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PROPERTY

How Germany’s property boom could be slowing down

Prices continue to rise steeply in the German property sector - but experts are seeing signs of a trend reversal.

skycrapers in Hannover
Skyscrapers in Hannover at dusk. Photo: picture alliance/dpa | Julian Stratenschulte

What’s going on? 

The Federal Statistics Office has just released its latest figures on property prices – and let’s just say it’s not great news for would-be buyers. 

In the first quarter of 2022 – from January to March – house prices shot up by an average of 12 percent compared to the previous year. It was the fourth time in a row that properties had gone up in value by more than ten percent in the space of a year. If these latest figures are anything to go by, Germany’s property boom is still in full swing.

Nevertheless, there are few things about the property market in the Bundesrepublik that are giving experts pause for thought. 

The first is the fact that, from quarter to quarter, property prices don’t seem to be rising as rapidly as they were last year.

READ ALSO: How soaring German property prices are out of reach for buyers

In fact, from the fourth quarter of 2021 (September to December) to the first quarter of 2022, the cost of buying a flat or a detached and semi-detached house only went up by around 0.8 percent. 

In the previous two quarters, prices had risen by 3.1 percent and 4.1 percent respectively.

“This indicates a slight weakening of the dynamics,” the Statistics Office said. 

The second issue is that, with interest rates on the up, demand has all but collapsed. The third issue is the concerns of the Bundesbank that property prices could well be over-inflated. 

Does that mean people aren’t buying property right now?

Kind of. In any case, far fewer people were seeking out places to buy in the first few months of 2022 than they were throughout 2021.

According to the online property portal Immoscout24, the demand for properties for sale in the first quarter of 2022 dropped by 17 percent within one year.

Adverts for residential properties are staying up for far longer than they used to, and sellers are having an increasingly tough time finding buyers.

High-rise buildings in Erfurt

High-rise flats and older buildings make up the Erfurt skyline. Photo: picture alliance/dpa | Martin Schutt

Instead, it seems like Germans are returning to their age-old love affair with renting rather than buying. This could partly be to do with the fact that interest rates look set to rise over the coming years, making cheap mortgage deals increasingly hard to come by. 

“These developments could have a dampening effect on price trends in the medium term,” said ImmoScout24 managing director Gesa Crockford. This could offset the slight uptick in interest rates.

READ ALSO:

So what’s the outlook? 

Not all too rosy, unfortunately. Though prices could continue to rise in the medium term, some experts believe that the property boom will slow down after a decade or so. 

This is partly due to stuttering construction rates: at the moment, the construction industry is struggling against some serious headwinds, from ultra expensive building materials to endless supply bottlenecks. 

Germany’s Central Bank (the Bundesbank) has been warning for some time that property prices are inflated beyond their actual value.

In cities in particular, prices are between 15 and 30 percent above a level that can be justified by longer-term economic and demographic factors, the Bundesbank stressed in February.

This trend was amplified by the Covid pandemic, which saw people increasingly seeking living space outside of the cities where supply is scarce. 

Experts from German bank LBBW also say they expect a price correction if interest rates continue to rise strongly and the economy fails to recover. 

In this scenario, LBBW believes that price declines of 20 to 25 percent are possible.

Of course, this may not apply to all regions of the country equally. There tends to be big differences in price trends, for example, between the former East and West of Germany. 

One other area that’s still going strong is the buy-to-let market. While demand for homes for personal use is slipping, it seems there’s still a big appetite for so-called “capital investments” that are occupied by renters.

READ ALSO: EXPLAINED: The German property tax declaration owners need to know about

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RENTING

EXPLAINED: The German cities where rents are rising fastest this year

People searching for a flat in German cities including Hamburg, Cologne and Berlin are in for a nasty surprise as rents are going up significantly, according to a recent study.

EXPLAINED: The German cities where rents are rising fastest this year

Real estate platform ImmoScout24’s recent ‘WohnBarometer’ shows the development of asking rents for the second quarter of 2022 in Germany as a whole, and the seven largest city areas.

Asking rents in new lettings for existing flats rose above €12 per square metre for the first time in Hamburg, and above €11 per square metre in Berlin.

In Berlin, Frankfurt am Main and Stuttgart, asking rents for new-build flats have risen above €15 per square metre.

What’s the picture across Germany?

For the second quarter of 2022, the WohnBarometer shows that the asking prices for rental flats across Germany have risen significantly more than in previous quarters.

On average, the asking price for existing flats was 2.7 percent more expensive to let than in the previous quarter. Newly built flats were on average 1.8 percent higher than in the previous quarter.

