For potential owner-occupiers, buying property is becoming increasingly difficult.
Germany's nationwide transaction volume for house and apartment sales is expected to fall by fully 29% in 2023, according to figures from the Hamburg-based GEWOS Institute. The amount of sales concluded by year-end, based on figures at the half-way point, is unlikely to exceed 591,800 transactions - the lowest number since tracking began in 1995. That would represent a transaction volume of about €198.1 billion.
Sebastian Wunsch, Head of Real Estate Analysis, GEWOS Institute
As GEWOS’ Sebastian Wunsch said when presenting the figures, while house prices are falling they're not coming close to compensating for the rise in financing costs. For potential owner-occupiers, buying property is becoming increasingly difficult with higher financing costs and with inflation reducing their purchasing power. “The current market is characterised by pronounced buying restraint, and at present we don't see any significant changes in market-determining factors for the rest of the year.”
The GEWOS figures show that property sales slumped to €279.4 billion in 2022, corresponding to a decline of 17.2% compared with the record year of 2021 marking the end off a multi-year boom. The number of transaction cases had fallen by 16.1% to 787,700 in the one-year period.
GEWOS also looked at the indicative numbers of how much residential land was bought and sold last year, and this too also hit an all-time low, with the figure expected to fall yet further. Last year, 7,350 hectares of residential land were traded - 30% less than in 2021. The number of deals transacted also fell by 30% to 71,200 transactions, with the volume of turnover falling by 26.8% to €16.3 billion.
Wunsch said these were unprecedented levels, and he expects for this year just 5,400 hectares of land to be traded this year - 27% lower than last year, with the number of deals falling to 51,000 (down 28.5%) for a sales volume of €10.5bn (down 35.7%).
Wunsch said the figures in the biggest seven cities were particularly alarming in respect of new construction activity. "They recorded a total increase of 180,000 inhabitants last year. This means that these cities would have needed an additional 100,000 apartments. But only just under 43,000 were actually built in total."
With the level of activity among residential property developers plunging, huge gaps are opening up in what is needed to be built. Last year, says GEWOS, nearly 275,000 condominiums were sold last year, 19% fewer than in 2021, with new construction in particular suffering: 42,000 units changed hands in first-time sales - 42.6% fewer than in the previous year. Accordingly, the sales achieved in this area also fell by a good 40% to €18.6 billion. The decline in the single- and two-family house segment was more moderate. The number of purchases of new and existing homes fell by 11% to around 218,000 in 2022, with sales falling by 7.1% to €83.7 billion. At the same time, the share of new-build is very low, says Wunsch, putting it at just 5,900 houses.
Single-family homes - long the much-lauded dream in Germany - have seen their numbers fall dramatically since the pandemic. In the past ten years, around 85,000 single-family homes were built per year in Germany. But since COVID, sharply rising material and energy costs, more expensive financing and a lack of construction and craft capacities, the numbers are now falling. According to the Federal Statistical Office, 77,000 single-family houses were completed in 2022, a drop of 1.5% compared to the previous year, and this year, that figure is likely to fall yet further.
It’s a highly emotional story in Germany: for 64% of the population, single-family homes are still the most popular type of home, irrespective of political and environmental debates, according to the Wohntraumstudie 2022(Dream Home Study 2022)’ by Interhyp AG, a German broker of private construction financing.
So why are single-family homes losing their shine? One issue is that increasing restrictions on the designation of building land is increasing the pressure on single-family homes. High land consumption and poorer climate balance is why hardly any single-family houses are to be built in the city of Münster, for example, in the future, suggesting that this way of living could become an outdated model. There will also be fewer semi-detached houses and terraced houses, as the council majority of the Greens, SPD and Volt parties has now decided, because they take up a lot of space and their carbon footprint is worse than that of apartment buildings.
Similar debates are now raging in many German cities. In the north of Hamburg, for example, no more new building sites for detached single-family houses have been allocated since 2021, and other urban areas could follow. The districts of Fuhlsbüttel and Langenhorn in Hamburg also imposed more stringent restrictions in 2020, which limited the number of permits that were granted to build single-family homes.
As a result, the number of single-and two-family homes being built is declining sharply. Last year, just 75,000 dwellings in new single- and two-family buildings were built, a huge drop from the 106,000 units constructed in 2021. Again, a downward trend is expected this year, in light of escalating construction costs. Around 65,000 completions are forecast for 2025, 20% less than the all-time low.
