German prices touch 20-year high in 2014 – more expected

German property prices across all categories rose 4% overall last year, the steepest gain since 2005 and touching a 20-year high, says Berlin-based research firm BulwienGesa. The price growth is expected to continue this year, although residential housing is expected to slow, say the researchers in their latest report.

Last year, residential property in the large cities drove growth, gaining 5.1% on nationwide average. Prices for semi-detached housing rose by 6.4%, for new apartments by 5.4% and for single family home plots even by 7.4% as they become scarce. Rents for new-build properties rose by 3.2% and by 3% for existing homes over the period, in the A cities even by 3.4% and 3.8%.

BulwienGesa’s property index is has been based upon 50 western German cities since 1975 and a total of 125 cities across all of Germany since 1990, using proprietary data and a range of third-party local studies, complemented by broker analysis and on-the-spot surveys.

For the coming year, more can be expected, due to low interest rates, a healthy economy with low unemployment, and few adequate alternatives, say the researchers. According to BulwienGesa director Andreas Schulten, “Yield levels across all asset classes are now significantly below their 2007 lows. German properties have never been as expensive as they are today compared to their European peers.”

Nonetheless he does not see current political moves as likely to reverse the trend. “Urban development will have to face problems that are not to be countered by a rental cap,” he says. “Less expensive sites, fast building laws and fewer political and legal requirements – these are what we need for affordable new housing.”

In commercial property, prices rose 2%, with prime retail locations leading growth at 2.4%. Commercial plots gained 2.1%, office properties in central locations rose 2% with supply tight and both occupier and refurbishment activity starting to pick up again. In A-cities, prime retail gained 3.3% and prime office 2.9%, while growth in C and D barely matched the inflation rate.

A similar annual study, commissioned by Deutsche Bank and carried out by the Real Estate Institute of the University of Regensburg, draws broadly the same conclusions. While seeing little evidence of a a national bubble developing, they do warn of tendencies to overheating in regional sub-markets.

The IREBS study highlights the issue of demographic development in Germany and the level of inheritance of property. For the years up to 2020, property valued at about €100bn is handed on from one generation to the next, of which about 60% is residential property. The researchers say that the issue of the aging population is becoming a major issue for the German real estate market, given the enormous backlog of refurbishment piling up. Of currently 8 million pure pensioner households in Germany, more than half are living in apartments that are more than forty years old, with only about 5% of these in any way adapted to ‘elderly-friendly’ living. At least €40 billion is needed urgently to adapt these properties for use. For those in need of more hands-on care, the market needs at least 750,000 new apartments, say the researchers.