkotten, President of the German Tenants’ Association (DMB), told DPA in April that a regulation like this for index-linked tenancy agreements “would be a sensible remedy” to protect renters in Germany.