The developments on the German property market in recent years have raised the question for many potential buyers and sellers as to whether property prices in Germany will continue to rise. At this point we therefore take a look at how prices have developed recently and which current factors will influence property prices in Germany in the future:
1. What factors influence property prices in Germany?
2. How are property prices in Germany developing?
3. Condominium square metre prices
4. House prices: single- and two-family homes
5. Property prices for apartment buildings/ residential and commercial buildings
6. Is the purchase of real estate cheaper than generally assumed?
7. Where property prices in Germany are rising?
In recent years, the German real estate market as a whole has seen positive property price developments. The conurbations of major German cities in particular were and continue to be characterised by strong price increases. Despite rising asking prices, the purchase of a property is still attractive for investors and owner-occupiers. This is reflected in the transaction volume for residential real estate, which is forecast to continue to grow in 2019. It is expected that the total volume for single- and two-family homes and condominiums will amount to a total of 137.3 billion euros, exceeding the 2018 level of 132.2 billion euros.
There was also a further increase in the residential and commercial buildings and apartment buildings segment to 33.6 billion euros in 2018. For 2019, further growth to 35.5 billion euros is forecast.
1. What factors influence property prices in Germany?
Potential buyers often ask themselves what factors influence property prices in Germany and why they seem to have been rising continuously in recent years. The value of a property is determined by numerous aspects. These include, for example, the year of construction, features, structural condition, location and surrounding infrastructure. Of course, supply and demand also determine property prices in Germany to a considerable extent. In Germany, especially in the economically strong conurbations, there has been a persistent demand overhang for years – the number of available properties cannot therefore cover the actual demand. This is causing property prices in Germany to rise, particularly in the major cities, despite the current construction boom.
2. How are property prices in Germany developing?
An increase in property prices in Germany is expected for the coming year, particularly in Germany’s conurbations. There are many reasons why property prices and rents in Germany will continue to rise. An important factor is the discrepancy between the number of completed dwellings and the demand on the property market: Especially in Germany’s major cities such as Berlin, Munich and Hamburg, the number of new buildings cannot meet the actual demand. Nevertheless, it is also necessary to differentiate between different locations with regard to the development of property prices in Germany. Thus, despite the generally high price level, there is a clear east-west divide and a sometimes-significant difference between property prices in rural areas and in the cities. In our Residential Property Market Report for Germany 2019/2020 you will find detailed information on how prices and rents are likely to develop in the 61 largest cities (unfortunately, the report is currently only available in German).
In our Residential and Commercial Buildings Market Report 2020 you will find developments and property prices of multi-family houses, apartment buildings and residential and commercial buildings. The picture is the same for these investment properties: prices are rising, especially in the metropolitan regions. Although this led to yield compressions in many places, the purchase of apartment buildings remains an attractive investment strategy that is still extremely profitable. In particular the persistently low level of interest rates leads to good financing opportunities. Overall, prices for residential and commercial properties in Germany rose by an average of 44.6 % between 2014 and 2019 (first half of the year).
3. Condominium square metre prices
In the condominium segment, Munich leads the nationwide 2019 ranking with square metre prices averaging 8,921 euros. The Bavarian state capital is followed by Starnberg in second place – here prices average 6,625 euros per square metre. In third place came the Main metropolis Frankfurt with an average price per square metre of 6,010 euros. Constance came fourth with 5,293 euros per square metre.
4. House prices for single- and two-family homes
The purchase prices for single- and two-family homes will also continue to rise in many German cities in 2019. The undisputed leader in this segment is Starnberg with average house prices of 1.92 million euros. Second place goes to the Bavarian state capital of Munich, where offer prices of up to 1.43 million euros for single- and two-family homes are achieved. Third place goes to Baden-Baden – here a single- or two-family home costs on average 1.22 million euros. Bad Homburg ranks fourth, where the average asking price is 1.1 million euros.
5. Property prices for apartment buildings and residential and commercial buildings
Property prices in the investment property segment (apartment buildings, apartment blocks, residential and commercial buildings) have risen sharply in recent years. Within the framework of the German Residential and Commercial Building Market Report 2019/2020, 67 cities were examined more closely. The highest asking prices in Munich in the first half of 2019 were EUR 7,468 per square metre. Next, but far behind, are other major cities such as Frankfurt (4,228) and Stuttgart (3,796). In fourth place, Heidelberg surprises with EUR 3,794 per square metre and a 29.2 % increase over the previous year. The complete ranking of the nationwide price dynamics can be found here.
6. Is the purchase of real estate cheaper than generally assumed?
Although property prices in Germany are unlikely to fall in the near future, buying rather than renting is an alternative that is often cheaper than generally assumed. According to a study by the Cologne Institute for Economic Research (IW Köln), in 94% of the districts and independent cities, owner-occupancy is cheaper than renting. The persistently low level of interest rates and rental growth have contributed to this.
This trend would continue even if interest rates were to rise again. According to the results of the study, owner-occupancy would still be cheaper than renting in 346 counties even if interest rates were to rise to around 3%. The purchase of a home or condominium can therefore be a sensible alternative to rental property, also in view of the property prices in Germany.
