Real estate markets

German housing market: Rent cap will exacerbate the tense situation

The Berlin Senate made up of a red-red-green coalition has scored a direct hit with its rent cap agreed in a benchmark paper on Tuesday of this week. For days, the press has been reporting about how hard-hit tenants are to be provided with affordable apartments. This has gone down well with the general public. A recent survey showed 60% of respondents to be in favour of introducing a rent cap. Given this success, it comes as no surprise to learn that demands are already being made for a nationwide rent cap. The fact that the legal foundations for such a project are doubtful and that it is unsuitable for solving the tense situation on housing markets is evidently of secondary importance. It is therefore questionable whether the Berlin Senate has legislative competence for the tenancy law regulated in the German Civil Code (BGB). And the problems on the housing…

Countercyclical capital buffer with limited impact

For years, the ECB has been keeping interest rates at very low levels, driving up equity and real estate markets in the process. Now the countercyclical capital buffer is being introduced to rectify this situation. The objective is to build up reserves in the banking system at times of economic expansion in a preemptive measure to cover losses. Once the cyclical systemic risks have been reduced, the buffer can be lowered again. In this way, the real economy is to be ensured a steady provision of credit, especially during periods of stress. According to a recommendation of the German Financial Stability Committee (Ausschuss für Finanzmarktstabilität, or AFS), the domestic countercyclical capital buffer is to be activated from the third quarter of 2019 and set at 0.25%. From this date, banks in Germany will have twelve months in which to meet the additional capital requirements. The AFS justifies the decision by…

German commercial real estate – sought after, but expensive

With bond yields close to zero, investors are hardly likely to avoid the real estate market. Consequently, demand for commercial real estate is consistently high while supply is tight. As a result, rental yields have fallen sharply. It is now virtually impossible for investors to get more than 3% for prime office and retail space in Munich and Berlin. However, hotels, logistics properties and multi-family dwellings have also become much more expensive. Falling yields are by no means weakening the high inflow of funds, though. Last year saw the highest level of investment in commercial real estate to date, at EUR 62bn. EUR 15bn was also invested in residential real estate portfolios. However, there are noticeable shifts between asset classes: in the wake of booming online shopping, there has been a decline in demand for retail space in high street locations and in interest for retail real estate. However, this…

Wealth creation through less regulation

As the current German Bundesbank study on “Private Households and Their Finances” reveals, average net assets in Germany rose between 2014 and 2017 by EUR 18,300 to EUR 232,800. However, wealth remains unevenly distributed. The unequal distribution of wealth is more pronounced in Germany than it is in the Eurozone as a whole, but is less so than in the United States. It is interesting that above all citizens with real estate and share investments benefited from value increases. In the international comparison though, precisely these asset categories have a weak weighting: German investors are regarded as risk-averse because they avoid equities and tend to favour investments in the form of bank deposits and insurances. Moreover, German citizens more frequently rent their homes rather than own them outright. In this context, both asset categories are especially important for wealth creation: Equities, funds and the corresponding certificates contribute to the broad…

Rise in property prices in some countries has slowed

House prices continued to increase in the international property markets last year. The housing price index we compute for 20 countries also shows, however, that the price momentum has eased despite the widespread low interest rate level. That said, this does not constitute a general trend but points to developments running more in opposite directions. While the housing markets in some countries such as Germany, the Netherlands, and Portugal have really raced ahead, house prices have come under pressure in particular in places where for many years the tendency has been almost consistently upward. In Australia and in Sweden prices actually fell slightly. Given what will probably continue to be low mortgage rates, prices in most of the international property markets look set to rise further. However, the era of especially pronounced price increases seems to be over. Macroprudential instruments make property financing harder, high purchase prices weigh heavily on…

German housing market: Slight decline in building permits in 2018; tighter regulation could worsen the situation

The shortage of housing is a key reason for the sharp rise in real estate prices and rents. This is unlikely to change all that quickly. For the number of building permits even fell minimally last year by 0.2% to 347,300 residential units. At first glance, this does not appear all that serious, given that the number of permits has not even fallen by 1,000 units. Moreover, the decline in permits for residential homes was particularly pronounced. On the other hand, the number of permits for houses and apartments has risen by 3,000 to 332,600 units. Making this more problematic is the fact that the construction of new apartments is trailing behind, with completions grinding to a halt. Last year, around 300,000 units are expected to have been constructed, around 100,000 units less than the estimated annual demand for new construction. With capacities in the construction industry more or less…

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