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The latest update from the German Real Estate Index (GREIX) suggests a significant shift in Germany's property market dynamics. After nearly two years of declining prices, residential property values are showing signs of recovery. The GREIX study, which claims to be a reliable and comprehensive measure of the real estate market, reveals that prices for condominiums, single-family homes, and multi-family houses have all risen in the second quarter of 2024. This could mark the beginning of a trend reversal, a development that many in the industry have been anxiously awaiting.
According to the GREIX data, residential property prices in Germany have increased for the first time in two years. Condominiums saw a 2.4% rise, single-family homes increased by 2%, and the prices for multi-family houses jumped by 4.4% in the second quarter of 2024. This uptick follows a sharp decline in property values, which had fallen by approximately 14% during the correction phase, with some areas like Stuttgart experiencing even steeper declines. The latest figures suggest that the correction phase might be over, and the market could be stabilizing.
Jonas Zdrzalek, a property expert at the Kiel Institute for the World Economy (IfW), underscores the importance of these findings. He states, "The great uncertainty of the past few years and months is clearly subsiding, and the outlook for falling interest rates is stabilizing the market. Investors appear to be regaining confidence in the long-term value appreciation of property." This renewed confidence, coupled with a slump in new construction, is tightening supply and supporting price momentum.
Can we trust these results?
The credibility of the GREIX data is underpinned by its robust methodology. Unlike other indices that rely on asking prices from property portals, which can often be misleading, GREIX is based on notarised sales prices. This means the index reflects actual transaction prices rather than the seller's initial asking price, providing a more accurate picture of market conditions. The data is drawn from over two million transactions, analysed using the hedonic method, which adjusts for distortions that can occur due to the specific characteristics of the properties sold.
Moreover, the GREIX study is a collaborative effort involving the Expert Committees for Property Values, the Econtribute Cluster of Excellence at the Universities of Bonn and Cologne, and the Kiel Institute for the World Economy. This partnership between academic and professional bodies should add to the index's credibility. The data used in GREIX is not only comprehensive but also transparent, with information available for public access, enhancing its reliability as a source of market insights.
Where are the biggest moves?
The GREIX data reveals that the most significant price increases have occurred in Germany's largest cities, particularly in Hamburg and Frankfurt. Hamburg saw a 4.3% rise in condominium prices, while Frankfurt recorded a 3.7% increase. These figures indicate a strong recovery in these urban centers, which had previously seen considerable price declines.
However, the trend is not uniform across all regions. In Stuttgart, for instance, prices only rose by 0.6%, and in Cologne, prices even fell by 0.6%, following a previous increase in the first quarter of 2024. Outside the "Top 7" cities—Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, and Stuttgart—the market remains more volatile, with price trends showing greater fluctuations due to the lower volume of transactions. Notably, in the Rhine-Erft district and Münster, prices for condominiums rose by 4.6% and 5.6% respectively, reflecting a robust recovery in these areas.
One of the challenges in assessing the current state of the German property market is the discrepancy between different data sources. For example, while property portals like ImmoScout24 have reported rising prices since April, these reports often reflect asking prices rather than final sales prices. As a result, they may present an overly optimistic view of the market.
The GREIX, on the other hand, is based on actual sales data, providing a more reliable measure of market conditions. However, even GREIX data comes with caveats. For instance, the number of transactions remains low—only about 60% of the average from 2019 to 2021, and new builds are at just 35% of previous levels. This low transaction volume can lead to greater volatility in the data, particularly in segments like multi-family houses, where prices have shown significant fluctuations.
What’s coming onto the market?
Interestingly, the current market dynamics are not just about rising prices but also about the types of properties coming onto the market. The GREIX study notes an increase in the number of unrenovated properties being listed, as many owners opt to sell rather than undertake expensive refurbishments. This trend is likely a response to the higher costs of debt and equity, making extensive renovations financially unfeasible for many property owners.
REFIRE: As we stand on the brink of what could be a pivotal moment in the German property market, the latest GREIX data offers a cautious optimism. For investors who have been holding their breath, this might be the signal to re-engage with the market. However, with regional disparities and ongoing volatility, it's crucial to proceed with both eyes open. Whether this marks the end of the correction phase or just a temporary uptick, the market's next moves will be critical. Stay informed, stay prepared, and be ready to act as new opportunities—and challenges—emerge.
