Condominium prices in Germany’s strongest growing cities will rise by an average of 3% in each of the next two years, according to figures from empirica, published by Handelsblatt with a detailed analysis of property price forecasts for 2017.
Rises of 5% are to be expected in Munich, while rental prices will add between 1 and 2%. These forecasts exclude declining regions, and in a number of cities, including Berlin, property and rental prices are forecast to rise far more aggressively.
As in many cities, the volume of new apartment construction on Berlin is nowhere near enough to satisfy growing demand for housing.
Ziegert, one of Berlin’s largest real estate agents, predicts that square metre prices will rise by a further 20% by 2018. Although such increases may appear very high by German standards, they are nothing unusual in international terms. In Turkey, Knight Frank registered a year-over-year increase of almost 14% in the third quarter of 2016, along with 12% in Canada and 9.5% in Austria.
“In Germany, the risk of overheating, after the real price declines between 1995 and 2005, is increasing, but remains limited to metropolises and regional hotspots”, said Manfred Binsfeld from Feri Euro Rating.
Rolf Buch from Vonovia went as far as to speak of a housing crisis in booming metropolitan areas. He estimates that Germany has a shortage of up to 1 million apartments. The only possible solution, he says, is to increase the construction of new apartments.
In order for more housing to be built, the housing industry would like to degressively depreciate its building stock by one to two points above the current regular depreciation rate of 2%, and would be boosted by an exemption from property transfer tax. However, critics fear that this would only serve to drive property prices even higher.
Jürgen Michael Schick from the IVD countered that degressive depreciation could be restricted to regions of positive population growth: “It would also be possible to restrict any increased depreciation by property sector, for example to the social housing sector, or to apartments with a rent cap of eight to nine euros per square metre, in order to target subsidies to the creation of more affordable housing.”
He also suggested that any exemption from property transfer tax could be linked to a requirement to lease apartments for a maximum of EUR 9.00/sqm for the first five year. This would dampen any potential speculation with development land which could arise from a blanket property transfer tax exemption.
A positive piece of news was that loan-to-value ratios in Germany have remained unchanged at 80% for years, which limits the risk of widespread forced sales or foreclosures should interest rates begin to rise once again. Rental price increases have also shown that there are clear limits to what the market will stand.
“In Hamburg you can see the maximum housing cost burden has almost been reached. Asking rents within the city limits are hardly increasing at all right now,” said Henrik Baumunk from CBRE. (Source: German Real Estate News – Dr.ZitelmannPB.GmbH)
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