No German residential bubble in sight, says building society LBS
Given its powerful reach as a provider of finance for residential property, we always read with interest research provided by the Landesbausparkassen LBS, Germany’s largest building society and one of its largest mortgage lenders. Its latest prognosis is that German house prices are set to rise at a moderate 2%-3.5% this year, with low supply and rising demand driven by extremely favourable interest rates.
In its survey, LBS, part of the savings bank network, found that demand for German housing is gaining in strength and breadth. “With declining supply, prices are inevitably climbing further, though still at a moderate pace,” said board director Hartwig Hamm. The trend is especially pronounced for apartment prices and in south-western Germany. Hamm sees no price bubble emerging, however. “Almost all sectors show property prices on the same level as 10 years ago,” he said. Only new apartments, an asset class particularly interesting for foreign investors, have seen 10% price growth in some loca- tions over the last 10 years.
Most new apartments are built in regions benefiting from tourism, the large cities and university towns. Munich posts prices of €4,500 per sq.m., followed by Gauting (€4,200), Konstanz (€4,000), Garmisch-Partenkirchen (€3,900) and Hamburg (€3,700 Euro). Prices for existing apartments are 35%-40% below those figures. “Due to today’s financing conditions, they are not more expensive than rental apartments, however,” said Hamm. The average price for new terraced houses is at €210,000 in the West, between €140,000-170,000 in the East and North and €310,000 in the South. Second-hand terraced houses are 20%- 30% cheaper.
Average prices for existing single-family homes reach €775,000 in Munich, followed by €650,000 in Wiesbaden, €600,000 in Freiburg, €550,000 in Frankfurt and €525,000 in Ingolstadt. Prices just outside the larger cities are often higher than in the cities themselves, as are prices in touristic regions such as Starnberg (€675,000), Garmisch-Partenkirchen (€625,000) or Konstanz (€630,000). Prices in several large cities remain at an affordable €200,000-250,000, for example in Leipzig, Hanover, Bremen, Dresden, Berlin and Essen.
The study is particularly interesting where it draws comparison (purely price-wise, g iven the difficulty of comparing all other factors on a like-for-like basis) between German and neighbouring European prices. Luxembourg, with an average house price of €540,000, is much more expensive than Germany, while fellow neighbours Belgium, the Netherlands and France, with average home prices between €280,000 and €330,000, are 35-60% more expensive than in Germany (for most residential property types, but not including city apartments (condominiums)).