7. Where property prices are rising
The top 7 cities are made up of those locations that have the highest property price level in Germany. In our forecast, we have summarised for you how property prices here are likely to develop in the future:
Berlin
The German capital continues to grow as an attractive and multicultural location. This is noticeable on the property market: An increase in property prices is expected in all locations, both in the condominium segment and for single- and two-family homes. In the central, very good locations, houses achieve up to 7 million euros, condominiums in prime locations achieve square metre prices of up to 17,000 euros. A top price of 21,700 euros was even achieved for luxury properties in Germany. In the residential and commercial property segment, it remains to be seen what effects the rent cap will have. However, Berlin remains a very attractive investment location due to the strong surplus demand.
Hamburg
The Hanseatic city is without doubt one of the most sought-after residential locations in Germany. The result has been rising property prices and rents for years. In the very good locations around the Alster and along the Elbe, however, it is assumed that asking prices will stabilise in the future. Further property price increases can be expected in all other locations. Currently the price level for single- and two-family homes in very good locations is up to 8 million euros. Asking prices of up to 20,000 euros per square metre are achieved for condominiums in this location. Properties in the luxury segment were even sold for up to 38,600 euros per square metre in 2018. Apartment buildings in Hamburg’s prime locations are sold for up to 6,800 euros per square metre (up to a factor of 40). The price trend continues to rise – also on the outskirts of the city and in the surrounding areas.
Munich
The Bavarian state capital occupies the top position nationwide in the current Engel & Völkers Ranking of offer prices for condominiums. At an average of 8,291 euros per square metre, the condominiums here are more cost-intensive than anywhere else in Germany. However, the price level in the city on the Isar seems to be gradually stabilising: no major price increases are currently expected in the very good to mid-range locations. Engel & Völkers expects property prices to rise only in the secondary locations. In the very good locations, investors and owners are already paying up to 20,000 euros per square metre for a condominium and 17 million euros for single- and two-family homes. For luxury apartments even prices up to 32.000 euros/m² are being asked. For multi-family houses in Munich, 13,000 euros per square metre are being asked in prime locations. Here even factors up to 43 are achieved, which is the highest value nationwide.
Cologne
The Rhine metropolis shows a high dynamic in the development of property prices: For single- and two-family homes, a further price increase is expected in the very good to mid-range locations, while the secondary locations are expected to remain price stable. In the condominium segment, a stabilisation of the price level is also expected for the very good and secondary locations. In the good and mid-range locations, prices for condominiums are likely to continue to rise. Single- and two-family homes reach prices of up to 6 million euros, while top prices of up to 15,000 euros per square metre are achieved for condominiums. For exceptional properties in the premium segment, prices of up to 24,000 euros per square metre were even asked in 2018. In the residential and commercial property segment, price increases are likely in all locations. Property prices of up to 5,000 euros can be achieved here.
Frankfurt am Main
Growth in the German financial metropolis of Frankfurt am Main is also unbroken. Property prices for single- and two-family homes are expected to continue to rise in the coming year – in all locations. In contrast, prices for condominiums are expected to stabilise. The only exception is properties in mid-range locations, which are likely to continue to increase in value. Peak prices of up to 4.8 million euros are already being achieved in the single- and two-family home segment, while condominiums in very good locations are achieving square metre prices of up to 14,000 euros. In the rapidly growing luxury segment, prices of up to approx. 16,200 euros/m² are even possible. Further price increases are expected for investment properties (residential and commercial buildings/ apartment buildings), especially in good and mid-range locations. Property prices of up to 7,200 euros per square metre are achieved in prime locations.
Düsseldorf
As an attractive business and residential location, rising property prices are also expected for Düsseldorf in many locations. In the case of single- and two-family homes, this mainly concerns areas in mid-range and secondary locations. In the good and very good locations, on the other hand, the asking prices should remain stable. The following applies to condominiums: prices in the good locations are likely to continue to rise, while all other locations will remain stable. Single- and two-family homes reach prices of up to 5 million euros, while prices of up to 13,000 euros per square metre are achieved for condominiums. For luxury properties the price range even goes up to 20,600 euros/m². For residential and commercial buildings, property prices in Düsseldorf are up to 4,700 euros per square metre. Price increases are likely especially in secondary locations.
Stuttgart
The Swabian metropolis of Stuttgart can benefit from a slight easing of tension thanks to increased construction activity in the premium locations. For both the single- and two-family home and condominium segments, prices are expected to stabilise in the very good locations. In all other locations: Stuttgart property prices will probably continue to rise. The current purchase prices for single- and two-family homes are at 4.5 million euros; in the case of condominiums, square metre prices of up to 13,000 euros have already been achieved, for exceptional properties even up to 16,600 euros/m². Further price increases are likely for apartment buildings in all locations. The square metre prices now already reach up to 5,350 euros.
The original article can be found here:
https://www.engelvoelkers.com/en-de/property-prices-germany/
