Real estate markets

German housing market: Prices rise somewhat more slowly despite falling interest rates

Prices on the housing market continued to rise in the third quarter of 2019. This is shown by the price index recently published by the Association of German Pfandbrief Banks. However, the rise in prices for owner-occupied homes and apartment buildings acquired by investors has subsided, especially in Germany’s seven largest cities. In 2017, residential property prices in the high-priced cities still rose at double-digit annual growth rates. Prices in these cities are now rising at less than 4 percent a year. Price dynamics are even more pronounced outside these conurbations. Between July and September, purchase prices for owner-occupied homes and apartment blocks rose by around 6 percent nationwide. For a long time, the metropolises raised real estate prices, while the „province“ slowed down – for over a year now it has been the other way round. There are various reasons for the slowdown in inflation. However, this is not…

Commercial real estate market still unaffected by downturn

Without climate change, the real estate market would presumably be the top topic in Germany. Almost every week, high purchase prices and barely affordable rents are reported. And the financial supervisory authorities are concerned about high valuations of residential and commercial real estate. With a view to negative bond yields, however, interest in the real estate market will not stop soon. The general conditions for the commercial real estate markets in the seven top German locations – Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart – have deteriorated. International crises are weighing on exports. The economy may just miss a recession. The booming e-commerce sector is increasingly affecting the retail sector. However, the top locations are suffering less from a declining pedestrian frequency, which is adding to the shopping miles in many cities. Here, the retail sector can hold its own thanks to the growing buyer potential, rising population numbers…

German housing market: Prices are rising rapidly nationwide, high level in metropolises is slowing down

Prices on the German housing market continue to rise briskly. Since the end of 2017, residential property prices in Germany have risen by around 7% a year. The price increase in this order of magnitude also failed to materialise in mid-2019. The price index just published by the Association of German Pfandbrief Banks (vdp) showed a growth rate of 7.3% year-on-year at the end of the second quarter. This means that the expected slowdown in inflation has failed to materialise. However, last year’s forecast was based on the turnaround in interest rates that was becoming apparent at the time. Instead, mortgage interest rates continued to fall – as a result of the slowdown in the European economy and the weak inflation trend. The average interest rate calculated by the Bundesbank for housing loans in new business fell to 1.57%, the lowest level to date. This means that the purchase of…

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…

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