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On the residential real estate market Germany has been negatively impacted by rising inflation and rising mortgage interest rates. Housing has become less affordable, demand has fallen, and the situation is not changing, despite the fact that prices have been declining throughout 2023 – by 6.8% in the first quarter, by 9.62% in the second, by a record 10.23% in the third and 7.1% in the fourth.
The Federal Statistical Office (Destatis) reports that value indicators have fallen for the fifth quarter in a row. On average, a decrease of 8.4% was noted in 2023. Moreover, over the course of several years, only an increase was recorded – from 2008 to 2022. New buildings fell in price by 2.1%, the secondary market dropped more significantly – by 7.8%.
In the fourth quarter of 2023, prices for single- and semi-detached houses in the 7 largest metropolitan areas (Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart and Düsseldorf) fell by an average of 9.1% compared to the same period in 2022- th, while condominiums were 5.8% cheaper. Compared to the previous quarter, home buyers in megacities paid an average of 1.5% less, and apartment prices fell by 1.7%.
In urban areas, prices for one- and two-family homes were especially noticeable, down 11% year over year and 2.7% quarter over quarter. Condominiums in these regions fell in price by an average of 7.1% over the year and by 1.9% over three months. In sparsely populated rural areas, one- and two-family homes were 6.9% cheaper and condominiums were 2.8% cheaper compared to the fourth quarter of 2022. Compared to the previous three months, a decline of 2.1% and 3.1% was recorded, respectively.
Bloomberg writes that the fall in real estate prices in Germany led to a decrease in investment transactions by 19%. The number of sales contracts for office, residential and warehouse properties fell to 6.3 billion euros in the first quarter of 2024 compared to the same period in 2023. This is the lowest figure since 2011. Sellers are having a particularly difficult time finding buyers for office buildings; transaction volumes in this segment have fallen by more than 30%.
A PwC study, citing data from Jones Lang Lasalle, noted that the total volume of real estate transactions in Germany in 2021 amounted to 111 billion euros, in 2022 it decreased to 80 billion, and in 2023 to 32 billion.
According to Destatis, in January 2024 the number of new orders for basic construction work decreased by 7.4% compared to December 2023. There are also fewer people employed in this sector (-0.2%). From January to August 2023, permits for apartments fell by 28.3%, single-family homes by 37.8%, and two-family homes by 52.5%. In October, the number of canceled construction projects reached a new high, with 22% of companies saying they had to abandon the project.
The executive director of the DAVE association, Guido Stracke, explained on the DW website that the reason for what is happening is numbness due to the multiplicity of crises”, including the war in Ukraine, rising interest rates in the eurozone, stagnation of the German economy, high inflation, rising prices for building materials. The energy crisis and rising interest rates had an impact. The rapid rise in the cost of loans slowed down the rise in prices, but at the same time the development of the German economy, further aggravating the problems of industry. As a result, Germany’s GDP will decline, but in fact the economy will stagnate. Experts call such conditions bad for rising prices for any real estate.
The ASB portal also notes that Germany is balancing on the brink of transition from a technical recession to a real one. The key interest rate has risen over the year from zero to 4.5%, and construction projects continue to be closed. Lower prices have not yet made housing in Germany more affordable. Economists emphasize that the new conditions of banks have driven out about half of all potential buyers from the real estate market. Perhaps the recovery will begin in 2024, as suggested by Guido Stracke, managing director of the DAVE brokerage network. IVD President Dirk Wohltorf is confident that this is unlikely to happen before the fourth quarter.
Experts state that many European countries are experiencing a crisis due to geopolitical events. The investment attractiveness of real estate markets is falling. The most interesting countries for investment are those where the economic situation remains stable and the level of rental yield continues to grow. Among such areas, Georgia stands out, where GDP grew by 10.2% in 2022 and by 7.5% in 2023. The IMF and other international agencies predict favorable developments in the coming years. The profit margins from real estate in this country are among the highest in the world. The rates are especially high when investing in luxury branded properties.
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Residential property prices in Germany fell at a record pace in 2023