PRICE & MARKET

PRICE DEVELOPMENTS IN THE REAL ESTATE MARKET

How did the different price developments come about?

Like every investment market, the real estate market is also characterized by certain fluctuations in value. Basically, the real estate market reacts more slowly than other asset classes, but ultimately – like any other market – follows the logic of supply and demand. There are a variety of reasons for changes in demand. As has been observed for years, real estate prices in general can rise because banks can issue cheap loans for real estate due to the historically low level of interest rates. However, sometimes it is also due to strong location-related factors. If an airport is built in the vicinity of a district, prices may drop due to aircraft noise. They can increase if the quality of life or just the image of a district improves due to the influx of higher-income groups or an attractive park landscape is created. These exemplary parameters make it clear how the property value can change for the better or for the worse for the seller. Although real estate is basically a solid investment, price fluctuations can occur in the short and medium term.

When selling your house or apartment, you should always rely on a professional real estate appraisal. You will receive this from an experienced broker, among others. In addition to the factors mentioned above, he can also include other aspects in the valuation. For example, he has very good local knowledge and can assess future developments on the local real estate market. He is familiar with the local price dynamics. He also looks at the object himself. As a neutral person, he can better assess to what extent, for example, the permanently installed interior will influence the value or how popular the respective room layout is. In addition, he not only looks at the property, but also consults the documents on the property to determine the price. The extract from the land register states whether price reductions due to housing rights or usufruct are to be taken into account. In the case of rented properties, it is interesting to see what is in the lease and how high the net rent is. Ultimately, you receive the optimal offer price, which is the start of a successful marketing process.

REAL ESTATE PRICES IN GERMANY

Recognizing that real estate prices are too high

When it comes to investing in real estate, value development should be taken into account right from the start. The idea of investing in a bubble that is about to burst seems particularly catastrophic. It is therefore interesting to recognize at an early stage whether a market situation is overheated or not. For a first classification, it helps to answer three questions:

Are real estate prices still reasonable?

Very high real estate prices alone are not necessarily an indication of a real estate bubble. What is more important here is whether they are in a healthy relationship to rent and wage developments. It is therefore important that these developments are closely monitored. Overall, both rents and salaries are rising continuously in Germany. On average, German households spend 20 to 40 percent of their net income on rent. From this it can be deduced that no bubble formation is to be feared. In Berlin, however, the purchase and rental prices are drifting further and further apart. In popular locations in Berlin, within the S-Bahn ring, you will hardly find new apartments for less than €7,000 per square meter. Here you should also consider how long it will take to get the investment back through the rent.

Is construction going well beyond the need for living space?

As before, too little is being built in Germany to meet the demand for living space. This applies in particular to metropolitan areas. In Berlin in particular, the demand for living space in the coveted neighborhoods is nowhere near being met. This is reinforced by the continuing trend that more and more people are drawn to the metropolitan areas – especially to Berlin. The capital is still growing by around 40,000 inhabitants per year. In rural areas, however, things are completely different. It is not uncommon for new housing estates to be built without meeting demand. Buying a condominium is still worthwhile, especially in the districts that are currently growing the most. In Berlin, for example, this applies to districts such as Charlottenburg, Moabit or Friedrichshain. Owner-occupiers also benefit from the attractive location of the up-and-coming trendy district.

Are owners’ credit debt disproportionately high?

A bubble burst in the USA in 2008 as a result of the enormous structural overvaluation of real estate. For many years, a system of loose lending was established here, which ultimately fueled the rise in prices. Can something like this also threaten in Germany? This scenario is rather unlikely for Germany. The credit guidelines, in particular the requirements for the amount of equity, but also the legally regulated creditworthiness check, tend to be too restrictive rather than too lax in Germany. Basically, the Germans have a completely different relationship to debt and are much more cautious when dealing with liabilities. In relation to the gross domestic product, the debt of private households in Germany is around 60 percent. For comparison: In Denmark it is more than 120 percent!