Real Estate Price Development in Germany

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The question of how real estate prices are developing concerns both buyers and sellers. In the past, prices rose rapidly, but will this upward trend continue in the future? A clear distinction must be made here between rural regions and metropolitan areas. We provide you with an overview of the current figures and venture a look into the future.

What has been the real estate price trend in recent years?

In order to be able to make a forecast for future real estate prices, it is important to also look at the price development of the past years. At the beginning of 2020, real estate prices for residential buildings are at 117.7 index points, according to the real estate price index of the Federal Statistical Office. From Q3 2018 to Q3 2019, prices increased by 4.9 percent. Since 2015, they have increased by a total of 17.7 percent. Real estate prices have risen steadily since 2015, but at different rates each year.

The German real estate market was rather quiet by European standards until 2010. There was little construction and investment. From 2010, demand for real estate rose rapidly. One of the reasons for this was a lack of investment alternatives. With the increasing demand, real estate prices also rose quickly and continuously. In certain regions of Germany, prices for houses and condominiums rose by more than 60 percent.

How does Germany compare with other countries in terms of real estate prices?

In relation to average annual income, real estate prices in Germany are rather low compared to other countries. According to a Deloitte study, only in Portugal and Belgium is it cheaper to buy a property. The most expensive in terms of annual income is buying real estate in the Czech Republic. Here, buyers have to invest an average of eleven annual salaries for a 70-square-meter apartment. By comparison, in Germany, Austria and Norway, only five to six annual salaries are required on average.

However, if the price per square meter of housing alone is taken into account, Germany ranks fourth in an international comparison. Only in the UK, France and Norway is housing more expensive when measured by the price per square meter.

Many are afraid of a real estate bubble due to the rapidly rising real estate prices. But the likelihood of this happening in Germany is low. One of the reasons for this is that in Germany, real estate is not financed 100% by banks and savings banks in most cases, as is the case in Spain, for example. In Germany, most German builders participate in the financing of the property with about 20 to 25 percent equity. Furthermore, as a rule, the term of real estate loans in Germany is significantly shorter than in other countries.

Will real estate prices continue to rise or fall again by 2030?

Looking at the trend in recent years, it is clear from a real estate price forecast that real estate prices will continue to rise until 2030. However, they will rise less sharply than in the last ten years. One of the reasons for this is the growing demand for space per inhabitant described in the previous section. In addition, an increasing number of single households can be observed. Although this reduces supply rather than demand, the resulting growing imbalance between supply and demand is also causing property prices to rise. Rising lending rates, on the other hand, would reduce the upward trend.

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