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The German property market, after weathering a storm of rising interest rates and economic headwinds, is finally showing signs of recovery—particularly in the realm of property financing. Recent data from the Association of German Pfandbrief Banks (VDP) reveals a significant uptick in lending, bringing it close to a two-year high. This positive trend, driven largely by residential property financing, suggests that the market may be starting to turn the corner.
In the second quarter of 2024, VDP member institutions granted property loans totaling €31.2 billion, marking a 15.6% increase compared to the same period in 2023. This is the third consecutive quarter of growth in new lending and the highest level since Q3 2022. As Jens Tolckmitt, Managing Director of VDP, succinctly put it, “For the first time since autumn 2022, the volume of real estate financing in a quarter has exceeded 31 billion euros again. There were already signs of a revival in property financing in the first quarter of this year, and now it is solidifying.”
The star of the show is undoubtedly the residential property sector. Loans for the construction and purchase of flats and houses soared by 33.1% year-on-year, reaching €20.1 billion in Q2 2024. The residential property market, bolstered by a more stable interest rate and price environment, is experiencing a noticeable uptick in demand. According to VDP, “The residential property market in particular is already benefiting from the now more stable interest rate and price environment and the adjusted yields. Under these conditions, demand for residential property is increasing noticeably.”
Winners and losers: A snapshot of asset categories
Delving deeper into the data reveals which asset categories the banks are currently favoring. Residential properties, especially apartment blocks, are clearly in vogue, with loan volumes in this segment jumping by 57.6% in Q2 2024 compared to the previous quarter. Condominiums and detached or semi-detached houses are also enjoying significant growth, with loans rising by 38.7% and 25%, respectively.
However, it’s not all sunshine and roses. The commercial property sector continues to face an uphill battle. The volume of new loans for commercial properties remained stagnant at €11.1 billion, barely budging from last year’s levels. Office properties and hotels are particularly in the doldrums. Despite office properties accounting for nearly half of the commercial loan volume, overall lending in this segment, along with hotels, has declined noticeably. Meanwhile, retail properties and other commercial buildings have shown some resilience, indicating selective investor confidence in these specific sub-sectors.
Is this really a turnaround?
The recent uptick in lending and modest increases in property prices suggest that the German property market may be finding its footing after a turbulent two years. For the first time since the market’s peak two years ago, prices for office properties edged up by 0.3% in Q2 2024. While this increase might seem like a drop in the ocean, it’s the first quarterly rise since the downturn began—a glimmer of hope, albeit a cautious one.
Thomas Groß, CEO of Landesbank Helaba, offered a cautiously optimistic take, saying, “In the property market, we are seeing the first signs, and certainly resilient signs, of a certain bottoming out in commercial property financing.” His remarks, coupled with the latest VDP data, hint that the worst may be over for the German property market, though significant challenges remain, especially in the commercial sector.
What this means for investors
For investors, the resurgence in residential property financing is a clear indicator of where the market’s current strengths lie. The robust demand for residential properties, particularly apartment blocks and condominiums, reflects renewed confidence in this segment. The stability in interest rates and the nascent recovery in property prices are likely to continue driving demand, making residential real estate a hot ticket for investors.
But before anyone gets too carried away, let’s remember that the commercial sector is still licking its wounds. While there are signs of stabilization, particularly in retail properties, the overall outlook remains mixed. The ongoing struggles in office and hotel properties suggest that investors should tread carefully, focusing on segments showing the most promise and avoiding those that are still in the doldrums.
REFIRE: The German property market is finally showing some signs of life after a prolonged hibernation, with residential property financing leading the charge. However, it’s clear that the recovery is uneven. While residential sectors are basking in the warmth of renewed demand, the commercial sector remains in the shadows, with only flickers of hope on the horizon. As Jens Tolckmitt highlighted, the upturn in property financing is solidifying, but investors would do well to navigate these emerging trends with a steady hand, focusing on the areas where the sun is starting to shine again. For now, it’s a market that’s slowly waking up—but still has a long way to go before it’s fully back on its feet.
