WWhilst restaurateurs, retailers and cultural organizers have been groaning for two years, at least one branch of the economy has come through the Corona crisis almost unscathed: residential real estate. The price damper feared at the beginning of the pandemic did not exist in 2021 either, on the contrary: purchase prices once again increased at an above-average rate. They have more than doubled since bottoming out in 2009. The report by the Council of “Real Estate Wise Men”, presented on Tuesday, put the price increase at 146 percent since then.
In 2021, condominiums increased in price by an average of 14.3 percent nationwide, to now 3140 euros per square meter. Compared to the previous year, the price increase has increased again. From 2020 to 2021, the increase was “only” 11.2 percent. It is striking that prices in eastern Germany have recently risen more sharply than in western Germany. The district-free cities in the east – Berlin excluded – recorded an increase of 19.6 percent to a square meter price of 2621 euros last year. In contrast, in the urban districts in the west, prices rose by only 12.5 percent, although the level at 4,096 euros is also significantly higher.
Rents have also risen, but not nearly as much: by 3.7 percent to an average of EUR 8.46 per square meter. The authors of the report observed the strongest increase in asking rents in western German districts, at 4.1 percent to EUR 8.27.
In the so-called A-cities – Berlin, Düsseldorf, Frankfurt, Cologne, Hamburg, Munich and Stuttgart – on the other hand, new leases rose by only 2.7 percent to EUR 12.27 per square meter. Berlin is another outlier: Asking rents there rose by 4.7 percent to EUR 9.70, while Munich is still the absolute leader by a long way, with rents without heating averaging EUR 16.99 (plus 2.6 percent).
If the increase in purchase prices outpaces that of rents, it does not bode well. At least in terms of returns, buying an apartment is becoming less and less worthwhile. In some places, the purchase prices for apartments have reached a level that corresponds to 47 annual rents. The gross initial yield in the seven largest cities fell further in 2021 compared to the previous year, to 2.2 to 3 percent. “Anyone who invests money today is certainly below zero,” said Harald Simons from the analysis company Empirica, who is one of the authors of the report.
What does the correction look like then?
He made no secret of the fact that he does not consider this development to be a good one. The Bundesbank has long assumed that real estate in Germany is overvalued by up to 30 percent. However, the authors of the real estate appraisal did not want to talk about a bubble – and certainly not about the impending bursting. Just this much: “If interest rates go up, there will be a correction,” said economist Lars Feld, once head of the Council of Economic Experts, recently advisor to Finance Minister Christian Lindner (FDP) and co-author of the report.
The fact that, according to the report, the number of new buildings will only increase slightly, which means that the supply of apartments will remain scarce, speaks in favor of a further increase in prices. After the 306,000 completed apartments in 2020, the real estate appraisal estimates the number for 2021 at 315,000. The traffic light coalition wants to increase the annual number of new buildings to 400,000 a year, but the capacities of many construction companies and craftsmen are often already fully utilised. Simons therefore considers the target of 400,000 to be realistic at the earliest in the next legislative period. With a view to the seven largest cities, the report states: “New housing construction is stagnating.”
At the same time, Simons criticized the fact that construction was going on without the need. “We build small shoeboxes instead of family apartments,” he criticized. The result: the trend of people between 30 and 50 moving to the outskirts of the cities is increasing. Since immigration from abroad to the cities is no longer as great as it was a few years ago, this could argue against further price increases. In any case, the fact that cities are getting bigger is not a law of nature, according to Simons: “Munich shrank until the end of the 1990s.”
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