Buying real estate: It’s still worthwhile in these cities

The real estate boom could not be stopped by the Corona crisis. On the contrary: in view of lockdowns and travel restrictions, the home of one’s own has become even more attractive for many. According to an evaluation by the Association of German Pfandbrief Banks (vdp), condominiums and houses have become 7.4 percent more expensive in 2020, as reported by the magazine “Finanztest”.

It is particularly expensive in many large cities and their bacon belts, and also in some districts in the south and south-west of Germany. In 56 of 401 cities and districts, the average price per square meter for apartments is now over 3500 euros. Potential real estate buyers are not only deterred by the absolute prices, but also by the fact that they are decoupled from the rental trend. Rents have been stagnating for some time, so that in many places there is an increasing gap between purchase prices and rents. Is it still worth buying?

Look at the purchase price-rent ratio

On the basis of the vdp data, the experts at Finanztest have analyzed in which cities it is still relatively affordable to buy – and where it is more worthwhile to continue renting. For this purpose, the purchase prices for a city were compared with the rental prices for a comparable apartment. The resulting purchase price-rent ratio indicates how many annual cold rents one could have paid from the price for a condominium. According to the “Finanztest”, more than 25 times the annual rent is considered to be relatively expensive.

The evaluation, which is based on the purchase prices actually paid, shows how unfavorable the relationship is, especially in metropolitan areas. In the past year, apartment buyers in Hamburg and Munich often had to pay 30 annual rents or more to get a chance (see table). In contrast, in the metropolitan areas on the Rhine, Cologne and Düsseldorf, which are also in demand, you can still get less than 25 annual rents.

In relation to the rents, the prices in Berlin are the most expensive. In the capital, buying a property costs 28 to 43 times the annual rent for a comparable apartment. In the neighboring Potsdam, on the other hand, the purchase price-rent ratio is only 23 to 28.

In general, buying is often more affordable compared to renting in small and medium-sized cities than in the very large metropolises. In Lübeck, for example, you can get property for less than 20 annual rents. The following table shows further examples.

Table: Purchase price-rent ratio in selected cities

* Range: medium location, simple facilities to very good location, very good facilities; Source: financial test

Keep an eye on the monthly load

If you buy at an unfavorable purchase price-rent ratio, you may have to reckon with a significantly higher monthly charge afterwards than if you were living for rent. “Finanztest” makes this clear by means of financing examples, in which 90 percent of the purchase price is taken out as a loan.

For example, a Berlin woman who buys a 100 square meter apartment for 37 annual rent has to pay 764 euros more per month than if she had rented a comparable apartment. A Cologne resident who has found a condominium for 22 annual rents, on the other hand, then pays 20 euros per month less than if he had rented it. Real estate purchase is only really attractive in the long term: Once the property has been paid off, owners have a clear financial advantage.

You can find more sample calculations as well as detailed tables with real estate prices for cities and districts for a fee