Apartment prices for owner-occupiers to rise by 5% in bigger cities

The demand for German owner-occupied residential apartments (or ‘condominiums’) will remain high over the next two years, with prices continuing to rise, according to Professor Michael Voigtländer of the IW Institut der deutschen Wirtschaft in Cologne. Prof. Voigtländer was speaking at the presentation of the annual Home Ownership Report (Wohneigentumsreport), attended by REFIRE, which the IW carries out every year together with housing privatisation specialist Accentro Real Estate.

Last year, condominiums were traded for €35 billion in Germany, which is significantly more than in 2018, according to the Report. In total, 129,473 apartments were sold for 35 billion across the country’s 82 most populous cities, a rise of 4% compared to 2018, and a rise in the transaction volume around 10% or €3.4 billion.

"The larger number of transactions is likely to be primarily due to the further interest rate cut last year and the expectation of many that prices have peaked," says Voigtländer. The report is based on data from the government’s Expert Committees (Gutachterausschüsse) which reflect actual transactions figures.  

The highest volume of transactions (18,515) was in Berlin, amounting to a turnover of €6.3 billion, followed by Munich with 10,373 apartments sold and a turnover of €5.6 billion and Hamburg (6,341 units, €2.8 billion turnover). According to the report, these three cities alone account for a good quarter of all apartments sold and 42% of the nationwide transaction volume. 

Voigtländer highlighted how sales in eastern German cities - above all in Dresden, Leipzig and Chemnitz - are booming. "These regions are among the rising regions. It shows again that sales in some smaller cities have risen more strongly than in the seven top cities. Owner-occupiers and investors are also looking to suburban areas around the top cities and the next bigger cities,” he said. This applies to large parts of the Ruhr area, to communities in the Frankfurt area - including Offenbach - or to the surrounding areas of Hamburg and Berlin.

Voigtländer expects the demand for apartments from owner-occupiers and investors to remain "very high". He is convinced that the housing market is "not overvalued, but rather slightly undervalued" - due to the slight interest rate cut last year, "which has not yet been priced in properly". Housing, generally, has now in any event become attractive for investors who have little alternative investment options anyway, said Voigtländer. For the bigger cities, he expects prices to rise by around 5% in both 2020 and 2021. The increase could be even somewhat higher in the surrounding area of some large cities, as people take advantage of lower prices, and the possibility to work from home.

For this and the coming year, the IW economist expects prices to rise. Looking at major cities, he expects prices to rise by around 5% in both 2020 and 2021. In his opinion, the increase could be even somewhat higher in the surrounding area of some large cities.

Even more bullish about the future of residential real estate prices is the Hamburg Institute of International Economics (HWWI Hamburger WeltWirtschaftsInstituts), a liberal think tank and research institute associated with the Hamburg Chamber of Commerce and the Helmut Schmidt University/ University of the Bundeswehr Hamburg.

The HWWI’s latest study predicts that in more than half of the 401 German municipalities (Landkreise), homeowners can expect their real estate to increase in value in real terms right up to 2030.

In a study commissioned by Postbank, the HWWI forecasts an annual increase in the purchase price of apartments in Munich of 1.7% in real terms up to 2030. According to the calculations, high growth rates are also expected in Düsseldorf (1.21%) and Cologne (1.06%). For Berlin, the price increase is 1% per year, in Frankfurt it is 0.8%, while Hamburg and Stuttgart will reach 0.95% and 0.91% respectively according to HWWI.

In Bavaria, even stronger price rises are forecast in towns outside the capital Munich, including Erding with a forecast of 2.27% and Landsberg am Lech with 2.06% per annum until 2030. Outside Bavaria, the district of Cloppenburg (Lower Saxony) should show strong increases (2%).

However, the study predicts that the city with the strongest annual price increase will be Heilbronn in Baden-Württemberg (1.8%). It is followed by Potsdam in Brandenburg with 1.74%. Annual growth rates of more than 1% until 2030 are also expected in Leipzig, Freiburg im Breisgau, Münster, Dresden, Ingolstadt and Mainz as well as in the two independent Bavarian medium-sized towns of Landshut and Memmingen.

The HWWI say its purchase price forecasts are based on regional data on population structure, household size, income, housing expenditure and supply. The HWWI housing market model reconstructs how these factors influence each other. It does not include possible later consequences of the corona pandemic, although the authors don’t expect that to have a serious long-term impact on prices.