Foreign buying driving rise in German multi-family housing

German residential and commercial property prices continued higher in this year's second quarter, rising nationwide by 4.9% from 2Q14, according to the German Pfandbrief Bank association vdp. The strongest climbs came in prices for multi-family dwellings. The main driver for the continued increase in prices is strong demand from foreign investors, says the association.

Using prices based on real-life transactions, the vdp Property Price Index for the German market as a whole climbed by 4.9% between April and June compared with the corresponding period of 2014, it said. “Demand for German residential and commercial properties remains strong due to the lack of attractive alternative investment returns and Germany’s very stable economy,” commented vdp CEO Jens Tolckmitt in a press statement.

“We are seeing the strongest hike in prices for multi-family houses, which are still highly sought after by both institutional and private investors. Demand by foreign investors is also being boosted by the weakness of the euro, with their main focus on office and retail properties but increasingly also on multi-family houses.”

Prices for owner-occupied housing rose 4.4% from 2Q14, multi-family houses rose 7.6%, office prices were 0.8% higher, and retail property added 3.0%. “Even though construction activity is on the rise, the persistent scarcity of housing in many large German towns and cities and the stable values of residential properties are making them an increasingly attractive proposition,” vdp said.

“At the same time, foreign investors consider German residential properties to be favourably priced compared with their own domestic markets. Thus, the distinct increase in property prices is still being driven by developments on the housing market.” By contrast commercial property prices lost some of their momentum, rising only by1.5% on average.