Germany overtakes UK in attractiveness, increases planning permits

German authorities granted planning permission last year for 239,500 new apartments, a rise of 4.8% or 11,100 more apartments than in the previous year, new figures released by Germany’s Federal Statistics Office show. This continues the trend established in 2010 of an increase in permits granted, although not nearly as strong as the 21.7% increase seen in 2011.

In the larger cities, Hamburg led the list of new permits granted at an increase of 34% on the previous year 2011, with nearby Hanover showing an increase of 15.7%. Munich was granted 9.8% fewer permits, while the Rhine-Main area around Frankfurt was down 2%.

Looking at the figures more closely, a total of 211,200 of the new permits were for new-build apartments in apartment blocks (up 5.5% on 2011), while apartment permits for multi-family homes rose 13.3%, and in dual-family homes (i.e upstairs/downstairs) rose 3.6%. Planning permits for the building of single family homes fell by 5.8%, to a total of 88,500 units – a function of increased red tape in getting permissions granted for the category, according to industry association sources.

Germany’s Construction Industry Federation attributed the rise in permits granted to the still-healthy employment environment, a higher level of immigration, and historically low interest rates. The trend was particularly evident in the larger cities, it said.

While the granting of planning permits is not the same as construction, not surprisingly the main benchmark ifo-Index for the construction industry rose this month to its highest level since reunification, despite the ‘expectation’ component of the index showing a slight downturn.

A study carried out by the Munich-based research institute ifo, and commissioned by Germany’s second-biggest building society Wüstenrot, shows that building activity should rise to average European levels by 2016, with a million new apartments being built by then. (Average European construction levels are currently set at three new apartments per 1,000 inhabitants). The ifo study sees a rate of increase of 7% annually between 2012 and 2016, with 277,000 apartments coming on stream in2016, of which 140,000 will be single or two-person homes, which should ease the current housing pressure being experienced in Germany’s larger cities.

Despite Germany’s worrying indigenous demographic profile, the fall in the domestic population has been overcompensated in the past two years by immigration – mainly from other parts of the EU, although this growth has been disproportionately large in the bigger cities, which are also acting as a magnet for inhabitants from more rural regions. The number of households is also projected to rise to 41m by 2016 from its current 40.5m, highlighting demand for particularly single or two-person homes on the one hand, and senior-friendly accommodation on the other.

Andre Adami, from real estate market research firm BulwienGesa, said he sees the German real estate surge continuing for the next two or three years at least. “Germany is Europe’s number one growth engine with now record levels of employment and rising real income. This is encouraging many Germans to acquire property. Investors such as pension funds, insurance companies and private equity funds are drawn to the sector because of decent yields which they just can’t get in other asset classes without taking on much higher risk”, he said.

A recent survey by property adviser CBRE of 362 institutional investors showed 35% of investors now considering Germany the most attractive property market in Europe, followed by the UK at 24%. Among European cities, London remains at the top, followed by Munich and Berlin. Germany saw residential transactions hit a five-year peak last year, while according to Jones Lang LaSalle, sales of residential portfolios reached €11.1bn in Germany last year, a rise of nearly 70% on the €6.6bn transacted the year before.