Real estate is becoming more expensive, especially in megacities and university cities. But there are many signs of a reversal of prices.

MARCH 22, 2021

Cologne's Unicenter apartment complex rises above the Sulz district. Nearly explosive property prices in the Cologne and Bonn areas are leading to a sharp rise in mortgage demand. Meanwhile, in Berlin during the Crown, the struggle for housing is raging: signatures are being collected for the expropriation of Deutsche Wohnen real estate. 

The State Development Bank KfW warns buyers not to expect that houses and apartments in Germany are becoming more expensive. Soon, a combination of the two factors could cause prices to fall. The bank warns of rising real estate prices in major cities in Germany. "It would be speculation to bet on further increases in housing prices and rents in already expensive cities. Instead, it would be appropriate to take into account a possible decline, "- said in a market analysis conducted by the institute.

The main reasons KfW calls the reduction of immigration to Germany in general and the flow of population to the cities in particular, as well as increased supply of housing due to new construction. From 2004 to 2019, average residential property prices in Germany rose by almost 70 percent.

This increase was justified from an economic point of view, while disposable income increased by 41 percent and the interest rate on construction fell from 4.7 to 1.5 percent.

Thus, on average in the country the purchase of real estate remains affordable. At the same time, immigration from abroad has led to an increase in physical demand for housing. However, now this figure is declining, which is also reflected in the stagnation of rental rates.

"Given this forecast, there are signs of regional speculative price exaggeration, namely when the increase goes far beyond what would be justified by lower interest rates and higher rents," the analysis said.

This is "the case of a number of large and medium-sized cities, where prices have risen particularly sharply." These include Berlin, Frankfurt am Main, Munich and Stuttgart. "In these cities there may be a more or less sharp decline in prices," the expert continues.

However, KfW economists warn against the appearance of a bubble only in megacities. Real estate prices can fall significantly even in weakly structured regions. Much depends on regional demand for housing.

"Buying residential real estate is mainly based on the fact that it can be sold again later at a higher price - this will no longer work in all regions of Germany," said KfW chief economist Keller-Gabe.

Source: WELT edition

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