Rents continue to rise
German real estate boom is coming to an end
02/10/2023 11:41 am
After years of shocking the real estate market with horrendous prices, these are now falling continuously. The trend reversal is solidifying, experts confirm with a view to the price data in the fourth quarter of 2022. Meanwhile, the national average rents continue to rise.
According to estimates by the most important financiers, prices for residential real estate in Germany have fallen further. In the fourth quarter of 2022, apartments and houses fell by 1.8 percent compared to the third quarter, according to the real estate price index of the Association of German Pfandbrief Banks (VDP). Compared to the same quarter of the previous year, prices rose by an average of 2.1 percent. Office and retail property prices fell noticeably in both periods. The entire real estate index of the VDP fell for the second time in a row on a quarterly basis. After the long boom, the trend reversal on the real estate market is solidifying, emphasized the association, in which the most important German real estate financiers are united.
In contrast to many studies, the VDP index is not based on evaluated offer prices, but on transaction data from over 700 banks. The main reason for the falling real estate prices is the sharp increase in interest rates on loans. “We also expect declines for the next few quarters – but overall they will remain at a moderate level,” said VDP CEO Jens Tolckmitt. Even if prices fell by a total of 15 percent over a longer period of time, the market would only be at the level of the beginning of 2020 as measured by the VDP index.
With an increase of 2.2 percent over the year and a decrease of 2.0 percent over the quarter, the prices for residential real estate in the seven largest German cities developed similarly to the national average. Among the major cities, Berlin stood out, where houses and apartments rose by 4.6 percent in the fourth quarter compared to the same period of the previous year and by only 0.7 percent in the quarterly comparison. Residential real estate prices in Frankfurt fell particularly sharply: they fell by 2.7 percent within a year and by 4.8 percent compared to the third quarter.
Housing lags behind
In contrast to real estate prices, the national average for rents has risen sharply. New contract rents rose by 6.5 percent in the fourth quarter of 2021 and by 1.9 percent in the third quarter of 2022. The demand for living space continues to meet far too little supply, said Tolckmitt. “There are no signs of a trend reversal here either, on the contrary, because new construction activity in Germany is still far behind demand.”
The trend towards sharply rising rents but falling real estate prices has been apparent for some time. For the third quarter of 2022, the VDP had already identified a slight fall in residential real estate prices compared to the previous quarter – as did the Federal Statistical Office. The VDP had explained that it was the first minus since 2010. Official data from the Federal Statistical Office are not yet available for the fourth quarter.