Number of German first-time buyers continues to fall

The number of first time buyers is falling in Germany at a time when the average age of first time buyers is rising, according to a Housing Costs 2019 report published this month by residential privatization group Accentro and the Cologne-based German Economic Institute (IW Köln).

First-time buyers are becoming increasingly older and wealthier, according to the study: ‘First time buyers are getting older because the age where they reach milestones – having kids etc. – is also increasing,’ Dr. Konstantin Kortmann, head of residential investment Germany at JLL, told REFIRE. ‘Also, 30 is the new 20, as a recent slogan goes! The other issue is financing. Many conservative lenders ask for equity of 30% to 40% to get a good interest rate, so buyers need to be older in order to save it.’

For Jacopo Mingazzini, CEO of Accentro Real Estate AG, the problem is also the higher level of equity capital required as real estate prices increase: ‘Here the government should provide assistance as a matter of urgency, with greater support for equity capital as well as a reduction in the incidental purchase costs, he said. ‘A tax allowance or waiver of the land transfer tax would be an initial step in this direction,’ he added.

But, for now, home ownership in Germany is falling. The rate fell to 51.4% in 2017, down from 51.7% in 2016, according to Eurostat. Between 2005 and 2017, it averaged 52.6%, reaching an all time high of 53.4% in 2011 and a record low of 51.4% in 2017.

Germany’s homeownership levels already lag many of its European counterparts. In Hungary, the rate is 85.3%, compared to 77.1% in Spain and 64.4% in France, according to Statista.

‘The fact that so few households are purchasing residential property is undoubtedly due to changes within society itself,’ said Professor Michael Voigtländer, head of the financial and real estate markets research unit at the IW Köln.‘Less settled employment relationships, smaller households and the desire for urbanity lessen the attraction of owner-occupation. This is compounded by the shortage of housing in general and of residential property in particular, above all in the large towns and cities,’ he added.

For many Germans, buying a home has become a pipe dream, according to Felix von Saucken, head of residential Germany at Colliers: ‘For a two person household, an 80 sqm newly-built apartment in the Big 7 cities cost around €6,700 per sqm in 2018, equating to a purchase price of approx. €540,000,’ he said. ‘If you assume 20% equity and fixed interest rates for 20 years, a redemption installment rate of 4% is necessary to pay off total costs.

But this means a monthly burden of nearly €2,250 which is nearly 58% of the average disposable household income, excluding monthly ancillary costs. In contrast, monthly (gross) rent would be approx. €1,200 which is just 31% of household income. These figures emphasize that it has become an expensive dream to buy in the Big 7.’

Prior to 2010, it was typically cheaper to buy than to rent but house prices have gone up a lot since then, according to Kortmann: ‘The number of cities where it’s cheaper to buy than rent is shrinking,’ he said. ‘It’s not cheaper to buy, for example, in cities such as Frankfurt and Munich. Really, it depends on the quality you are after. Not all rental properties will meet your specifications, which might mean that it makes more sense to buy. The overall question isn’t which is cheaper but what people want. We can say, though, that the price for apartments to buy has outpaced rents by 59% vs. a 31% increase in rents, on average, across the Big 8 citiesover the last five years.’

However, in the ‘Big 7’, the owner-occupier costs can be lower than the rental costs with a new tenancy agreement, according to the report, to the tune of 27% in Berlin, 35% in Hamburg and 38% in Munich, which rises to 54% in Dusseldorf and Cologne, 50% in Frankfurt and 44% in Stuttgart. However, in three of these cities, the owner-occupier costs are higher than the rental costs. The cost disadvantage in Berlin is 21%, followed by Hamburg (10%) and in Munich (3%).

‘The striking finding for Berlin results not least of all from the very large rented apartment market there – the proportion of renters in Berlin is approx. 82%,’ said Voigtländer. The calculation is based on base rents and the costs for owner-occupiers, including incidental purchase costs, mortgage interest, the foregone interest on the equity capital, as well as the repair and maintenance costs plus any loss of value.

For the Housing Costs Report 2019 the rents and owner-occupier costs of all 401 administrative districts and towns/cities with district status nationwide were analysed. The study was prepared by the Cologne-based German Economic Institute (IW) on behalf of Accentro Real Estate AG and was headed by Prof. Dr. Voigtländer.

However, in some districts – notably Ruhr Basin, the Sauerland region and parts of eastern Germany - it is actually a disadvantage to buy your own home, with owner-occupier costs outstripping rental costs. ‘This situation may be explained by the weak and in part negative price dynamics for owner-occupied property and the forecast weak future development in these districts,’ Voigtländer said.

Over in the commercial residential space, there were around €4b of deals in Germany in the first quarter (24,000 units), according to JLL, which is forecasting between €15b and €17b for the full year.

This year, Von Saucken expects rents for existing apartments ‘to increase moderately’: ‘Even though rents for newly built apartments slightly weakened in some of Germany‘s Top 7 cities during the first quarter, rental growth for newly built apartments will probably be slightly stronger than new rents for existing apartments,’ he said. ‘Due to high demand and low interest rates, we expect sales prices to increase more intensely than rents overall.’