Not just an investment
Corona and low interest rates drive interest in luxury real estate
01/30/2022, 09:44 am
The demand for expensive real estate has increased significantly in recent times. Brokerage firms report a doubling of sales in the millions. Contrary to what is often assumed, the new owners like to use the properties themselves. The focus is on second homes in attractive areas.
The corona pandemic has boosted the business with expensive luxury homes in Europe. Real estate agents and professionals are reporting a sharp rise in interest from wealthy customers. The Hamburg brokerage company Engel & Völkers, which operates in a good 30 countries, reports that in 2021 it brokered almost twice as many properties in the price segment between five million and ten million euros compared to the first year of the crisis, 2020.
“We have a significantly higher demand, especially for premium properties from two million euros,” says Ralph Kunz, Director of Premium Management at von Poll Immobilien in Frankfurt. When it comes to top prices, the location and the degree of privacy are particularly important. “Here the prices sometimes go into the double-digit million range for detached houses and villas in top locations.”
This is confirmed by an expert who does not broker any real estate himself: “We have a very, very strong market for luxury real estate,” says Stephan Kippes, the market researcher at the real estate association IVD Süd in Munich. Kippes sees a factor at work that has been driving the real estate market for years: permanently low and penalty interest rates make many other investments not very profitable. “This money wafts through the market,” says Kippes. Expensive residences are often not intended purely as a capital investment: “Holiday apartments and luxury real estate are very often owner-occupied,” says Kippes. “You treat yourself to it, and then you still have the effect of an increase in value.”
Mediterranean in focus
Prices vary greatly from country to country. “While the top prices in the premium segment in Hamburg, for example, reach up to 30,000 euros per square meter and thus tie in with the international level of Paris with 35,000 euros per square meter, the prices in Italy are at the top at 9,000 euros,” reports Engel & Völkers CEO Sven Odia. Accordingly, foreign buyers do not play a dominant role in the German market for second homes and holiday apartments, contrary to what is often assumed or feared by many long-established residents. In truth, this is rather the other way around: Rich Germans, Swiss and Austrians go in search of holiday regions outside their own borders, especially in the Mediterranean region.
“In Greece, most buyers come from the DACH region, followed by interested parties from France and the UK,” says Odia. In Mallorca, therefore, the majority of foreign “search customers” come from Germany – 66 percent. The British follow a long way behind with 9 percent. Corona is now also blurring the line between first and second homes: “Real estate in second home markets is in demand like never before,” says Odia. “Particularly in the luxury segment, as a result of the corona pandemic, we are observing the trend towards working from home in a second home.”
Many customers are now spending more time in their second homes and no longer only see them as an investment property or as a second home for a few weeks a year. “Thus, classic second home markets and Mediterranean holiday destinations are increasingly becoming primary home markets.”
Prerequisites are a good infrastructure and fast internet, as expert Kunz reports. High inflation also plays a role. “Especially investors and wealthy customers operate inflation hedging by buying real estate,” says Kunz. The market price of the property increases with inflation, but the loan amount decreases and falls as a percentage of the market price. “Real estate is increasingly preferred to stocks as a stable and crisis-proof investment option.”
Increasingly often second home tax at the edge of the Alps
However, the finca on Mallorca is by no means the only popular place. “Second homes in popular holiday regions in Germany have been an ongoing topic since the beginning of 2021,” says Kunze. There are understandable reasons for this, as market researcher Kippes explains: “You can still find your way there relatively easily even in Corona times.”
Second home buyers and holiday home buyers are not very welcome in many German holiday resorts, just as there are reservations about German buyers in Tyrol and Salzburg. On the one hand, prices are rising. At the same time, living space is being lost for the less affluent local population.
An example is the Bavarian Alps. Many municipalities along the edge of the Alps now levy a second home tax, as a spokesman for the Bavarian Municipal Council says. The administrations have little building land, and if so, then often only for locals. This is particularly clear in Berchtesgaden: Anyone who wants to use apartments or hotel and guesthouse rooms there as a second home must have their permission specifically provided that the rooms are empty for more than half the year.