Real estate markets

German housing market: Prices continue to climb, but for how much longer?

The rise in rents and prices in the housing market continues unabated. Purchase prices for owner-occupied homes have soared by 7.5 percent on the year nation-wide, at a pace that looks set to break records. With the increasing strain on “homes”, the tense situation in the housing market is becoming ever more of a political issue. With rent caps, special write-down schemes, family housing subsidies and the housing summit held in September in the Federal Chancellery, the current government is seeking to improve the situation for tenants and buyers alike. There are scant prospects of success as the property market lacks flats, not regulations or money. Both make the problems greater: The massive swath of existing regulations facing builders and landlords tend to constrain housing construction, while public subsidies simply further stoke prices. Despite calls for it in order to ease the market situation, the expansion in housing construction will…

German banks: Rising risk aversion for property loans

As the current ECB Bank Lending Survey shows, a slender majority of banks in Germany intends in coming months to tighten their guidelines for approving property loans to private households. This is the first time since the European Mortgage Credit Directive was translated into law in Germany in spring 2016 that banks have declared such an intention. Back then the banks were responding with greater caution to the uncertainties resulting from implementing the directive. A key factor behind the current tightening of loan approval standards is the sharp rise in property prices in German conurbations. While there is no sign of a general property price bubble in Germany, in some regions there are increasingly excessive valuations for housing in various cities that give cause for concern. Furthermore, in some regions, mortgages have burgeoned. The current tightening to their loan approval guidelines some banks plan is an appropriate response to this…

Commercial properties in top locations: Offices are scarce and in demand; online retailers making life difficult for high street retailers.

The economic conditions for commercial properties could hardly be better in top locations. The seven largest German cities of Berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart are registering growth in employment, population and in most cases also tourism. This is creating brisk demand for office space which is now just as scarce as residential space. In retail, however, demand for space is being adversely affected by online shopping. Hence, investor interest in what is ultimately a very limited number of first-class properties available for sale in this segment remains high. Nevertheless, initial rental yields have come under considerable pressure in response to strong investor interest. Whereas 10 years ago rental yields of around 5 percent were possible, the corresponding rate today is in some cases less than 3 percent. With bond yields falling even faster, the divergence has widened. In 2008, the yield advantage over 10-year German government bonds…

Property prices in Germany – a cause for concern?

It is not exactly news that in recent years prices for houses and flats in Germany have rocketed. This has been driven by short supply, historically low interest rates, and good overall economic conditions. Since the price rise has hardly lost momentum of late, the central bank and the banking supervisory authority are certainly justified in keeping a close watch on things. In particular, the ECB’s still very expansionary monetary policy provides an ideal seedbed for price bubbles for capital goods. Prices have become exaggerated particularly in the prospering business centres. Precisely there, the ongoing influx of new inhabitants contrasts with a short housing supply. In addition, investors, some of them from abroad, like to acquire multi-family dwellings in the prime German locations for their portfolios. The figures recently released by Verband deutscher Pfandbriefbanken (vdp) pointed to an initial, slight deceleration in the price momentum in these large cities. However,…

German housing market: The Housing Summit will not offer any tangible relief

The headline of the Federal Ministry of the Interior press release “Housing Summit 2018: Historically unique package of measures” creates great expectations. These will hardly be fulfilled by the measures resolved last Friday in the Federal Chancellery given the challenges in the housing market. The fact that prices and rents are soaring can be attributed above all to the insufficient supply of housing and demand remaining high. This will hardly be changed by additional billions, on the one hand, and further thumbscrews for landlords, on the other. The opposite is more the case, as the EUR 5 billion announced for social housing construction through 2021, the EUR 2.7 billion construction child benefits, special amortisation schemes and an upgraded housing construction premium will simply further stoke the demand for land for housing development and construction services. It is not a matter of a lack of money, as the discussion on the…

German housing market: another dynamic price increase in Q2 2018 but big cities lose momentum

Reports on the German housing market have meanwhile become almost boring, with prices rising at a fast pace on the back of good economic conditions, low interest rates and a shortage of supply. The second quarter of 2018 is nothing out of the ordinary either. The property price index just released by the Association of German Pfandbrief Banks (vdp) posted another sharp rise. Prices for residential properties rose by 7.5 percent year-on-year, while multi-family homes sought by investors were up by almost 10% annually. The increase has been even greater in the seven largest German cities. Residential property prices here climbed by nine percent while multi-family homes were another two percentage points higher. Very interesting developments can also be gleaned from the vdp figures. Whereas nationwide housing price growth maintained its rapid tempo, price momentum eased in the top-7 cities – Berlin, Dusseldorf, Frankfurt, Hamburg, Cologne, Munich and Stuttgart. Multi-family…

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