Trends in house prices and rents
Since 2007 the development of house prices has followed a steep curve. Nationwide there was an increase of 16.3 percent from 2015 to 2018. This trend is especially visible in major cities led by Munich. This is primarily due to the high demand for housing. This housing shortage is also apparent in rising rents. Here, prices have been trending upward at least since 1995; from 2015 to 2017 there was an increase of 3 %.
In addition, because of currently low interest rates, real estate is often preferred over other investment forms, which further intensifies demand on the property market. The highest share of homeowners was recorded in Saarland in 2014 at over 60%. With 14.2% Berlin was well below the national average. Overall, Germany has a very low rate compared with other European countries. In Poland, for example, more than 80% of the population live in their own houses or condominiums.
Forecast for property price development
It is not currently expected that the supply of residential property will be nearly balanced in the near future. Although politics and industry want to stimulate housing construction through subsidies and simplified building procedures, the effect on the property market is not yet noticeable. One lever could, however, be the interest rate policy of the Bundesbank. If interest rates rise, investors will not focus solely on real estate and demand could decline somewhat.
An alternative to properties in metropolitan areas remains houses in less densely populated regions such as Mecklenburg-Western Pomerania. If fast internet access is established there, these residential properties with a low price per square meter can also be attractive for self-employed people with an online business.
Property prices: Is there a housing bubble in Germany?
The price gap in property prices between big cities and the provinces in Germany is widening. In the north in Hamburg and in the south in Munich there are already warnings of a so-called housing bubble, where a speculative price surge occurs that can no longer be explained by supply and demand. Even if many new apartments are built, price increases may slow so that demand (including from investors) is no longer sufficient. At that point the bubble could burst.
The only exception among the metropolises is Leipzig in the east, where a growing population and rising incomes contribute to a positive development. In the provinces the situation looks quite different: prices keep falling, but nobody wants to move there, population numbers decline steadily and there is an oversupply of housing. Weißenfels (near Leipzig), for example, lost around 18.5 percent of its population over 15 years up to 2006; property prices therefore continue to drop and Weißenfels is now considered the cheapest city in Germany (among cities with more than 25,000 inhabitants).
Eight apartments in the provinces for one in the big city
The price differences between metropolis and province are striking. Someone who wants to buy a condominium in Munich must pay an average of €4,800 per square meter; if focusing on the city center of the Bavarian capital, the price is even higher. For that price a buyer could get up to eight condominiums in one of the eastern German cities that are increasingly shrinking: in Plauen it is €760 per square meter, in Senftenberg €710 and in Zeitz even only €670. Because prices in such cities have fallen almost as sharply since 2004 as they have risen in German major cities (there the increase is 48 percent), the average price increase for all of Germany is not that large.
Red alert in numerous metropolises
The price increase in major cities of almost 50 percent has alarmed experts. However, the rate of increase is slowing; it seems the limit may be close and the bubble has inflated to its maximum. The strongest rise was recorded in 2013; in 2014, however, the second quarter saw an increase of only 0.7 percent, with Berlin as an outlier showing an 8.1 percent rise. This development applies to owner-occupied flats, not to rents.
One reason for this is that most households have reached the limit of their financial capacity, and rental agreements are becoming more expensive only slightly (1.2 percent). This creates an imbalance between rents and prices for owner-occupied flats in metropolitan areas, so investments should be considered carefully. Experts warn not only in Hamburg and Munich but also in Bremen, Düsseldorf, Essen, Cologne, Frankfurt and Stuttgart. There the sum of annual rents that would have to be paid for a condominium is particularly high (the so-called rent multiplier) and other factors contribute to a borderline mix that appears to be driven by excess.