AThe bad news is piling up in the real estate market. High loan interest rates and expensive building materials mean fewer and fewer new buildings are being built and are driving many construction companies into financial difficulties and even bankruptcy. The Austrian René Benko's Signa Group is just the most prominent example of the year that is coming to a close. And given the housing shortage and high influx of refugees, rents are rising more sharply than before.
A glimmer of hope for potential buyers easily fades into the background: houses and apartments are finally becoming cheaper again – after more than ten years of price increases. Prices have been falling since mid-2022 and will probably continue to do so in the coming year. The Reuters news agency asked 14 real estate analysts about the prospects. On average, they predict a decline of 8 percent this year and a further 2.8 percent next year. The most pessimistic forecast even expects prices to be 8 percent lower in 2024. Analysts are currently expecting larger declines than in the previous survey of this type, which was carried out in August.
Price drops between 10 and 25 percent
Forecasts on the real estate market differ depending on whether they are based on the prices that sellers provide on the Internet as their first offers, or on the prices of actual sales, of which there are sometimes not enough to be able to calculate meaningfully. In the boom times up until last year, properties were generally sold for not much less than the asking price. Now the scope for negotiations has increased and transaction prices can be significantly lower than the offer prices.
The figures from the German Real Estate Index (Greix), which are compiled by the Institute for the World Economy (IfW) in Kiel together with Econtribute, a cluster of excellence at the Cologne and Bonn universities, have received much attention. They are based on actual sales reported by local appraisal boards. Accordingly, prices fell again in the third quarter after a short interruption in the spring. Compared to the third quarter of 2022, condominiums now cost 10 percent less, single-family homes 12 percent and multi-family homes even 25 percent less. The price of the latter has fallen so sharply because they are often bought by investors. They retreated particularly quickly after the interest rate turnaround because they have now found an alternative to the real estate market with higher-interest bonds. And because more expensive construction financing has severely depressed the returns on real estate investments.
The price development varies greatly from city to city. Since the peak, apartments have become cheaper by up to 21 percent, especially in Münster, Düsseldorf and Stuttgart, while the declines in Cologne, Leipzig and Berlin were much more moderate. Single-family homes fell in price the most in Leipzig, Düsseldorf, Frankfurt and again in Münster (see grafic). These are all nominal changes based on current prices. If inflation is taken into account, the declines are even greater.
It is also important to differentiate between new buildings and existing properties. New houses and apartments that have just been completed were built at high costs. “Prices here only fall when property developers get into financial difficulties and urgently need money from sales,” says Reiner Braun, CEO of Empirica, a company that constantly monitors the real estate market and its prices. “Then discounts of ten percent are certainly possible,” he says. According to Braun, this particularly applies to terraced houses and condominiums. Potential buyers should monitor whether developers have already reduced prices and then submit offers that are 10 to 15 percent lower.
Burden due to unclear state funding
For the few new buildings that have just begun, the price development is less clear, says Reiner Braun. “Construction costs are slightly lower here because building materials are cheaper than they were a few months ago and suddenly underutilized construction companies are increasingly looking for orders. Therefore, there is scope for cheaper purchase prices.” On the other hand, future support for new construction by the state has become more uncertain given the budget situation. Property developers would therefore have to calculate more carefully.
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