In what appears to be yet another worrying signal for Germany’s economy, residential property prices plummeted dramatically in the second quarter of this year, falling more sharply than has been witnessed since statistics started being recorded.
Germany’s Federal Statistical Office revealed on Friday, September 22nd, that from the period of April to June of this year housing prices fell by an average of 9.9% compared to the previous year, the steepest drop witnessed since the office began recording figures in 2000, with significant price declines taking place in both urban and rural areas, Frankfurter Allgemeine Zeitung reports.
The negative price trend, however, was more pronounced in urban areas, with Germany’s seven largest cities—Berlin, Hamburg, Munich, Cologne, Frankfurt am Main, Stuttgart, and Düsseldorf—all experiencing significant price drops compared to the same quarter last year. Across these cities, prices for single and two-family homes saw a decrease of 12.6%, while apartments were 9.8% cheaper compared to the previous year.
Statisticians from the federal office said drops in housing prices were the “smallest in sparsely populated rural districts.” In areas like these, prices for single and two-family homes fell but 8.1% year over year, while condominiums cost 7% less.
It’s worth noting that following the onset of the COVID-19 pandemic, Germany saw a considerable exodus of people from its big cities to the suburbs, smaller towns, and villages. The same phenomenon was witnessed across the United States.
According to a survey conducted earlier this year by the Munich-based think tank Ifo Institute for Economic Research, since the beginning of the outbreak of coronavirus, 14% of urban residents have relocated, while another 10% percent are contemplating a similar move within the next year.
The survey also revealed that, out of those who departed from the metropolitan areas, 38% relocated to suburban areas, while another 14% opted for smaller towns, villages, and other rural settings.
Another factor to consider is the precipitous drop in demand that’s presently affecting the construction and real estate sector in Germany, evinced by the 31.5% decline in the demand for building permits for apartments. According to the statistical office, the steep drop is due to high building costs and expensive credit.
Last week, the German housing industry association GdW raised concerns over the construction crisis, calling for government aid to support construction firms amid an increasingly difficult situation.
“The construction crisis in Germany is getting worse day by day and is increasingly reaching the middle of society, which represents some 3,000 housing companies nationwide,” GdW said in a statement where it also called for a cut in VAT to 7%, down from 19%.
On Monday, September 26th, as a part of its construction summit in Berlin, the federal government unveiled a 14-point plan aimed at boosting the development of apartments and houses, with those from the construction industry praising its proposals.
For economist Martin Güth from Landesbank Baden-Württemberg (LBBW), the downturn comes after a years-long upswing.
“Apartments are therefore still not cheap and, due to the increased interest rates, are still affordable for fewer and fewer households,” Güth said. “The prices are likely to fall a little further, but the speed will remain manageable.”
“The market is tight, living space is scarce,” said the economist. “Housing therefore remains expensive—whether renting or owning.”
Residential real estate prices are expected to fall some four to six percent for the entire year, mainly due to rising interest rates, inflation, and elevated material costs, according to a study by DZ Bank.
“Considering the significantly worse financing conditions and the uncertainty about future investments in energy-efficient renovation and new heating technology, the price decline appears to be moderate in the single-digit percentage range,” the study concludes.
The Kiel Institute for the World Economy (IfW), for their part, concluded that the decrease in condominium prices predominantly impacts existing properties whereas prices for newer homes and apartments remain relatively stable.