The average asking rent for existing flats in the second quarter was €7.66 per square metre. New-builds were offered for an average of €10.59 per square metre.

Meanwhile, demand for rental apartments shot upwards by 48 percent in the second quarter of 2022.

READ ALSO: Single people and large families ‘pay more for rent in Germany’ 

Where is the situation particularly bad for existing rentals?

Those eyeing up big cities as a place they want to settle in face a particularly hard time. 

Hamburg recorded the highest price dynamics in the area of existing rental flats older than two years in the second quarter – but it remains in fourth place in the rental price comparison of the seven largest German cities.

On average, the rent level in the Hanseatic city was €12.22 per square metre in the second quarter of this year. A rental flat with 70 square metres costs an average of €855.40 per month ‘cold’ – before other costs – Nebenkosten – are added on.

Flats in Hamburg's Eimsbüttel area.

Flats in Hamburg’s Eimsbüttel area. Photo: picture alliance/dpa | Daniel Bockwoldt

The real estate portal expects rents for existing properties in Hamburg to rise by nine percent this year alone. That would be two percentage points more than the inflation rate expected by the Bundesbank for 2022.

And in a city with a home ownership rate of 21 percent, this affects many of the 1.85 million residents.

From the first to the second quarter of 2022, asking rents in flat ads in Hamburg have risen by five percent. 

This is by far the highest value in Germany’s seven largest cities. Cologne achieved the second highest increase with 3.7 percent, while rents in Stuttgart fell by 0.7 percent.

In Berlin, asking rents for existing flats rose by just 1.4 percent, but broke the €11 per-square-metre mark.

Berlin nevertheless remains one of the cheapest of the large cities in Germany. Only Düsseldorf, at €10.81 per square metre on average, is lower. Cologne is the third least expensive place to rent with an average of €11.58 per square metre, according to asking prices for existing properties.

The graph shows the average costs per square metre for existing properties.

The graph shows the average costs per square metre for existing properties. Screenshot: ImmoScout24

Munich remains the most expensive city for renting with an average price per square metre of €16.93 per square metre. With a decrease of 0.7 percent for existing rental flats to €12.26 per square metre, Stuttgart was the only city to record a slight price decline in rents compared to the first quarter.

What about new build flats?

In the second quarter of 2022, Berlin recorded the largest price increase among the cities for new flats for rent, with an increase of 4.5 percent. These were offered in new lettings on ImmoScout for an average of €15.37 per square metre, exceeding the threshold of €15 per square metre.

In the German capital, the average monthly ‘cold rent’ for a new flat with 70 square metres is €1,075.90. Berlin is now above the level of Düsseldorf, Hamburg, Frankfurt am Main and Stuttgart.

But Frankfurt and Stuttgart also cracked the €15 threshold for the first time in the second quarter. In the financial capital, the rent level rose by 2.6 percent from the first to the second quarter to €15.17. Stuttgart is just above this at €15.24 per square metre.

In Munich, asking rents for new flats increased by 3.1 percent. With an average asking rent of €19.64 per square metre, Munich remains the most expensive city in Germany. In Cologne, asking rents for newly built rental flats rose only moderately, by 1.7 percent to €12.88 per square metre.

Graph shows the average costs per square metre for new build flats in cities.

Graph shows the average costs per square metre for new build flats in cities. Screenshot: ImmoScout24

How is demand affecting the situation?

Experts say the dynamics are changing on the rental and property markets in Germany.

“Demand continues to be significantly higher than the available supply,” said Thomas Schroeter, managing director of ImmoScout24.

“Due to the rise in interest rates, demand has shifted from buying properties to renting. As a result, rent-seekers now face even more competition when looking for a flat.”

READ ALSO: How property prices are dropping in major German cities

Immoscout24 registered the highest demand for rental flats in Berlin, with a whopping 217 enquiries on average per flat advertisement per week. In Cologne, the demand was 78 enquiries per ad, and in Hamburg, the real estate site registered 68 enquiries per ad on average.

What will happen in future?

It doesn’t look like the situation will ease off this year. Experts predict that by the end of 2022 in Hamburg, for instance, the price increase for existing flats will be nine percent – the highest in Germany.

In Berlin, by the end of the year, rents for existing apartments are expected to rise by 5 percent overall, and in Cologne and Stuttgart, 6 percent. 

Vocabulary 

Existing apartments/flats – (die) Bestandswohnungen

Asking price – (der) Angebotspreis

New build/new construction – (der) Neubau

Basic rent or ‘cold rent’ – (die) Kaltmiete

Rent including other costs – (die) Warmmiete

We’re aiming to help our readers improve their German by translating vocabulary from some of our news stories. Did you find this article useful? Let us know.

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