Real estate prices
Pressure on the housing market – what 2025 will bring for tenants and buyers
Real estate has become somewhat cheaper, but many people still have to cope with high housing costs. Things are particularly tough for tenants in cities.
Given the housing shortage in Germany, real estate experts expect rents to rise sharply in 2025. Purchasing prices are also likely to rise somewhat again after the recent price decline. After all, lower interest rates make loans cheaper and many people can manage their financing more easily.
Sören Gröbel, director of research for residential real estate at Jones Lang LaSalle (JLL), does not expect new construction to gain significant momentum in 2025. “Many households have the desire to build new buildings, but the costs of craftsmen and materials remain high and the recent drop in interest rates is not big enough to offset the high construction and land costs.” Therefore, living space remains scarce and competitive, especially in cities – with consequences for rents.
Michael Schlatterer, Managing Director at real estate service provider CBRE, does the same. Living space remains in short supply in Germany, also due to bankruptcies in the construction industry and immigration.
The housing shortage has long been chronic, especially in cities. The construction industry association ZDB expects 250,000 to 255,000 completions nationwide in 2024 – the federal government had planned to build 400,000 new apartments annually.
Data from JLL for the German Press Agency shows strong rent increases in the third quarter, even in rural regions. Rents rose particularly sharply in the largest metropolises and other large cities, with around eight percent compared to the same period last year. This was followed by cities that serve as regional centers (around 4.5 percent). In other urban areas and in village areas, rents rose by around 4 percent.
Real estate: Inflation drives up rents
There are three reasons for the sharp increase in rents, says Gröbel. Many people who could no longer afford property with the increased interest rates turned to the rental market. “In addition, the gap between high demand and limited housing supply is widening; thirdly, inflation is reflected in rents in the form of high income increases.”
Just recently, a study by the German Institute for Economic Research in more than 150 cities showed that the increase in rents will accelerate to around four percent in 2024. “Rental increases are currently higher than in the past real estate boom,” says Michael Voigtländer, real estate expert at the German Economic Institute.
High housing costs are a burden for many
The sharply rising rents are hitting Germany particularly hard: the Federal Republic is the only EU country with more tenants than owners. According to the statistics authority Eurostat, the ownership rate was less than 47 percent in 2023. Housing costs are a particular burden on tenants, shows a survey by the direct bank ING. According to this, 26 percent of tenants find it “difficult” or “very difficult” to meet their housing costs. Only 12 percent of owners said this.
The rent increases have not yet come to an end, says JLL expert Gröbel. There is no political panacea. “We will have to get used to the trend towards urbanization and high rents and purchase prices in cities.”
Slightly increasing purchase prices
In the new year, not only rents are likely to rise, but also purchase prices. After a sharp correction in 2023, real estate prices have been rising slightly again since this summer, as the Federal Statistical Office observes.
JLL also sees only slight growth in the third quarter, even in large cities. “The real estate market is slowly picking up speed again, but buying or building is still too expensive for many people,” says JLL expert Gröbel.
However, large price differences remain, observes CBRE expert Schlatterer. Houses with old gas or oil heating systems are difficult to sell. “If the energy class is poor and there are defects in the property, then there are price discounts of 15 to 20 percent.”
“Nobody is so naive and carelessly buys a property with a poor energy rating,” says Philipp Niemann, Managing Director at McMakler. The renovation costs would be used as leverage in price negotiations.
Falling building interest rates – but for how long?
The lower building interest rates provide relief for buyers. According to FMH Finanzberatung, interest rates of 3.2 percent were recently due on ten-year loans; a year earlier it was 3.6 percent. “For real estate applicants, the situation for loan financing has improved significantly in 2024,” says Tomas Peeters, managing director at Baufi24.
However, Dekabank chief economist Ulrich Kater sees little downward potential in building interest rates. The market has long been preparing for further key interest rate cuts by the European Central Bank.
Landesbank Helaba believes it is unlikely that real estate prices could soon go through the roof again. “Interest rate cuts do not guarantee a real estate boom,” writes Helaba analyst Peter Richter. The economy plays a major role for real estate – and it is weak in Germany.
DPA
Jek
Source: Stern
