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Germany's residential property market is anything but dull these days. The feedback to REFIRE from a variety of sources is like watching a roller coaster: thrilling ascents in some cities, stomach-dropping declines in others, and plenty of twists and turns along the way.
According to a recent analysis by real estate portal Immowelt, house prices are back on the rise in 39 out of 77 major German cities. This trend suggests that the market is bouncing back in many urban areas. Immowelt's report highlights that the average asking prices for existing apartments (75 square meters, three rooms, second floor; built in the 1990s) have climbed by as much as 8% in the first half of 2024.
"The market for properties for sale has picked up noticeably in the past six months," commented Immowelt managing director Piet Derriks. It's as if the market has woken up from a deep slumber, especially in high-priced metropolitan areas. Take Munich, for instance. The average price per square meter for an existing apartment in Germany's most expensive city rose from €7,772 at the beginning of 2024 to €8,153—a 4.9% increase. Talk about a Bavarian bounce!
But Munich isn't the only city enjoying this upward trend. Cologne recorded the most substantial percentage increase, with prices skyrocketing by 7.9%. The average price per square meter in Cologne is now €4,729, up from €4,383 at the start of the year. Other cities like Hanover, Bremen, and Leipzig also saw noticeable increases, with prices rising by 7.2%, 4.2%, and 3.7%, respectively. It seems like the property market in these cities has had a strong shot of espresso. (But bear in mind - it’s Immowelt, a portal largely basing its analysis on asking prices. We largely prefer to wait until actual selling prices are documented, from platforms such as Europace. But still, it’s indicative of something…)
Stability in purchase prices
And indeed, amidst all this excitement, there's also a story of stability. Data from broker group Sprengnetter shows that the real purchase prices for apartments and houses have remained steady, with a slight upward trend. The difference between asking prices and realized deals is noteworthy, reflecting high seller expectations. Sprengnetter's analysis of 287,858 real purchase prices and around 1.3 million asking prices from June 2023 to June 2024 reveals a minimal 0.2% increase in condominium prices and stable prices for single-family homes.
Christian Sauerborn, chief analyst at Sprengnetter, observed signs of "healthy market development" without major fluctuations. However, the discrepancy between asking prices and actual purchase prices for condominiums, standing at 8.4% nationwide, suggests that sellers might still be dreaming of yesteryear’s highs.
Another index, The Empirica Real Estate Price Index, also offers some intriguing insights. Purchase prices for newly built condominiums continue to inch upwards, rising 0.4% in the second quarter of 2024. For the first time in almost two years, prices for new detached and semi-detached houses saw a modest increase of 0.3%. It's like these new builds have finally caught a second wind.
However, looking at properties across all construction years, the trend of falling prices continues. Compared to the previous quarter, prices for condominiums fell by 0.4%, and prices for detached and semi-detached houses dropped by 0.5%. Year-on-year, these categories saw declines of 3.6% and 4.6%, respectively. It's a mixed bag, to say the least.
Rents for new-build apartments are also on the rise, with a 1.4% increase in the second quarter of 2024. Over the past decade, new-build rents have surged by 48% across Germany. That's enough to make even the most stoic tenant gulp.
Regional variation is very much the byword in the current market. The property market in Germany's major cities is like a tale of two cities—some booming, others lagging. While Munich, Cologne, and Frankfurt am Main show robust price increases, Berlin is playing a different tune. The capital experienced a slight decline in asking prices for existing apartments, falling by 0.9% in the first half of 2024. This trend contrasts sharply with the rising prices in other cities, making Berlin the outlier in this real estate saga.
Other cities like Göttingen, Saarbrücken, Wolfsburg, and Chemnitz also saw declines in property prices. Göttingen recorded the most significant drop, with prices falling by 5.3% since the beginning of the year. It seems these cities are still looking for their footing in this turbulent market.
Takeaways for investors and homebuyers
So, what does all this mean for investors and homebuyers? The current landscape of the German residential property market presents both opportunities and challenges. Rising prices in many cities indicate a recovering market, which could be promising for investment. However, the discrepancy between asking and actual purchase prices suggests that buyers should approach with caution and be ready to negotiate.
For homebuyers, particularly those looking in cities with falling prices, this period might present an opportunity to snap up properties at relatively lower costs. In contrast, those eyeing properties in cities with rising prices should be prepared for higher costs and potentially fierce competition.
Overall, this REFIRE snapshot paints a picture of a residential property market that's anything but predictable. With significant variations across different cities and regions, it’s clear that localized market analysis and strategic decision-making are more crucial than ever for both investors and homebuyers. Strap in and hold on tight, because the ride isn’t over yet.
