Stabilization under conditions: Association nurtures hope that the real estate crisis will end

Stabilization under conditions
Association nurtures hope that the real estate crisis will end

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Real estate prices are expected to fall further this year. This is the assumption made by one of the most important financiers in the industry. But everything depends on interest rate developments.

According to the most important financiers, the real estate crisis in Germany is not yet over. The Association of German Pfandbrief Banks (VDP) expects the market to stabilize soon, especially for residential real estate. If the expected interest rate cut by the European Central Bank (ECB) comes, it will facilitate a new price balance between property buyers and sellers, said VDP President Gero Bergmann in Frankfurt. Price stabilization for residential real estate is likely to begin in the second half of the year. An end to the price declines for commercial real estate is not expected until the end of the year at the earliest, as the home office trend is delaying a recovery in the office market. “Overall, the bottom hasn’t been reached yet.”

This year, the VDP expects the crisis to subside. The price forecasts for residential properties ranged from 0 to minus 5 percent and from minus 5 to minus 10 percent for offices, said the association, which represents the most important real estate financiers in Germany, including Deutsche Bank, Landesbanken and large savings banks.

According to the Federal Statistical Office, the prices for houses and apartments in Germany fell by 8.4 percent in 2023 – the strongest year-on-year decline since the time series began in 2000. The main reason for the crisis is sharply increased interest rates, which make loans more expensive. Many people can no longer afford their own four walls, and investments are no longer worthwhile for large investors. At the same time, demand for living space remains high, especially in cities, while new construction is in crisis.

Not too much pessimism

The crisis did not leave its mark on the banks in the VDP either: the financial institutions included in the association promised residential real estate loans worth 64.1 billion euros in 2023, a good third less than in the previous year (99.8 billion euros). At the end of the year, new business increased slightly, which indicates a stabilization.

In the crisis surrounding offices, which are suffering more from the fall in prices than residential properties, the VDP warned against too much pessimism. The German office real estate market is much more resilient than often thought, said Bergmann – “even though there is currently a lot of uncertainty in the market.” In addition, the crisis in the USA cannot be transferred directly to Europe. The vacancy rate in North America, for example, is significantly higher, and tenant contracts there are shorter than in this country.

Because of the trend towards home offices, many companies need less space, and the office markets, especially in the United States, have slipped deep into the crisis. The turbulence has also affected financial institutions in this country, such as Aareal Bank and Deutsche Pfandbriefbank, which had to increase their risk provisions for bad loans.

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