
RossHelen/Envato
The Reichstag building in Berlin is the seat of the German Bundestag, the parliament of Germany
And so, the ECB has done it again—its fifth rate cut in a row. A neat 25bp trim, bringing the main refinancing rate to 2.9%, the deposit rate to 2.75%. The response? A shrug from the real estate industry.
The problem isn’t that lower rates don’t help—it’s that they’re not the magic bullet many had hoped for. Long-term interest rates, the ones that matter most for property deals, aren’t actually coming down. Some are even rising. And while financing conditions have improved compared to the brutal highs of 2023, they remain a long way from cheap money territory.
Christine Lagarde, ever the pragmatist, made it clear that this isn't a one-way street. Inflation may be back under control, but at 2.7% for core inflation, it’s still above target. The ECB is cautiously data-dependent, leaving room to slow or even pause further cuts if needed.
But monetary policy alone won’t determine the fate of real estate markets this year. For that, we need to look beyond Frankfurt—to Washington and Berlin.
For all the attention on the ECB, the bigger story for German real estate may well be Donald Trump’s return to the White House. It’s only been two weeks, and already his trademark style of governance—executive orders, tariff threats, and economic nationalism—is making waves. And this time around, nobody expects any surprises of the benevolent kind.
Michael Hüther of the Cologne Institute for Economic Research summed it up bluntly after Trump’s election victory: "The worst-case scenario has materialised." His team has crunched the numbers and estimates that Trump’s trade policies alone could cost Germany 33 billion euros in economic damage. The Ifo Institute’s Clemens Fuest put the figure even higher, warning of a 180 billion euro hit to the EU economy over the next four years.
For real estate, the risks are multi-faceted. Tobias Just of IREBS points to the key drivers of real estate markets: income, interest rates, demographics, and construction costs—all of which could be affected. The expected tariff wars with Europe will hit German industry, slowing wage growth and reducing purchasing power. The era of ultra-low interest rates had already wound down, but Trump’s inflationary policies could limit the ECB’s ability to cut further, making it even harder to finance deals.
And then there’s capital flight. Trump’s agenda—deregulation, tax cuts, and an America-first economic stance—could make the US more attractive for global capital. Already, some in the market are warning that international investment and financing flows will prioritise the US over Europe, leaving German real estate more dependent on domestic capital at a time when liquidity is scarce.
Germany’s election and immigration
If Trump’s economic impact weren’t enough, Germany itself is heading into a moment of political upheaval. On February 23rd, voters will go to the polls to elect a new national government. The country is already seeing a shift in political priorities, with immigration becoming a dominant issue in the campaign.
Trump’s sweeping executive orders on mass deportations in the US have emboldened German politicians to take a harder stance on migration. The CDU, under Friedrich Merz, has moved significantly to the right, sharpening its rhetoric on border controls and asylum policy. Even Chancellor Olaf Scholz’s SPD, desperate to shore up support, has toughened its tone on deportations. Across the political spectrum, there is now a growing consensus that Germany must drastically limit asylum numbers, and the policies being discussed would have real consequences for the housing market.
For the past decade, immigration has been one of the few sources of population growth in Germany, propping up rental demand in major cities. Many real estate investors have banked on continued migration to support rising rents and keep vacancy rates low. A sharp drop in net migration could dampen rental demand, particularly in lower-income segments, while also tightening the labour market for construction workers, driving up development costs.
At the same time, political instability is rarely good for investment. With the prospect of a fragmented Bundestag and long coalition negotiations, businesses and investors are already bracing for a period of uncertainty. The German economy, struggling with weak growth and high costs, is hardly in a position to withstand a prolonged political deadlock. If the next government is unable to provide clarity on economic policy, confidence in the property market could weaken further.
Yet, as chaotic as a Trump presidency may be, uncertainty has a way of benefiting real estate—if the fundamentals hold. We’ve seen this before: back in 2016, after Trump’s first victory, US investors flocked to Berlin, snapping up apartments as a hedge against instability at home. The same trend could play out again, particularly with some prices in Germany now back to levels last seen a decade ago.
Americans have viewed German real estate as a safe haven—somewhere to secure assets in a stable legal environment. Demand from US buyers, particularly for rental apartments in major cities, could increase. If Trump continues to fuel volatility in US markets, that trend could accelerate.
At the same time, Germany’s harder stance on immigration could have two opposing effects. If net migration declines significantly, rental demand could weaken. But if the political turmoil surrounding migration fuels instability—especially if Merz struggles to manage his party’s internal divisions— investors could still see German real estate as a relative safe bet in an uncertain world.
So where does this leave us? The ECB is gently nudging rates down, but there’s no flood of cheap financing on the horizon. Meanwhile, Trump is throwing a spanner into global economic stability, with real estate caught somewhere in the middle. And now Germany itself is wrestling with a political shift that could reshape its housing market for years to come.
For investors, this means navigating an increasingly two-track market: on one side, a weakened German economy and cautious capital flows; on the other, a potential safe- haven play for global investors fleeing US volatility. The upcoming German elections will only add to this uncertainty, particularly if immigration policy tightens further and labour shortages worsen. While the ECB may be lowering rates, it is politics that will surely have the final word this year.