Real estate markets

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…

German housing market: prices continue to rise in Q1 2018 at a fast pace

How much longer can this go on? The already strong upward trend for prices in the housing market actually picked up speed in the first quarter. According to the price index just released by Verband deutscher Pfandbriefbanken, the prices for owner-occupied properties (detached houses and owner-occupied flats) rose 1.6 percent nationwide in Q1 2018. The increase for complete multi-family blocks in such demand among investors came to 2.6 percent. In other words, prices gained 7.4 percent and 10.9 percent respectively on the prior-year quarter. Both figures are record highs in the history of the index series, which reach back to 2003: The price hike for the year for owner-occupied houses topped seven percent for the first time. For multi-family blocks the annual growth rate entered double digits for the first time. In the seven largest German cities, prices rose even faster. On an annualised basis, the price of owner-occupied housing…

German housing market: Baukindergeld to promote home ownership for families

With Germany’s citizens finding it increasingly difficult to pay the sharp increase in rent and purchase prices, particularly in the growing big cities, housing has become a political issue. The high prices are putting a strain in particular on families that are keen to buy in order to secure the living space needed for their offspring. A 120 m² privately-owned new apartment, including ancillary costs such as land transfer tax and notary fees, costs around EUR 500,000 in a metropolis. This figure rises to as much as EUR 750,000 in the seven big German cities and is considerably higher again in good locations or expensive cities such as Freiburg or Munich. In their coalition agreement, the three ruling parties that are in power since mid-March – CDU, CSU and SPD – agreed on various measures to make living more affordable again. One of these measures is the Baukindergeld which has…

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