VDP confirms residential rise of 5%, warns on commercial investment

Prices for German residential property rose by their highest amount in at least ten years, driven by intense pressure from investors, according to the latest quarterly reading from the German Association for Pfandbrief Banks vdp.

Prices rose 5% last year and those for commercial by an average 3.8%, says the organisation, the most since the vdp started tracking the market in 2003. In that period residential prices have risen by about 25% on average, it said. (The vdp uses data based on actual transaction prices achieved in the preceding quarter, as provided by its member financing institutions.)

Housing price growth thus accelerated further from 4% in 2013, while commercial growth slowed from 4.7%, vdp found. According to managing director Jens Tolckmitt, “Demand for residential and commercial real estate remains unbroken. With this combination of low interest rates, high international capital mobility and a relatively stable economic development in the country, German real estate is still sought after by national and international investors.”

But the risks inherent in the pressure to invest, especially in commercial real estate, need to be monitored. “If demand continues unabated, prices will rise further and may lead to corrections in particular markets”, he cautioned.

Looking at sub-segments, vdp found residential price growth was mainly driven by multi-family homes, which gained 7.2% last year, while prices for owner-occupied housing rose by 4.3%. Since 2003, prices in the residential sector have increased by 24.3%.

Growth in office prices slowed a bit towards the end of the year, and at 2.4% in the last quarter was running at only half the rate of the first quarter, largely due to much lower take-up of new office leases. With office rents rising in 3.3% and 2.7% in 2012 and 2013 respectively, last year they rose by only 1.4% as plenty of fresh supply came on the market in the bigger cities.

Another index which relies on actual prices achieved is the Europace house price index EPX, from Berlin-based Hypoport, an index which we track closely here at REFIRE, with about 10% of German mortgage financing being transacted on the platform.

The latest EPX reading shows that, after a slight dip in December, German residential property prices in January returned to growth, gaining almost 1% on the month and 5.43% over 12 months. Despite this, says Europace chairman Thilo Wiegand, home affordability is higher than ever before.

“We forecast previously that the slight dip at the end of the year would not last,” commented Wiegand. “Property will remain highly interesting in 2015.” Despite prices rising by 21% over the past five years, German homes are more affordable than ever due to the favourable financing conditions, the firm said. Borrowers today play 39% less for interest rate and redemption than five years ago. “That more than com- pensates for the rising property prices, even without taking into account wage growth,” said Wiegand. Affordability is naturally higher outside the largest cities, he added.

In the monthly EPX comparison, apartment prices rose by 1.65%, those for new single and two-family homes by 0.58% and those for existing homes by 0.75%, Europace found. Compared with last year, average costs of German apartments gained 4.53%, new homes 5.6% and existing homes 6.22%.