pro_creator/Envato
Despite rising interest rates and property prices, the cost of home ownership in Germany is becoming more favorable compared to renting. A recent study by the German Economic Institute (IW), commissioned traditionally on an annual basis by Accentro, reveals that owner-occupancy costs averaged €13.14 per square metre last year. This made buying a home cheaper than renting in 127 of the 401 German districts and cities, even with higher borrowing costs.
The report highlights significant regional differences, with areas around major cities like Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, and Stuttgart showing higher cost advantages for home buyers. Specifically, districts such as Oder-Spree and Dahme-Spreewald in Brandenburg offer notable benefits for owner-occupiers.
A turning point is anticipated, with owner-occupier costs expected to decrease as interest rates moderately decline. Scenario analyses suggest that a 50 basis point reduction in interest rates could lower these costs to nine euros per square meter by 2025. The rental market’s tightening conditions and rising rents further enhance the attractiveness of buying over renting.
Long-term, residential property in Germany demonstrates moderate returns and high value stability. Historical data shows an average real total return of 5.4% from 1970 to 2023. With a chronic shortage of rental properties in metropolitan areas, investing in residential property remains a sound and profitable option.
The IW report concludes that the improved affordability of home ownership is likely to boost transaction volumes in the latter half of 2024, as more buyers are drawn to the market by the cost advantages and potential returns of owning over renting.
