German house prices climb 5.5% on average in 2017 - bigger gains in ‘Big 7’

German house prices are on the up again, rising by 5.5% on average last year, according to Postbank’s Housing Atlas 2018, published this month.

Munich leads the pack, with an average price of €6,700 per sqm, a y-o-y increase of 8.6%. Frankfurt takes second place at €4,500 (+11.1%), followed by Hamburg with €4,200 (+11.1%).

However, in percentage terms alone, Berlin is the clear winner, with prices leaping by 11.4% last year to €3,676.41 per sqm on average.

Subsequently, many would-be buyers are being priced out of the market. In Munich, for example, a 100 sqm apartment costs the equivalent of 21 years of the average salary, according to Postbank. Nonetheless, Hamburg and Munich remain very popular with European real estate investors, despite some investors balking at the prices.

Stagnating home ownership rates spells good news for residential landlords

And, as prices increase, home ownership rates are stagnating across Germany, with just 45% of the population owning its own home, according to research published recently by the Cologne Institute for Economic Research. Berlin shows the lowest level of home ownership at just 18.4%, which represents, nonetheless, an increase of 7.5% over the past decade. Still, Germany is far behind many of its European counterparts, such as Hungary (86.3%), Spain (77.8%), Italy (72.3%) and the UK (63.4%). Only Switzerland’s rate is lower, at 42.5%, according to Statista.

This, of course, spells good news for German residential landlords. Deutsche Wohnen announced this month that its fiscal 2017 funds from operations (FFO I) increased by 13% to €432.3m, up from €383.9m in 2016, due to operating improvements and as a result of acquisitions. The group’s profit rose by 9% y-o-y to €1.8b. Deutsche Wohnen’s portfolio appreciated by €2.4b, ‘as a result of sustained dynamic market development’, it said in a statement.

Deutsche Wohnen will invest more than €1b by the end of 2022, modernising and refurbishing around 30,000 apartments. It will also build new housing in cities such as Berlin, Dresden, Leipzig and Frankfurt.

‘Our portfolios are located where people are drawn to: in metropolitan areas and conurbations,’ said Michael Zahn, CEO of Deutsche Wohnen. ‘Here, the markets are extremely tight and the demand for accommodation is correspondingly high. It is, therefore, not enough to simply provide housing. We must find substantial answers to the question: how do we want to live tomorrow? Demographic change, sensible energy management, property-based services or smart homes are essential key factors here.’

Given the positive outlook for the German residential real estate market, particularly in metropolitan areas, Deutsche Wohnen is anticipating a further rise in the value of its real estate portfolio in 2018 and a resulting increase in EPRA NAV.

It is a similar story for other residential landlords. ADO Properties’ FFO soared by 25% last year to €54.3m, up from €43.5m a year earlier. This year, it is forecasting FFO of around €64m, an increase of almost 20%. Rents increased on a like-for-like basis by 4.8% last year to €6.42 per sqm. However, vacancy rates rose slightly to 3.6% last year, up from 2.5% in 2016.

Still, both Deutsche Wohnen and ADO Properties will have to reckon with Germany's largest residential landlord, Vonovia, which agreed to acquire Austrian rival BUWOG last December in a cash deal valuing BUWOG at €5.2b. The competition authorities cleared the planned merger last month.

The deal will see Vonovia increase its housing stock from 350,000 to 400,000 units, and give it valuable access to new housing development. BUWOG’s CEO Daniel Riedl told REFIRE at the time: ‘Vonovia doesn’t have a development pipeline and we have a big development business – we have land in Berlin, Hamburg and Vienna upon which we can build 10,000 apartments. I think we are a perfect add-on for Vonovia.’

The DAX-listed Vonovia will become the market leader in Austria by a wide margin through the takeover, although about half of BUWOG's 50,000 housing units are in Germany, where they will be added to Vonovia's centralised operating platform for handling letting operations and upkeep. This reverses the company's original strategy of selling its small holdings in Austria, inherited as a result of the earlier takeover of listed Austrian residential specialist Conwert in February last year.

BUWOG announced this week (26 March) that deputy CEO and CFO Andreas Segal had jointly agreed with the supervisory board on his premature resignation from the executive board, following the acceptance of Vonovia’s takeover offer by a large majority of shareholders. Segal, who had been deputy CEO and CFO since January 2016, left the executive board this week. CEO Riedl will assume Segal’s day-to-day responsibilities.