More bottlenecks seen in German owner-occupier market

The Hamburg-based specialist research consultant GEWOS sees an increase in transactions in German residential property this year of 5.4% over last year, which will force households in the larger cities to pay over twenty times their annual income to buy a home.

The independent consultancy, which focuses on fundamental urban and residential housing research for financial institutions, says the German residential market is showing ‘definite signs of strain’. Following the trend on the rental markets, Munich tops the list of cities experiencing residential bottlenecks, with households looking at stumping up twenty-four times annual income for owner-occupied property. The Bavarian capital is followed by Düsseldorf and Potsdam (20 times income), Stuttgart (18x) and Frankfurt and Hamburg (16x).

Transaction volumes will also continue to rise this year, said GEWOS, though they are driven by higher prices rather than more deals. It expects this year’s combined commercial and residential real estate transaction volume to rise by 3.2% on 2012 to €165.8bn, €122.6bn of which is residential. Property remains attractive as an investment, due to increasing work place security and rising wage levels, its status as a perceived inflation-secure investment, and the favourable interest rate environment. Owner-occupier apartment transactions will rise by 5.4% to €46.8bn, making it the most important segment. Single and double family home transactions will rise by 2% to €45.1bn, those for multi-family homes gain 3.2% to €19.1bn.

For next year 2014, GEWOS expects further full transaction volume growth, albeit at a slow rate, to about €173bn – of which western Germany should rise 4.5% to €145bn, and eastern Germany 5.2% to €28.3bn.

Further figures from GEWOS show that the sale of owner-occupied apartments in 2012 outstripped (at 272,000 sales) the number of single-family homes (247,000). The average price for an apartment in Germany was €148,000, a rise of 6.7% on the previous year. In western Germany, with 225,000 individual sales transactions, the price in 2012 was about 19% higher than in 2006. In the eastern states, however, with 46,600 individual transactions, prices rose by 36% over the same period.

Not surprisingly, Munich is again top of the list at an average apartment price of €262,100. By contrast, in Hanover in Lower Saxony the average price is €90,000. The highest price increases were seen in Dresden (43.2%), followed by Düsseldorf at 14.7%, Augsburg at 10.8%, Frankfurt (10.56%) and Münster (10.3%).

Meanwhile, a new report published by Berlin-based Accentro, a privatisation service provider owned by listed property investor Estavis, sees the surge in residential property investment being particularly pronounced in the smaller cities among Germany’s top 82 urban locations.

The Accentro Home Ownership Report (“Wohneigentumsreport”) – the sixth in its now annual series - puts the actual number of apartments sold in the top 82 cities at 130,327 units, a slight fall of 1.1% on the record year of 2011, but which points to “a sustained positive trend on the German housing markets”, according to CEO Jacopo Mingazzini. The Accentro figures show the number of sales rising particularly in the smaller cities. Halle in eastern Germany heads the list with a 130% increase in the number of transactions, while Fürth near Nüremberg heads the list of apartments sold per capita, with 59% growth.

“The significance of home ownership in all regions in Germany has increased substantially in recent years,” said Mingazzini, and it is not confined to the traditionally strong cities in southern Germany. He says it undoubtedly experiencing a bit of a wobble this year due to the influence of the recent federal elections. “The apartment market in 2013 is undoubtedly being affected by the German national election campaign,” he said. “A number of political instruments, for example the planned curbing of rent prices (“Mietpreisbremse”) and increase in land transfer tax (“Grunderwerbsteuer”), are scaring off both private and institutional investors.”

Separately, fresh figures released this week by Destatis, the federal statistics office, show that orders in the construction industry in July were 15.0% higher than in July 2012, adjusted for inflation. The amount of hours worked in the industry in July 2013 were up 2.9% year-on-year. The industry employed 745,000 workers, about 11,600 or 1.5% less than last year. For the first seven months of the year as a whole, construction orders were 2.5% higher than the same period last year, while total turnover at €46.8bn was 3.3% below last year’s level.