German building societies see further 4% price rises this year

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Despite the higher level of construction activity across the country, German property prices are still expected to rise this year by 3% to 4%, according to a recent survey of Landesbausparkassen (LBS) building societies.

Cheap financing costs, rising wages and low unemployment are fuelling rising demand for property, according to the survey, as well as high immigration.

The survey was carried out among 600 representatives of LBS and Sparkassen across Germany – traditionally the strongest lenders to the residential sector.

"The good news is that construction activity is reacting and promises some relief in the future," said LBS director Axel Guthmann, adding that building permits hit a 15-year-high in 2015. "However, German citizens will have to adjust to a further increase in prices for the time being," he said.

Property is most expensive in Bavaria, with a detached family house in Munich costing about ten times the price (about €1m) of a similar property in several mid-sized towns in eastern Germany. After Munich comes Regensburg (€790,000), Stuttgart (€780,000), Wiesbaden (€750,000) and Freiburg im Breisgau (€700,000).

The study shows how certain suburbs are even more expensive than the cities to which they are attached. Grünwald in Munich has an average house price of €1.55m, while Starnberg outside the Bavarian capital is at €1.2m. Meerbusch property at €725,000 is about €275,000 more expensive than in neighbouring Düsseldorf, while Frankfurt's suburb of Hofheim is €150,000 more expensive than Frankfurt at €800,000. Other scenic cities such as Constance and Lindau are also high-priced exceptions.

The study also features cities with about 500,000 in population, such as Leipzig, Hanover, Bremen, Dortmund and Dresden, where there are plenty of properties between €250,000 and €320,000.

The LBS study point to noticeably higher price increases over the last few years in new residential buildings, particularly in cities that are attractive to tourist, university cities and larger conurbations. Second-hand property has been rising too, but less strongly, with property on higher floors of apartment building up to 40% less expensive than new-build in mid- to larger towns in the north and eastern part of Germany. (This generally does not hold true for the prosperous states of Baden-Württemberg and Bavaria).

The critical factor leasding to higher prices is the bottleneck in the price of building land. This now costs more than €400 per sqm in southern German urban areas, more than three times higher than in the north (€130 per sqm) and more than five times higher than in the east (€80). However, in cities like Munich the price is as high as €1,550, while in Stuttgart and Wiesbaden €900 per sqm is more usual.

At the opposite end of the market, for less than €100 per sqm, land can be bought in Bremerhaven, Chemnitz, Cottbus and Salzgitter.