Spring Report 2020: Rents and purchase prices are rising

The Central Real Estate Committee (ZIA in German) has published its annual Spring Report. It shows: The purchase prices for home ownership continue to rise and the rental market will certainly not ease up in many places. Political measures have turned out ineffective.

Frankfurt´s property prices have risen sharply due to the Brexit. At the end of 2018, the average price per square meter for a newly built 3-room apartment in the old town was 10,284 euros. This corresponds to growth of 18.1 percent. Source: pexels.com.

Since 2011, real estate owners have been pleased with the rapidly increasing purchase prices, especially for condominiums. But also prospective buyers can take pleasure in the continuing increase in the value of real estate, as real estate is still considered the safest investment due to the current interest rate situation. The demand is correspondingly high. Condominiums in particular have shown an enormous increase in value since 2011, which in many places even exceeds the growth of new contract rents. According to ZIA´s Spring Report on the real estate industry 2020, the purchase prices in independent towns in eastern Germany rose by 10.7 percent and are currently at an average of 2,070 euros / m². The purchase price growth is therefore higher than in the other parts of Germany, where it levels at between nine and ten percent. In eastern German districts the purchase prices are lowest with 1,510 euros / m². Almost a thousand euros more are paid in western German districts with 2,470 euros / m². The top prices in 2019 were achieved in the western German independent cities with an average of 3,380 euros / m².

Politicians take measures

“Affordable building and housing has been a hot topic of public discussion this year,” summarises Dr. Andreas Mettner, President of ZIA. The discussions on real estate prices were very emotional at times, especially in Berlin. In many places, people worried that rents would rise too quickly and asked politicians to take action. “A common denominator for many of these measures was regulation instead of building, including new laws relating to share deals, the cap od rents, rent control, modernisation capping, exercising heritable building rights and demands for expropriation from real estate companies,” criticises Dr. Andreas Mettner. In fact, rents rose quite moderately – even without the regulations. According to the Spring Report the Germany-wide average rent is currently at 8.13 euros / m². The rental markets in Germany grew by an average of 3.5 percent in 2019, which means that rents are rising slower than wages (+4.2 percent).

Increasing demand for home ownership

In contrast, the rise in purchase prices for owner-occupied apartments is significantly higher than the growth rate of new contract rents (+9.7 percent). The value of one- and two-family houses rose at a similar level. With a price increase of 9.3 percent, the average purchase price in 2019 was 2,800 euros / m². The high demand for home ownership is particularly evident in a comparison over a number of years. According to the Spring Report, since 2010, one and two-family houses have gained in value at an average of 63 percent. Condominiums even increased their value by an average of 93 percent. For this reason the real estate industry is critical of government measures to regulate prices. “As an alternative, we propose the supply of more building land, the harmonisation of building regulations, the acceleration of planning and building permit procedures and additional funding for the building authorities. The share of private stakeholders in new residential construction is at least 75 percent. This means that without private commitment, we will not be able to achieve the state-approved housing targets,” says Dr. Andreas Mettner. The goal of 350,000 to 400,000 apartments per year is way above the completions of only 287,000 buildings in 2018. Without political support, it currently cannot be assumed that the tense real estate markets in Germany will be relieved any time soon.

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