Since the peak of the real estate boom, prices for houses and apartments in Germany have been falling. However, the pace of the price decline has recently slowed somewhat.
The downward trend in house and apartment prices in Germany continued at the beginning of the current year. For sellers who have partly built their retirement savings on real estate, the ongoing decline is bitter.
Buyers could tend to benefit from this. However, many people can no longer afford their own four walls because rising interest rates have made loans more expensive. Investments are often no longer worthwhile for large investors. Experts are at least seeing initial signs of an easing on the real estate market.
According to preliminary data from the Federal Statistical Office on Friday, residential properties were on average 5.7 percent cheaper in the first quarter than in the same quarter last year. It was the sixth decline in a row within a year. However, the price decline slowed. In the third quarter of 2023, prices had fallen by 10.2 percent and by the end of the year by 7.2 percent compared to the same quarter last year. Compared to the end of 2023, residential properties fell by an average of 1.1 percent in the period January to March 2024.
Prices crumbled in both cities and rural areas. The biggest declines compared to the same quarter last year were observed in the metropolises of Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf, with a drop of 9.5 percent for single- and two-family homes. Condominiums there became cheaper by an average of 4.6 percent. In sparsely populated rural areas, buyers paid an average of 6.7 percent less for single- and two-family homes and 2.4 percent less for condominiums than in the first quarter of 2023.
Building permits on the decline
The real estate market has been on a downward trend since mid-2022, the peak of a boom that lasted for years. At the same time, demand for housing remains high, especially in cities, while new construction is in the doldrums due to rising interest rates and increased construction costs. Building permits have been declining for months, and anything that is not approved will not be built. The main association of the construction industry expects around 250,000 new apartments to be built this year. Around 295,000 apartments were completed in 2022 and 2023. The traffic light government actually set itself the goal of building 400,000 apartments per year.
Associations in the construction and real estate industry are pushing for more state funding in view of the housing shortage, particularly in urban areas. However, the construction industry cannot count on additional financial aid from the federal government for the time being. Both Construction Minister Klara Geywitz (SPD) and Finance Minister Christian Lindner (FDP) made it clear at the Construction Industry Day in early June that the budget does not allow for this. Instead, permits should be issued more quickly and regulations that make construction more expensive should be removed.
First positive signals
According to the German Savings Banks Association (DSGV), the real estate market in Germany could recover somewhat in the coming months. Prices for new buildings, existing properties and condominiums have recently risen slightly. In addition, demand for housing loans has increased for the first time in two years. “This positive signal must not be jeopardized. Living space has not been as scarce as it is today since the 1990s,” said Karolin Schriever, Executive Board Member of the DSGV recently. Among other things, she called for financial support and improved tax depreciation conditions. In order to make it easier to convert office space into living space, approval procedures should be simplified and urban planning and building regulations should be adjusted.
The first positive signals are also coming from the real estate industry. According to the Central Real Estate Committee (ZIA), the industry is once again looking more optimistically towards the future. From the companies’ point of view, the top priority is to reduce bureaucracy, as shown by a ZIA survey published on Friday. “We need a real state clear-out campaign here,” said ZIA President Iris Schöberl.
Source: Stern
