Real Estate Market: Observed Increase in Property Values, Yet No Sign of Another Housing Bubble - Banks Observes: Real Estate Values Increase, Yet Avoiding another Housing Market Boom
The real estate market in Germany has seen a shift in the fourth quarter of 2024. Prices for houses and apartments have increased, with an average rise of 2.1% compared to the previous year, according to data from the Association of German Pfandbrief Banks (VDP). This price boost translates to a 0.7% increase compared to the third quarter of 2024.
Buyers are feeling the pinch, but banks are not overly concerned about a rapid escalation in prices. This renewed demand for properties is a result of slightly decreased interest rates, making mortgages more affordable once again.
However, it's the rental market that's receiving the brunt of the price surge. New rental contracts for multifamily homes have escalated by 4.6% nationwide and 3.9% in major cities, citing high demand and a limited supply as key factors. The CEO of VDP, Jens Tolckmitt, expressed concern over the affordability issue, advocating for easier funding measures for homebuilders and city-level deregulation.
While major cities like Berlin, Hamburg, Munich, Cologne, Frankfurt, Düsseldorf, and Stuttgart have seen an average price increase of 2.3% compared to the previous quarter, the trends are vastly different when it comes to rents. Prime rents have skyrocketed in these cities, with Munich leading the pack with a €53.50 per square meter prime rent, a whopping 11% increase from the previous year. This rapid rental price increase has left many renters struggling to make ends meet, with nowhere affordable to live in popular cities.
The real estate market trends in Germany are complex, with varying factors influencing different sectors. While the demand for rental properties remains strong, the construction activity is lagging behind, with challenges like rising construction costs and tight financing conditions hindering new housing completions. Consequently, investments are shifting towards secondary markets in cities like Leipzig, Bremen, and Darmstadt.
Despite the challenging market conditions, property transactions in Germany have seen a 14% surge in 2024, reaching EUR 35.3 billion, as per JLL's records. However, the recovery remains fragile, with economic uncertainty and geopolitical tensions impacting investor confidence. The federal elections in Germany are expected to shape the property market's trajectory, with potential policy discussions on affordable housing, energy efficiency incentives, and tenant protections affecting rental yields and property values.
[1] Source: JLL Germany Real Estate Market Overview 2024[2] Source: Colliers Germany Real Estate Market Overview 2024[3] Source: VDP Real Estate Market Overview 2024[4] Source: M7 REAL ESTATE Germany Real Estate Market Overview 2024[5] Source: CBRE Germany Real Estate Market Overview 2024
Buyers are facing higher costs due to the price increase, which might affect their purchasing decisions. This could potentially lead to a decrease in demand if prices continue to escalate at an alarming rate, as expressed by banks.
The average rent for apartments in major cities has increased significantly, putting a strain on renters' budgets. This rental market surge is partially attributed to the price increase in the real estate market, making it more challenging for many to afford living in popular cities.
